Currency weakness makes gold cheap

Many currencies

“Gold is cheap!”

Of course, you hear that every day from your resident gold bug. Whether it’s the monetary supply expansion, the geo-political situation or just the state of the mining industry. However, those are long term factors which may well pan out; I am talking about right now.

Look at the charts below:



Gold to Euro


Gold to pounds rate


A very different picture than gold in dollar terms which is up 11% on year.

Dollar Index


Gold v Gold shares

The reason for the difference clearly lies with the US dollar itself which has weakened considerably this year, down from 104 to 92 on the DXY Index. The election of Donald Trump with the pro- growth/inflation story saw US interest rates rise, especially versus their counterparts, as investors piled into the new era story. Unfortunately, the reality is not quite as rosy and the reversal of the story and the currency has been brutal. From record speculative longs in US dollars over the New Year we have gone all the way back to flat, heading to short.

So, while many focus on gold only in dollar terms, the astute participants should view this opportunity as a time to buy gold versus other currencies, or switch their currency exposure accordingly.

As we enter the seasonally positive second half of the year for precious metals, especially in light of the above, we are surprised to see how few retail investors believe in the merits of gold at this juncture. The latest shares outstanding position in the GLD, the largest gold ETF has dropped in recent weeks as the chart shows. We believe this adds to the bullish case for gold in any currency, for the next few months.

Mark Mahaffey is the co-founder and CFO of Hinde Capital

All graphs source: Hinde Capital, Bloomberg

Our top image credit: Wara1982



Link to this article: : http://www.goldmadesimplenews.com/gold/currency-weakness-makes-gold-cheap-13309/

Posted by on Aug 1 2017. Filed under Analysis, Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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