Gold Is Near The 2011 Highs

There are a lot of people who are concerned about the performance of gold and the fact that the price after four years of correction is still so far from the high. The mistake that most people make is to measure gold in US dollars. We are seeing currently very temporary dollar strength. But the US$ is a weak currency in a mismanaged economy. Just look at the dollar in Swiss Francs. Since 1970 the dollar has lost 77% against the Swissy. That can hardly be called dollar strength.

The dollar is a very weak currency

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If we measure the dollar in real money which is gold of course, the not so mighty dollar has lost 80% in this century.

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So to talk about a strong dollar is totally ridiculous. The dollar is in a long-term downtrend which will continue for many years until it reaches zero. The temporary dollar strength gives the appearance that gold is currently weak. But we must remember that gold should be measured in your home currency and not only in dollars. It is pure laziness that makes non-Americans quote gold in dollars. International media don’t make it easier since they always show the dollar price.

The US population is less than 5% of world population and most of the remaining 6.7 billion people are not linked to the dollar. If we instead use GDP as a measure, the US represents around 25% of global GDP but that still leaves 3/4 of global GDP which is not dollar based. My point is that gold in dollars is only relevant to a minority of the world and the rest of us should measure gold in our home currency.

Gold in pounds up 47% in 2016

Let us look at gold in UK pounds for example. Any Brit who has kept his money in gold since December 2015 had gained a staggering 47% in the last ten months. Had he instead kept his money in the UK stock market, he would have made just 13% which is 1/4 of the gain he could have made in gold.

The chart of gold in pounds below is an excellent example of the wealth preservation properties of gold. When a currency weakens, most investors don’t realise how much real value this is costing them. As opposed to most governments, gold tells the truth and the truth is that for UK citizens, their currency has lost a huge 1/3 of its purchasing power in the last 10 months measured in gold.

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