Gold and the Major Currencies: Is a Decoupling Underway?

by: Graham Summers

On Tuesday, I detailed the situation in the US debt markets. As a brief recap, I pointed out that long-term US debt was nearing a line of major significance: long-term support. I noted that if Treasuries do not bounce hard from this line, that the chart (which resembled a giant “head and shoulders” pattern) forecast a sharp decline from here.

With US Treasuries’ “safe haven” status called into question, the logical extension of this concern is to look for other safe havens. The Euro has its own problems as do the Yuan, Yen and British Pound.

So what about Gold?

Gold is ultimately a currency. However, for most of its bull market since 2001, Gold has been trading as “Dollar hedge” rather than its own standalone currency. You can see this in a 10-year chart comparing the two assets:

As I’ve noted previously in other essays, if Gold is ever to truly become a stand-alone currency, it needs to begin breaking out against ALL paper money, not merely the Dollar.

The interesting thing is that it looks like it has.

Here’s the ten-year charts for Gold priced in Euros.

As you can see, Gold priced in Euros look to be breaking out from a brief consolidation period. The fact that the precious metal found support at its most recent high is extremely bullish.


Even more bullish, Gold priced in Yen looks to have formed an inverse head and shoulders pattern. If it breaks above the neckline, we should see a break to a new high.

In Swiss francs:

Much like the Gold priced in Euro chart: support found at the most recent high, a brief consolidation period, and the beginnings of a new breakout.

Do these charts mean Gold is about to erupt higher? Not necessarily. But we may be witnessing the beginnings of Gold’s breakout against ALL paper money: the ULTIMATE stage of the Gold bull market.

I have to admit, this has surprised me somewhat as I thought we would see a longer period of correction/consolidation in the precious metal before this happened. However, with the Euro kicking off the Currency Crisis in full force during the last month, it looks as though Gold may finally be coming into its own as a currency.

My suggestion is to monitor Gold’s performance in Dollars, Euros, Yen and Francs. If we see continued strength across the board then Gold is ready for its next leg up. However, if the Dollar rally strengthens and Gold weakens against it (and other currencies) then we know it’s still mainly a “Dollar hedge.”

Keep your eyes on these trends.