Given the almost exclusive media emphasis on the gold price in US dollars, it’s easy to forget the sometimes-wide divergence in performance of other national currencies versus gold. The Japanese yen and British pound are providing a good example of this at the moment; gold is up around 5% since late December in sterling terms, and has posted gains of roughly 15% over the same period against the yen. In comparison, gold has gained less than 1.5% against the US dollar in that time-frame.
A rising tide lifts all boats, just as a sustained rise in the US dollar gold price will accompany gains in gold priced in other currencies (as has been the case ever since the abandonment of the gold standard). But in the short-term, gold can act as an important hedge against weakness in currencies other than the dollar – as this decadal gold price performance chart from James Turk makes clear.
Take the second half of 2008 for example: the financial crisis saw a huge rush into the perceived safety of the dollar and US Treasuries. Given that problems in America’s subprime housing market lay at the heart of the crisis, this was one of the more bizarre examples of everybody choosing to rush headlong towards the mushroom cloud. Gold priced in USD suffered as a result, gaining just 5.8% for the year. But look at how gold faired that year relative to commodity currencies like the Canadian and Australian dollars, as well as sterling – the latter battered by weakness in big finance, given the UK economy’s huge exposure to this sector. Even gold priced in euros gained 11% that year – not spectacular, but certainly respectable given the carnage that was going on in other markets.
The point is that the aft repeated claim that “gold got hammered in ’08” and that “it wasn’t a safe haven” were only true as far as the dollar was concerned (as well as those other safe haven favourites, the Swiss franc and Japanese yen). But for many investors in Europe, Canada, Australia and elsewhere, the yellow metal fulfilled its role as a safe haven during the crisis. Something to bear in mind as talk of a “quiet sterling crisis” increases.