6/28/09 Gold As A Currency

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

Even though gold has been in a correction during these last few months, it is important to step back and see how it has out-performed every other currency since this decade, century, and millennium began.

I first recommended gold and gold stocks back in February 2002 because the trend I saw of currencies cheapening themselves against their trading partners. You can call this “competitive devaluation.” This had not been seen since the Great Depression, and to me, even back then, was a signal that the world economy was heading into tough times.

Since about 2001, whenever any currency rises too much, the local manufacturers or farmers – or anyone who lives by exporting – start to scream about it. Their local governments respond by doing all they can to lower the value of that currency, having it fall in value and thus making exports cheaper, all this in the hope that the domestic economy will become better.

As all the countries with unwanted strong currencies move to cheapen them by printing more money, slashing interest rates, or just “talking” it down, the question remains, just what are those high currencies declining against?

If you answer, “against the currencies of their main trading partners,” well, yes, this is true. But it is only temporary. If they are successful in this, then the trading partners don’t want their own currencies to go too high, so at some point they try to cheapen them.

It has become an endless round-robin game, except to call it a “game” is a little perverse. All holders of currencies suffer in the decline of the purchasing power of their money. You go lower, but then your partners go even lower, and then you have to cheapen your money yet more… It’s an endless cycle that really doesn’t help the world economy in the long run.

But there has been one money that has benefited from this huge trend. Moreover, it has benefited by giving profits of hundreds of percent –minimum – to anyone on Earth who has owned it since 2000. It is the oldest money of all, a money that has been used long before any of the other currencies were even dreamed about and will be used long after all of them are memories in history books. It is a money that cannot be printed at will and artificially cheapened. And even though all central banks own it, it is the creature of none of them.

I’m speaking, in case you haven’t guessed, about gold. Let’s see what gold has done in terms of the major currencies of the world?

The South African rand has been the strongest currency so far this year. It is a big gold producer. Yet look the price of an ounce of gold since 2000 in terms of the rand.

Now let’s go to another currency which has risen sharply this year, the Aussie dollar.

You see the pattern. Now, gold has not gone up in value against the Chinese yuan (+200%) as much as it has against the U.S. dollar (+260%). Still as great as the Chinese economy has been over the past decade, as powerful as it has become, gold has still soared in terms of the yuan.

It has soared against the Canadian dollar (+178%), the Russian ruble (+360%), the Mexican peso (+417%), and even the Swiss franc (+155%), a currency that has long been regarded as the strongest on Earth.

You can talk about or trade the merits of one paper currency against the other, but they’ve all been falling against gold.

Put another way, every person on Earth over the past decade, regardless of where they live, would have made hundreds of percent in terms of their own currency had they just owned gold.

Most people do not hold mostly gold and silver in their portfolios. With this fact, I believe that both have much more to rise before their bull markets are finished. Well into the future we’ll see the phenomena of the average person piling in, as happens towards the end of every bull market… We’ll see the same action in gold; it’s just a matter of time.

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This entry was posted in Dollar, Federal Reserve, Gold, Gold to Silver Ratio, Palladium, Platinum, Silver and tagged , , , , , , . Bookmark the permalink.

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