MONDAY, MARCH 1, 2010
Bullish on Bullion
By TOM SULLIVAN
Gold appreciated by 10% or more against the world's major currencies in the past decade. More bad news for the buck and pound?
THE DOLLAR IS NOT AS GOOD AS GOLD. Neither are 22 other currencies.
A recent study by GoldMoney.com, which enables online cross-border transactions using gold as a currency, found that from 2000 through 2009, gold rose an average 10.1% a year versus the Swiss franc (which turned in the best of the bad showings by the currencies studied) to 14.9% against the U.S. dollar (a middling performer) to 20.0% for the Sri Lankan rupee (the worst in show).
"Gold isn't going up, currencies are going down," says James Turk, GoldMoney.com's founder. "The purchasing power of gold remains basically unchanged against commodities. In contrast, the purchasing power of national currencies is being constantly eroded."
Silver also appreciated against the 23 currencies, from 9.5% for the New Zealand and Australian dollars, to 14.4% for the U.S. dollar, to 17.3% for the Mexican peso. (Click here to see tables showing all 23 currencies' performances against gold and silver: http://s.wsj.net/public/resources/documents/BA_gold_silver_table.pdf.)
Gold peaked around $1,220 on Dec. 3 and closed Thursday at $1,108.50. In an interview three years ago ("Yes, $8,000 an Ounce," May 29, 2006), Turk predicted that the metal could go as high as $8,000 an ounce in inflation-adjusted dollars somewhere between 2013 and 2015, and he's sticking with that price target. "I don't think this [uptrend] is going to reverse anytime soon," he says.
That's because governments are debasing currencies, he says, destroying their citizens' purchasing power by spending beyond their means and using debt to stay afloat. The U.S., as one example, is trying to goose its economic recovery through massive deficit spending, but it may worsen the situation should the dollar tank, Turk asserts.
There are, of course, opinions to the contrary. Gold recently hit a new high against the euro, which is reeling from the Greek debt crisis, but it couldn't follow up with further gains, notes Ashraf Laidi, chief strategist at CMC Markets. He sees the euro weakening further against the buck, but he sees gold falling against the dollar as well. He's urging investors to sell gold versus the dollar.
On Dec. 2, 2009, gold hit an all-time high against the yen, but that also turned out to be a "false break," meaning it couldn't extend its gains, notes Laidi. At the same time that the yen weakened, the dollar began a steady rise after hitting bottom. And Laidi had made the call.
TO ENLARGE CLICK ON : http://barrons.wsj.net/public/resources/images/OB-HR868_BAPEDA_NS_20100227011613.gif
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