Is dollar more precious than gold?
Posted on 20. déc, 2011 by Riskelia in Weekly Focus | Commentaires fermés
For the first time since the August 2008 deleveraging, the gold trend has gone below 10%. The recommendation is still in positive territory but it is about to go negative as showed in figure 1. Even more worrying, we come from a situation where the bubble was nearing 80%, reflecting extreme herding behavior and high consensus among investors.
We must not forget that gold has close relatives among inflationary assets, namely Platinum, Silver and Gold Miners. The correlations have been very steady in the range 60%-80% (figure 2). The trends of Platinum and Silver have plunged in September, then Gold Miners followed and now it seems to be the turn of gold to get on board the bearish crew (figure 3). Without any doubt, the gold has lost its safe haven status as a reserve currency and retrieved its status of reflationary bet. The Fed decision not to engage a QE III policy immediately has aggravated the immediate USD funding issues and further weakened the gold play as a currency debasement hedge. As for the ECB, it will be constrained to proceed to Quantitative Easing but not before the euro zone has one feet and a half in the abyss…
Last but not least, the long term gold buyers might temporarily stop piling up the barbarous relic. First, history shows that ETF buyers behave in a pro-cyclical manner as demonstrated by their selling at the end of 2008 (figure 4). As regards silver, they have already deserted the ship and may follow through if gold corrects further. Second, the bubbles of gold vs. emerging countries constitute a worrying sign as major purchasers of gold like India, Mexico and Brazil face a currency crisis which will oblige them to defend their currency against a spiral of foreign outflows (figure 5). This could trigger a decline in dollar and gold reserves. What if insolvent countries, like Italy, the 4th holder of gold reserves, should sell part of their reserves to pay down their debt?
Gold is still a strategic asset providing incomparable hedge against the looming broad based currency debasement. Yet, for now, the dollar has clearly usurped gold as the ultimate safe haven, which calls for a reduction in gold exposure.
Figure 1: Gold recommendation vs. Price from 2006 onwards
Figure 2: Gold rolling connections with precious metals, gold miners and Dollar Index
Figure 3: Trends of the gold constellation: gold, silver, platinum and gold miners
Figure 4: Total ETF Gold and Silver Holdings (in onces)
Figure 5: Bubbles of Gold vs. Emerging currencies
Figure 6: The bullish dollar trend
About us
Visit our corporate website :
Subscribe to our blog posts :