Monday, September 14, 2015

Gold is either 40% down or 30% over ATHs... which Currency are you looking at?

"Gold is a store of value" is commonly heard all the time when people talk about gold. But is it?

Since the precious metals peak of 2011/2012, Gold is USD is down a pretty disgusting 40%. This is about the same in CNY and GBP.

Strangely enough... Gold is up 32% in Rubles and up 16% in Real! And this is compared to the highs of the "precious metals bubble"!

In a currency crisis, gold is one of the few things that can save you from total destruction of wealth. It isn't that gold is a stellar performer in Russia or Brazil that it is making all time highs. It is the fact that their currency is getting destroyed.

We all have learnt about situations like this when we were taking history lessons in Secondary school. I remember learning about the "hyperinflation of the Weimar Republic" and also briefly about Zimbabwe. I remember how they had pictures showing children playing with stacks of the worthless money. It was so hard for me to imagine how money could lose its value and purchasing power by so much, so quickly! Personally, that horrified me. I suppose that is a huge scare for savers and people who hold a lot of cash. Almost no one ever thinks about the effects of currency on their day to day lives. Perhaps that is why I am personally a bit fond of precious metals beyond that of a regaular investor.

Throughout the recent "emerging market currency crisis", the SGD has lost about 12% of its value to the USD. In that same time period, Gold has performed "relatively" better, only losing 4% of its value when priced in SGD.

I highly doubt Singapore will run into a currency crisis in the near future. However, some other countries are seriously running the risk of their entire currency and economy collapsing due to bad financial policies that their government and central bank have in place. The examples I always bring up is USA and Japan (more on USA and Japan individually), but the recent Greek crisis have brought attention and exposed a lot more dirty laundry in the Euro area. Would I lend any money to European countries in Euros? No.

Since the SGD is such a minor currency on the global stage, a big rise in gold prices in SGD would probably be caused by the spillover effect on global gold prices surging. Gold prices in SGD would get dragged along upwards. That's just my theory on it anyway.

With Gold in SGD near multi-year lows, precious metals supply becoming tight as well as the crackings of many currencies of poorly run countries appearing, I don't think it is ludicrous to want to transfer some of your wealth into the form of precious metals.

I think it's actually ludicrous if you know all of this and you don't want to!

But honestly, I don't care what you do. I just thought that this is something interesting to share and consider. Most people would just brush me off as foolish and inexperienced. Oh well.


  1. Hi GMGH,
    I am trying to understand why you keep saying there's a limit on how much the USD can grow further and gold will rise soon?
    To me as a layperson, should it not be the USD will continue to rise after the end of QE?

    1. Hi Machi,

      If the Fed hikes rates, the USD should strengthen as it becomes more attractive to hold.

      When the Fed ended QE3, the USD/SGD rate was about 1.29. I am thinking that because of worldwide speculation of the rate hike, the USD has been bid, which is why it is now resting at 1.40 almost a year later. However, no rate hike has happened yet! What has this strengthening been based on? It seems to me that a lot of people are front-running the long USD trade in anticipation of the USD strengthening from the Fed rate hike.

      However, considering how much the USD has strengthened already and comparing this massive move to past history, I personally don't think that the USD is able to rally much further.

      My thesis is that if the Fed hike rates, nothing much happens since the USD has already strengthened. The moved is already priced in. However, if the Fed fails to hike rates, the USD has room to fall and this would be bullish for commodities priced in USD.

      The rate hike issue is just a short term factor. The longer term factor is the massive US debt that will never be repaid. Their only way to clear it is through defaulting or high inflation, both of which is negative to the USD.

      That's just my opinion though. I've been wrong about so many things, hahaha!

    2. Thanks for your insights GMGH!
      Truly appreciated, It sorts of gives me a different perspective now :).
      Anyway, would also like to share with you this article, its about USD being the cleanest dirty shirt now:


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