The Strong Australian Dollar and the Gold Price (Podcast)
The gold price is rising in U.S. dollars. But close observers will note it hasn’t done much in Australian dollars. The chart below shows that the strong Aussie dollar has effectively capped gold’s appreciation in local currency terms.
What gives?
To explore that question—and other gold related investment matters—I called up a former London desk mate, Adrian Ash. Adrian is currently the head of gold research at BullionVault.com and a frequent contributor to the Daily Reckoning.
Adrian notes that commodity currencies like the Australian and Canadian dollars have rallied with gold. What does that mean for gold investors in those countries?
That’s a question we’ll look at in greater depth in the coming weeks here at the Daily Reckoning. In the meantime, you can listen to my full interview with Adrian at the link below. In our conversation we discuss Goldman Sachs (NYSE: GS), Northern Rock (LON: NRK), the U.S. dollar, bullion vs. shares, and barbarism.
Enjoy.
Gold Price and the Strong Australian Dollar
Dan Denning
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- None Found
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.
Comment by Ann Donohue on 19 October 2007:
OK gold not the way to go it can only appreciate or go in reverce!
Maybe we should look to oil maybe INP is the next small cap explosion?
Comment by Alan on 19 October 2007:
The Australian dollar is vulnerable in the long term,think drought,debt,and deficit.Moderating global growth,new mines on line,high energy and labour costs, and anti-chinese sentiment(not to mention a burgeoning sino bubble)do not bode well for the future.The Aussie will dislocate from gold.Then its really just about gold.....a question of faith.
Comment by kage on 20 October 2007:
Dan,
Terrible audio quality, with premature ending.
Adrian,
Not so close to microphone, and SLOW DOWN.
Alan,
Yes, the Aussie is doomed. If global markets are really going to price risk (as they are currently with the USD), then one of the benchmarks to assess currencies will be Debt/GDP ratio. The US is of course the front runner for this ratio. Then there is considerable daylight, then Spain, then Australia in third place. Spain is somewhat insulated via the Euro and EEC, but the Aussie is all by itself, and a favoured carry trade target. One day the rug will be pulled - don't ask me when, but probably post Olympics sometime. Every country that hosts the Olympics seems to have a post Olympic slump - that could be the trigger for the sino pop, with unfortunate implications for Australia.
As the USD fades away, an interesting undercurrent will be how international trade will set prices. If the USD gets too volatile it won't be sufficiently reliable to set contract prices. Perhaps the Euro will be preferred, but it might not be so stable either ?
Comment by Alan on 20 October 2007:
Thanks for the support kage.I was starting to feel lonely.As for sino pop,yes a great new brand.The bottles are being prepared, ready for launch on the submerging markets.
Comment by kojacq on 20 October 2007:
Nice insights/predictions Alan & Kage... although, one never knows exactly how the future will play out, until it happens, whenever it's going to happen?? However, the odds are reasonably favourable for what you guys are predicting... provided all the sequence of events falls the way you are expecting it to.
One further thing to add regarding the Deficit/GDP ratio you speak of, is that along with Australia being in Third place on this illustrious list, according to the recent World Gold Council report, the RBA is also rather low on their list of the percentages that central banks around the world held of their reserves in gold. Australia was quite low with 2.5% of the RBA's reserves held in gold, whereas the nearest comparable commodity currency country was Norway, who held 4.0% of their reserves in the "ol' yella metal" !!!
I also saw an Ed Bugos (spelling?) article recently where he was suggesting central banks really should start thinking about holding at least 5% of their reserves in gold due to the various financial & economic crises that are converging at this point in time...
All of these points mentioned, does not bode well for the Aussie, however, my view is that the Aussie is not totally doomed. Sino president, Hu Jin Tow (spelling?), recently made a speech, in which he was talking about making good with his economic promises for China til the year 2020, even with the very probable correction in Shanghai, Senzschen & Hong Kong (especially Hong Kong trading at 48 times PE), I believe that Sino demand for Aussie iron ore will remain pretty solid beyond that correction, which will mean that the Aussie won't totally free fall.
There IS a global commodities grab going on after all, and one mustn't forget that, in amongst all the gloomier economics news floating around cyberspace... so the Aussie isn't all by itself, when you think of what is in the ground in Australia. It is this fact alone which backs the Aussie more than anything a carry trader can promise...tehehe. If you want aussie hard assets, you are going to have to buy aussie dollars... pure & simple... and I believe that demand for hard assets will continue to rise for a little while yet. I don't think we have to worry about a fall in the aussie until that demand dries up, whenever that may be??
BTW - what do you think those sovereign funds are gonna be grabbing from what's on offer to them from around the world?
A: Things that humans can physically touch is what I reckon they'll have their eye on...