You know how well gold performed as priced in dollars over the past ten years, or rather, how poorly the dollar performed against gold during that period.
In 2001, you could buy an ounce of gold for $250. Today, gold sells for more than $1,400 an ounce. That’s more than 460% gain.
Again, you know this information. You might even be getting sick of hearing it repeated by gold vendors, gold bugs, or talking heads on TV who mention it with the rapt excitement of someone reporting actual news.
So, in an effort to illuminate a different aspect of the gold story that you probably haven’t seen anything about, I’m going to focus on other currencies.
Because I’d be surprised if you’ve heard anything about gold’s price as expressed in a different currency.
Take a look at the chart below, which shows the percentage gains of gold priced in dollars and six other major currencies.
It’s kind of difficult to make out, but there’s a huge disparity between the US dollar’s loss of gold-purchasing power (more than 450%), and the Swiss Franc’s loss of gold purchasing power (less than 200%).
The question is: why did the Swiss Franc lose half as much purchasing power as the US dollar?
Or perhaps even more interestingly, how is it possible that the dollar lost 1.5 times more purchasing power than the euro? The weak-sister, debt-plagued, hodge-podge euro is stronger than the dollar after the past ten years?
I could come to a variety of confusing conclusions after looking at the chart above. I’m sure there are dozens of economists who would pounce down my throat after making any one of them.
But I think a dollar crisis is the only logical conclusion we can come to. Regardless of how we got here, whose fault it is, who pushed the printing press lever, or who spent beyond whose means – the point is: we’re here. Crisis isn't just on its way. It's here. The dollar is in crisis.
It’s lost a significant portion of its value not just against gold, but against other world currencies, much more value in some cases.
It would be one thing if all paper money devalued at more or less equal rates. No currency would become an obvious winner or loser, and there would be no reason or incentive to dump one for another.
But when one currency devalues so much more than others, by orders of magnitude, then you should start worrying if you’re the holder of that currency.
Let me back off for a second.
I’m sure you’re familiar with the joke about the two campers who see a bear coming. One camper begins lacing up his running shoes, and the second camper says, “You can’t outrun the bear, even with running shoes on.”
And the first camper replies, “I don’t have to outrun the bear, I just have to outrun you.”
Well right now, I own gold, but not because I’m certain that we’re imminently headed towards an inevitable gold standard that will make me rich when gold is revalued to account for the dollars out there.
Gold is the bear. These other currencies don’t have to be better than gold in order to gain the same kind of cache the US dollar has enjoyed over the past 50 years.
They just have to be better than the dollar.
And if the dollar gets caught by the renminbi, or the yen or even the euro, then it won’t matter whether it was gold that dethroned the dollar. It will just matter that the dollar has been dethroned.
Our hegemony hangs by a paper string. Our ability to procure oil, copper, coffee, gold, silver and all those other wonderful things that we don’t produce, but need to buy – it hinges heavily on the dollar’s status as reserve currency.
It only takes one country or exchange to start settling contracts in another currency, and the dollar is in big trouble.
