Gold News

Gold: The Ultimate Currency Hedge

Nothing works like gold when you need to hedge against your own currency...


WEDNESDAY'S NEWS
that, at last, Standard & Poor's has caught up with the bond market – and the steady trickle of fleeing bank deposits – by downgrading Spanish debt had a marked effect on the Euro.

So did Tuesday's downgrade to "junk status" of Greece's government bonds. And the cut to Portugal's credit rating, too.

It all had a marked effect on Gold Prices as well, not least versus the Euro, but also against the US Dollar and Japanese Yen – apparently the only beneficiaries of "Ebola contagion" in Europe to date...

This week's action "demonstrates gold's ability to protect investors from crises that debase their own currency, but not those of other sovereign issuers," reckons Patrick Artus at French bank Natixis.

Investors seeking protection against the debasement of other currencies than their own are being just plain greedy, however, in our humble estimation. The 4-month high in Dollar Gold Prices should be enough for anyone trying to hide from Greek contagion, especially if they don't share Greece's currency.

More to the point, and coming just after Italy's foreign minister called the Greek bail-out "a rescue for all of us", the mid-week contagion proves once again that nothing works like gold when you need to hedge against your own currency.

One third of gold's 38% rise vs. the Euro since the start of 2009 has come thanks to the single currency's fall on the forex market. But that only just brings the single currency's drop against gold into line with the Dollar's 1, 3 and 5-year performance, however.

 Gold % Gain
  USD
GBP EUR
 1 year
27.7 22.4 27.5
 3 year
73.1 127.7 79.0
 5 year
168.1 236.2 163.1
10 years
321.6 338.3 195.1

Even trading down to €28,760 per kilo of gold – that "barbarous relic" thrown over in favor of Europe's post-historical unity 10 years ago – the Euro has still got a lot of long-term devaluation to go.

No doubt it will get it as well – good and proper – whichever way Germany's politicians jump.

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Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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