Of all the countless
investments worldwide, gold is easily the most universally recognized. From the biggest banks in premier
cosmopolitan cities to the smallest vendors in this planet’s dustiest
corners, everyone knows gold.
This metal’s timeless intrinsic value is beyond dispute and is
But although recognized,
gold is not perceived the same way
everywhere. We all view it
through the unique lenses of our own home currencies. Most of us are born, reared, and socialized
in a single country. By the time
we reach investment age, our minds are hardwired to judge value exclusively
relative to our particular country’s currency.
As an American, I see
everything in US dollar terms.
Sure, I am well aware the Fed is working overtime to destroy its fragile
fiat currency. Yes, I certainly
know the US dollar’s hegemony is rapidly waning. Nevertheless, I was born and raised in
a dollar world. Even as a longtime student of the global markets, my worldview is
hopelessly dollar-centric. It is
all I’ve ever known.
So I can only effectively
wrap my mind around today’s secular gold bull in dollar terms. But if the vagaries of fate had seen me
born in China,
I’d have the same mental handicap but think in yuan
instead. And this gold bull
won’t look the same in yuan as it does in US
dollars. The same goes for all
Averaging $926 US dollars
per troy ounce in Q1 2008, gold is looking very strong to American investors
like me. But how do investors in
other countries perceive this bull?
We can gain some idea by rendering it in their local currencies and
examining the resulting charts.
This exercise will help us understand whether global investors are
more likely bullish and ready to buy gold or bearish and ready to sell.
In this series of essays,
I’ve periodically looked at the gold price in ten major regional
currencies. Three, the US dollar,
euro, and yen, are truly global. The rest are heavyweights that
dominate their particular region and are collectively used daily by the
majority of the world’s population. Together they offer a great global
survey of the state of this secular gold bull.
We’ll start with the
US dollar reference chart.
Despite the best efforts of Alan Greenspan and Ben Bernanke
to irreparably ruin global confidence in the dollar, for decades the gold
markets have been priced in US dollars all over the world. This is getting increasingly
problematic, and the dollar’s remaining days as the world reserve
currency are certainly numbered, but for now it is still king in the gold
Over a challenging decade
where the US
stock markets have ground sideways to lower at
best, gold has been a phenomenal investment. This metal that was so despised in the
early 2000s has nearly quadrupled! While stock investors are getting ever
poorer as the Fed’s inflation relentlessly erodes their real wealth,
gold investors are getting richer and richer. Early contrarians have already
The US dollar’s
secular bear is just as striking.
Since mid-2001, the US Dollar Index has shed nearly 41% of its
value! Since gold is the
world’s oldest and most successful global currency, it has definitely
benefited from the Fed’s gross mismanagement of the dollar. But the dollar’s behavior has plagued perceptions of this gold bull for
its entire advance. Investors
tend to attribute far too much to
the US dollar.
Back in Stage One, the
dollar bear was indeed the primary driver of this gold bull. But when Stage Two dawned in mid-2005, global
investment demand usurped the flagging dollar as gold’s primary
driver. The differences between
the Stage One and Stage Two gold bulls are vast and readily evident in all
In Stage One
foreign investors largely ignored the young gold bull, which they
believed was simply a dollar bear.
They overlooked subtle signs that could have earned them fortunes,
like rising secular support lines in their local-currency gold prices. But nearly three years into Stage Two,
today they definitely believe. It
is too bad the dollar bear’s importance was overestimated back when
they could’ve bought really cheap gold.
Today in Stage Two,
American mainstream investors generally believe gold is rising only because the US dollar is
falling. This is a silly thesis
though! If this gold bull was
merely a dollar-bear thing, gold would be up about the same 41% as the US
dollar is down. But gold is up
293%, far more than the dollar alone can explain. This myopia prevents them from
understanding soaring global investment demand for gold.
So if you are an American
suckered into believing Wall Street’s party line on gold merely being
the anti-dollar, perusing the following charts will be very good for
you. If gold was climbing simply
to reflect a devaluing dollar, it would track fairly flat in most other
currencies. But this gold bull is
universal, a worldwide investment-driven juggernaut
no longer shackled to inverse-mirroring the US dollar’s sorry fate.
On these next nine charts,
the gold prices are forex-implied based on the
US-dollar-per-local-currency exchange rates. And regardless of local custom, all
gold prices are quoted in local currency per
troy ounce for comparability.
The seven major highs in USD gold, shown above with the green numbers,
are noted on all charts for reference points. If they don’t mark a new
local-currency-gold-bull high, they are shown in red.
The exchange rates are all
computed in the same direction (USD per local) so a rising red line always
means a currency is gaining strength against the US dollar. The secular gains in gold and
local-currency exchange rates are compared with the reference baselines in
the US dollar chart above. The
yellow numbers show these results as multiples of the gains in USD gold and
the losses in the US Dollar Index.
Back in Stage One Canada
gold didn’t really do all that much, and it
was flatlined in a tight range for several years
before the dawn of Stage Two. But
boy, Stage Two hit like a freight train!
gold witnessed two huge uplegs despite persistent
Canadian dollar strength. The
Canadian dollar rallied 76% in a very consistent secular-bull uptrend, yet Canada gold
still soared 156%, 0.53x as far as USD gold.
Canada, of course, is
a hotbed for gold mining. I heard
from a lot of Canadians in the early 2000s who were understandably not very
excited about gold. But with
dazzling record gold highs today, the legions of small exploration companies
in the Great White North are going to be a lot more motivated to find new
gold deposits to bring to market.
If you like high-potential Canadian juniors, rejoice for C$1000 gold!
I’m not sure where
Ben Bernanke studied economics, but based on his
handling of the US dollar my guess is somewhere in Latin
America. This region
has long been plagued by incredibly mismanaged and weak currencies. And Brazil, despite being the
strongest economy in this area by far, is no exception. The Brazilian real went on one wild
ride, crashing in the early 2000s which drove a massive surge in gold.
After this crisis, the real
started climbing in a huge secular bull.
But instead of correcting, gold simply consolidated high despite the
real’s strength. Brazil gold
has recently hit major new highs in Stage Two. Despite a 137% trough-to-crest run
higher in the real, Brazil
gold still managed a very impressive 237% bull of its own. Global gold investment demand is
driving gold higher even in the strongest currencies.
The great collective wealth
of the Europeans coupled with their insatiable cultural lust for gold made euro gold critical for this entire global bull. Back in the early 2000s, euro gold couldn’t break above its long-vexing
resistance at €350. So
European investors understandably concluded that gold was not in a bull
market. They figured we excitable
Americans were simply too dimwitted to realize it
was just a dollar bear in disguise.
Yet it’s not just
higher highs that make a bull, but higher lows. Euro gold’s support line was
inexorably rising as each correction grew weaker and weaker. I called it a stealth bull. But the Europeans wouldn’t
believe until the momentous mid-2005 €350 breakout. When it happened, I wrote that Stage
Two had dawned. And history now proves it had
indeed! Euro gold has rocketed
higher in both Stage Two uplegs since.
Today the euro is the key contender to usurp the US dollar’s
throne to become the new global reserve currency. Heavy euro
buying as big investors diversify out of dollars has driven a massive 89%
bull run in the euro. Despite such strength, euro gold is still
up 133%! This is absolute
incontrovertible evidence that gold’s bull is a worldwide phenomenon
driven by global investment demand.
The notion it is merely a US dollar thing today is laughably
Thanks to the giant moat
surrounding it, the UK
can usually do its own thing without worrying much about other war-loving
Europeans invading it. So it
hasn’t yet joined the euro party. Nevertheless, the pound sterling has
mirrored the euro’s march higher very
well. So UK gold looks
very much like euro gold. This is important since London remains the
capital of the gold world and a leading money center.
didn’t do much during Stage One when the dollar bear was gold’s
main driver, but it has soared in the pair of huge Stage Two uplegs since.
This is another key example of gold rising in the face of a very
strong local currency. Only
soaring global investment demand can drive such a universal omni-currency gold bull. Record pound gold is very bullish and
will entice a lot of new capital into chasing this metal.
Japan is a proud
adherent of the Bernanke school of currency
destruction. It has relentlessly
devalued its yen to try and keep pace with the US dollar bear in hopes of
maintaining its brisk export business to American consumers. All of this holding down the yen has
led to a pretty flat currency chart.
Trough to crest the yen has only managed to rise slightly less than
the US dollar has fallen.
Despite all this blatant
currency manipulation, Japan
gold has had an awesome bull run, especially since the dawn of Stage
Two. Like in Europe, huge pools
of wealth exist in Japan. And like investors everywhere, there
is nothing like new record highs to get the Japanese interested in buying
into a bull. Artificially-low
interest rates make gold even more appealing to the Japanese, since they
can’t earn a yield in bonds anyway. Maybe
Bernanke studied economics in Japan.
The Chinese are also heavy
exporters to the States, so they long had their yuan
hard-pegged to the US dollar.
They sort of unpegged it in mid-2005 near
the dawn of Stage Two, but it was still subject to tight daily trading
boundaries. Since then the yuan was been accelerating higher, but we are still
looking at a modest 18% total gain which is easily the lowest witnessed in
all nine of these major regional currencies.
Thanks to the yuan pegging, the Stage One China gold bull is identical
to the USD gold bull. Stage Two
has been smaller than USD gold’s as the yuan
rises, but only slightly. China gold is
also at record highs and investment demand for gold by mainstream Chinese investors is soaring. With their love for gold and high
savings rates, the Chinese are going to be a major demand-side driver of this
gold bull going forward.
Today India is the
world’s biggest gold consumer by far. Indians are shrewd gold buyers very
sensitive to the gold price. Yet
they have still helped drive the pair of huge Stage Two uplegs
seen around the world. Like all
investors, the higher the price of an asset goes the more the Indians want
it. So sustained high India gold prices are very bullish for global
investment demand since India
is such a big component of it.
The rupee has also been weak,
but it has still risen over the course of this gold bull. The vast majority of this
currency’s entire secular bull occurred quickly in late 2006 and early
2007. Yet despite this sharp
surge, gold barely retreated. In
Stage Two gold demand is so universal that it transcends sharp moves in any
one currency, even within the world’s biggest gold consumer. Indians
are leading Stage Two buying.
Like Canada, Australia has had a very strong
currency in the 2000s. Much of
these gains occurred in a giant Aussie dollar upleg
in 2003. Unfortunately this
helped drive local gold prices into a long consolidation under A$600
didn’t enjoy this gold bull in Stage One, like the Europeans, so they
didn’t even believe a gold bull existed. This was certainly a rational stance
based on the local gold price.
But everything changed in
Stage Two, when Australia
gold rocketed higher in that pair of huge Stage Two uplegs. These new highs are getting Australian
investors excited about gold again and leading to something of a renaissance
in gold exploration on this resource-rich continent. A 133% gold bull despite a 96%
currency bull really drives home the global nature of soaring gold investment
For 101 consecutive years, South Africa
was the world’s largest gold producer. But last year China
usurped it! All kinds of problems
are hammering South African gold output, ranging from a Marxist anti-investor
government to inadequate infrastructure (like electricity) to support
large-scale mining. Its rising
currency has also seriously hurt the miners that have to pay costs in rand
but sell gold in US dollars.
These factors actually put South Africa
gold in a multi-year bear downtrend following a big spike on the late-2001
rand crash. But as Stage Two was
preparing to dawn, gold started to recover. South African investors have since
enjoyed the same pair of huge Stage Two uplegs that
the rest of the world has witnessed.
The resulting high prices, if sustained, will help the big SA miners
grow their profits again.
After looking at all ten of
these global gold charts, some key themes emerge. Most importantly, this gold bull is
absolutely global in nature.
Dazzling new record highs have been seen in local-currency gold prices
in all major currencies
worldwide. The Wall Street
arguments today claiming that gold is rising just because the US dollar is
falling are simply shortsighted and false. Global investment demand is the
It is true that the dollar
bear was gold’s primary
driver back in Stage One, prior to mid-2005. Gold did indeed mostly reflect the
dollar devaluation up to that point, which means it didn’t do much at
all in other major currencies like the euro. But that era is long gone. In the second stage of secular gold
bulls, this metal decouples from the dominant devaluing currency. This happened in summer 2005.
So American traders today,
particularly Wall Streeters and futures guys, who
think the US dollar weakness is the key to this gold bull are woefully
mistaken. While gold does still
tend to move opposite to the dollar tactically on a day-to-day basis,
strategically it has totally decoupled.
Gold’s gains not only dwarf the US dollar’s losses, but
the fact that it is rising dramatically all
over the world refutes this dollar-centric thesis.
Another key insight these
global gold charts offer is psychological. For most of the things people buy,
higher prices retard demand. You
may like a cup of coffee every morning for $4, but would you pay $40 for
one? I doubt it. But in the investing world, economic
principles are flipped on their heads.
Higher prices from recent gains make any investment much more
appealing to the masses than lower prices.
Back in early 2001,
regardless of where they were in the world or what currency they thought in
terms of, gold didn’t excite many investors. Cheap investments are loathed, as investors
extrapolate the downtrends that led to their low prices out into
infinity. But today, with gold
continuing to carve new record highs all over the world, more and more
investors are getting excited about this metal everywhere.
This excitement leads to
buying, deploying capital. But
freshly-mined gold supplies are already heavily constrained and central
banks’ hoards are getting smaller and smaller thanks to their endless
gold sales and a growing world gold market. Thus soaring global investment demand
driven by record gold prices sparking greed cannot be met by any type of
supply growth. So gold prices
will have to continue higher.
But of course the higher
they go, the more new investors will be enticed in and the greater excitement
will build. This creates a
wonderful virtuous circle that ultimately culminates in a Stage Three gold
bull. This is a popular mania
where goldlust spills out of the investing world to
seize the dreams of ordinary people in the streets. This is when gold will truly shoot
vertical, probably briefly climaxing over US$4000 per ounce!
While I suspect we are some
years away from a Stage Three mania yet, today’s global gold bull is
certainly laying the groundwork.
Slowly but surely gold, like any secular bull, is winning respect and
capital within the global investment world. Record highs make this metal much more
appealing to investors. This is a
universal and immutable human trait that respects no national or currency
At Zeal, we were among the
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$264 in early May 2001. But while
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The bottom line is
gold’s bull market is universal and global, far transcending the myopic
and quaint dollar-centric notions Wall Street is babbling about today. True, there was a time when the US
dollar bear drove gold. But that
became history when Stage Two dawned in mid-2005. Since then gold has risen powerfully
all over the world, in all currencies, because soaring global investment
demand is driving it higher.
And nothing begets more
investment demand like sharp runs higher leading to record prices. Investors who would have scoffed at
gold three years ago are starting to pay attention today. The higher it runs, the more they will
want it. Nothing sparks greed in
the human heart like gold, as history testifies abundantly. Today’s early Stage Two uplegs are the vanguard of a coming massive shift into
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