Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Look What’s Happening to Gold Priced in OTHER Currencies [Wow…]

Commodities / Gold and Silver 2016 Feb 26, 2016 - 05:27 PM GMT

By: MoneyMetals

Commodities

At the close of market on the Wednesday this essay was written, the price of one troy ounce of gold was US$1,229. A troy ounce of silver was trading at US$15.25.

Around the world, the price of gold and silver is most commonly quoted in U.S. dollars. As Americans, we tend to think this is the pricing "gold standard." But it's easy to forget that foreign investors generally pay for a purchase in their country's dominant currency.


Yes, there are realms whose domestic monetary unit is actually the U.S. dollar. These locales have what is known as a "dollarized" economy. But many, if not most, transact predominantly in their own currency.

In Argentina and Mexico, for example, it's the peso. In Great Britain, it's the Pound sterling. In most of Europe, it's the euro. In Russia, the ruble. In China, the yuan.

If the currency in question trades reasonably close to that of the dollar, there may not be a major difference. For example, on the day gold traded at US$1,229, a troy ounce was priced at about 1,102euros (€).

The Canadian Disadvantage

Just a few years ago, our Northern friends had a much easier go of it, when their currency, known affectionately as the Loonie, held for several months in the $1.10 area.

Today, the "Loonie" is only worth around $0.72 cents. Nowadays, the purchase of a troy ounce of gold will set Canadian investors back a cool C$1,678.

Consider that if a Canadian had bought gold in 2012, when his/her currency was worth US1.05, they would have paid about C1,540 per ounce, when an American was paying $1,600. Not bad, being able to purchase silver and gold at a 5% discount, eh?

Let's say that gold once again trades at US$1,600, and at that time, if the Canadian dollar is still stuck around $0.72, the hapless Canadian buyer will have to shell out C$2,080 for the same ounce.

Before Zimbabwe's epic inflationary spiral virtually destroyed its currency, the Zimbabwean dollar, it traded – believe it or not – at around US$1.27. In June, 2006, this worthless "paper promise" (a phrase which appears to have been coined some years ago by David Morgan at http://www.themorganreport.com/) was replaced by the Second Zimbabwe Dollar (ZWN) at a rate of 1,000:1. Then a third and fourth dollar were introduced.

By the time it had declined to 10 x 25 ZWD (first dollars) that form of the currency was finally abandoned. The polite way of speaking about this abandonment is that it was "demonetized." The reality for Zimbabweans, is that they had been financially wiped out.

Interestingly, during this hyperinflationary phase – one of the worst on record – people panned for tiny flecks of gold in local, muddy streams in an attempt to earn enough money to buy food. Those who were old or infirm and who could not somehow pay younger people to pan for them... in effect faced starvation.

Imagine how different it would have been for these same people, had they held just one ounce of gold, or a tube of 20 one-ounce silver bullion rounds!

It's Even Worse for the UK and EU...

As a sidebar, gold in most other currencies has been looking very bullish on their charts for much of the last two years. Could the fact that we're accustomed to viewing the gold price in dollar terms (which made it look like a declining asset) account for the fact that so many people – including several well-known analysts of whom this writer is aware – missed the boat when the metals made what looks to be a major turn to the upside in late January?

A United Kingdom or European Union citizen will pay, in addition to the spot price and a premium, a Value-Added-Tax (VAT) – in the case of silver coins and bars, but not gold bullion – up to 20% of the purchase price. This means that, in addition to recouping the going premium and dealing with any $USD currency differentials, UK and EU customers must see silver rise a further 20% on certain silver purchases, in order to just break even.

Russia, Mexico and Argentina – Not Much Better

These three countries, in addition to experiencing a weakening exchange rate vis a vis the dollar, have been facing internal problems, such as high debt ratios, weakening economies, and capital flight, causing additional hammer blows to the value of the money they might have considered exchanging for gold and silver.

In late 2015, Argentina, long referred to disparagingly as "the place where money goes to die" finally elected a President who may be able to institute a sea-change in the way his country does business – if so, to the long-term benefit of just about all concerned.

When this writer visited Buenos Aires in 2007, the peso was trading at 2.5:1 US dollars.

In the spring of 2015, it was officially 10:1, but on the "blue dollar" street market, pesos could be had for 20:1. The restaurant where we ate would not accept credit cards (due to the uncertainty of what the exchange rate might be when charges were redeemed by the eatery). Not surprisingly, only cash was accepted.

Of course this, also encourages tax evasion, but could you blame them? Just another reason why an unstable currency breeds social discord and unethical conduct, in addition to robbing the holder of his/her purchasing power.

This year, one of the first actions that President Mauricio Macri took was to allow the peso to "float" – whereupon it immediately sank 25%. (Here again, holders of precious metals would have completely side-stepped this event – their purchasing power left intact.

Venezuela and North Korea... Fuggedaboutit!

Venezuela's inflation rate is running at over 700% (unreported for the last few months, for obvious reasons). A few years ago, North Korea devalued its currency by 95% – overnight.

Yes, gold is up $100 an ounce from its recent lows. Silver is up $1.40. For profit considerations, look at where it was in 2011, and where it's likely to go when, not if it breaks above those nominal high prices. For insurance considerations, the recent price increase should have no bearing on your decision to buy and hold precious metals, even if by some chance they make new lows in the process. As a Canadian would say, "no worries."

Just remember the old saw that you're holding for "insurance first; profit second. And while you're at it, pat yourself on the back for living in a country – where, in unlike a number of those mentioned above, you have a reliable source – such as Money Metals Exchange – from which to purchase your physical gold and silver.

By David Smith

MoneyMetals.com

David Smith is Senior Analyst for TheMorganReport.com and is a regular contributor to MoneyMetals.com. For the last 15 years, he has investigated precious metals mines and exploration sites in Argentina, Chile, Bolivia, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.

© 2016 David Smith - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules