Saturday, January 24, 2015

If it is so obvious, it is obviously wrong: Gold and Currency

Very inspired by 2 posts recently on ZH, one by Santiago Capital and another by Dollar Collapse, I've decided to delve into my own charts and pictures to show you some interesting things about gold.

Let's just assume for a moment that some crazy people (eg, me) actually think that Gold or Silver is a currency. LOL, what idiots right? It's just shiny stuff, you stupid magpies. But please, just humour me.

Let's assume that, yes, some people actually think of Gold as a currency. What happens when there is a currency crisis?

Well, let's take a walk around the world and look at some currencies shall we? Data is the 1 year price of gold in different currencies all pulled from Goldprice.org.

Of course, we start with the USD as that is the reference rate for most people:


Now let's move on to the majors, EUR, GBP, JPY:




Odd.... Hmmm, let's move on to some other important "hard" currencies, like the AUD, NZD, CAD, BRL, SEK and RUB:







Bloody strange ain't it? Now bonus charts, SGD and CHF:



Phew, wow that tour around the world was kind of interesting. Let me share with you my thoughts.

In almost all major currencies, Gold is massively outperforming the EUR, GBP, JPY, AUD, NZD, CAD, BRL, SEK and RUB. The only 3 currencies that Gold is NOT outperforming is the USD, CHF and SGD, so let's break it down.

The USD is holding its ground against Gold because it has massively gained against many other currencies for being the cleanest dirty shirt around. The USD is up almost 20% from it's low last year. I personally think that the USD is a horrible currency with really bad fundamentals as a country. I think this is one of the biggest MoMo trades that we currently have in the markets. However, it's not what I think, it's what the market thinks, and they think that everything is awesome.

The CHF is holding its ground because it has always been a safe-haven currency, similar to Gold as a safe-haven asset. With the Euro losing its value massively over the past months, the CHF has been getting stronger as a place for that money to hide out. The Swiss govern their money relatively well and although many lament and blast them for removing the peg, I believe that the peg removal will help them run a much better and responsible currency, which will benefit them in the long run.

The SGD is also a very strong currency (totally biased). The SGD has been on a long-term appreciation trend in the long run against most currencies in the world. Why shouldn't it? It has a actual, real economy that takes all the painful ways to ensure its economic growth. It runs a balanced budget with debt completely under control. It has huge reserves and it is a prosperous country with massive intangible wealth coming from it's infrastructure and organization. The SGD might be suffering from fall-out effects of other currencies, but this is just a temporary move given the delusional fascination to hold USD despite it being nothing more than air.

However, at the end of the day, I do honestly and sincerely believe that Gold is the ultimate form of money and it is the premier currency of choice.

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Many of you are excellent stock investors. Ask yourself, what makes a stock valuable?
The quality and amount of assets on their balance sheet. (assets - debts are positive)
The ability to generate and produce PROFITS in the future. (revenue - expenses are positive)
Now port this over to countries and their currency. *BOOM* Mind blown.

It is almost unimaginable to think of the pieces of paper and the numbers in our bank account as something that isn't money. Currency and Money is honestly a HUGE subject to tackle that 99% of people will never bother to understand about. I urge you, reader, to explore the POSSIBILITY and EFFECTS of a currency crisis.

Even with a low probability event, if the effects are massive, it would be prudent to do some scenario planning for it. That is why we all have medical insurance, right? However, I do not think that this is a low probability event anymore. I'm not saying to back up the truck and stack-on. I'm saying that to have SOME precious metals in your portfolio is not an absolutely stupid and ridiculous notion, like many would have you believe.

Anyone "worried about SCB as a custodian for their stocks" is now just holding blatant double standards if they cannot see the irony now when it comes to counterparty risks.


Call me crazy, I don't care. I don't believe that the world and the financial markets were created and made such that every Tom, Dick and Harry, along with their mother, father, grandmother, second cousin, third niece and pet dog can play the markets and become rich on something obvious.

If it is so obvious, it is obviously wrong.

If it is not obvious, then well maybe that is where money can be made.

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