Looks like we’re heading towards higher inflation while interest rates stay at record lows, which is effectively negative real interest rates. And this is a great scenario for gold…
Gold and Currencies – The Latest News and Updates
On this page you will find our latest analysis of all things related to gold and currencies.
This includes gold market trends, coverage of Australian gold stocks and gold price updates.
The relationship between gold and global currencies, in particular the US dollar, is both complex and simple at the same time.
That’s because gold is a monetary metal. As such, it trades in line with the world’s other major currencies. When the US dollar — the global reserve currency — declines, gold will usually rise…and vice versa.
Other safe haven currencies such as the Japanese Yen (JPY) or the Swiss Franc (CHF) sometimes move up when uncertainty is on the rise.
So we also keep a close eye on relevant foreign currencies.
That being said, perhaps the most important factor impacting the price of gold is monetary policy.
Which leads us to an important question…
What impact does the Federal Reserve have on the gold price?
Sometimes a Federal Reserve interest rate cut can spur the gold price. Historically however, there has not always been a correlation.
Often perceived as a safe haven, gold has the ability to act as a store of value in tough times.
The stated policy aim of central banks around the world is to keep inflation in a ‘target rate,’ but more importantly, they have a tendency to cut rates when recession fears surface.
Recently, with the inversion of the bond yield curve, there has been added pressure on central banks to cut rates.
And they’ve willingly obliged.
With more money put into markets, this can inflate asset prices.
Gold stocks tend to be negatively correlated with the market, though.
When the market is up, gold stocks are usually down and the inverse is also frequently true.
As a result, market timing is important when looking at gold and related global currencies.
ASX-listed gold stocks and the right time to own gold and gold stocks…
Many ASX-listed gold stocks, like gold giant Newcrest Mining Limited [ASX:NCM], have been steadily rising from a bottom since 2014/2015.
But as seen in the performance of the VanEck Vectors Gold Miners ETF [GDX] around the 2008 GFC, gold stocks were hammered along with a range of other equities.
This could mean that there is time for physical ownership of gold and a time for investing in gold stocks.
That is, the best time to buy gold stocks may diverge from the best time to own physical gold in certain scenarios.
Over the past 100 years, the financial establishment has done its best to remove gold from the financial system. That’s because, in its ultimate representation as debt-free money, gold represents an existential threat to government-controlled fiat currency.
Despite gold no longer being a part of the commercial banking system, it still plays an important role in the larger, central banking system. It represents the ultimate form of trust, and it has no counterparty.
For that reason, The Rum Rebellion strongly advocates that gold should be a part of all investor portfolios. However, we are not gold bugs. We believe there is a time to own gold and gold stocks and a time to stay away.
By following our coverage here, you can stay on top of ASX-listed gold stocks and the movements in major currencies.
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