Wednesday, October 29, 2014

Expensive & Cheap Currencies - Update

In the world of currencies, one thing is a given is that 'value' is constantly shifting. Over the last three months, we have seen a significant appreciation in the US-dollar (USD) with massive capital inflows into the US banking system & economy.

Of interest, the USD price of gold bullion has actually held steady during this dramatic USD currency price increase staying close to the 1250 USD level. As measured in other currencies, gold has slightly risen in value. For example, as priced in Canadian dollars, gold is in the $1360 to $1400 CAD level per ounce of gold.

Of short term immediate consequence for gold bullion is the scheduled vote on November 30, 2014 by Swiss voters in a referendum to either approve or disapprove a ballot measure to increase the Swiss central bank reserves from its current 7.7% gold bullion holdings of $550 billion total reserves to a 20% ceiling. If a YES vote takes place, there is a greater chance that Switzerland may ultimately go ahead and purchase over the next 5 years upwards of 1500 tonnes of gold bullion to satisfy the 20% threshold. The Swiss franc will indeed truly be one of the world's only gold back safe haven currencies. The price of gold bullion will also get a price boost from this demand shock.

For those planning holiday schedules.
CHEAP CURRENCIES - that is, great value for your money remain Russia, Turkey and South Africa. All three currency zones have their domestic currencies at around 50% undervalued to the USD. Other attractive currency zones include Mexico, Hungary, Poland and South Korea.

EXPENSIVE CURRENCIES: our list still have Switzerland as the most expensive and the world's most expensive industrialized currency zone as measured by purchasing power parity. Other big money expensive currency zones include Norway, Denmark and surprisingly Australia as the AUD remains at 10% overvalued even after commodity price correction.

Final comment, the dramatic drop in oil price has knocked the value of the Canadian dollar down along with the Russian ruble, etc.. The CAD still remains even with this large price correction in commodities still overvalued at today's level by 10%, risk remains for the CAD to drop to the low 80 US cent level in year 2015 from the current 89 to 90 US cent level.

Tuesday, June 10, 2014

Gold & Silver USD price Break Out is Imminent

Gold has stagnated trading in a flat line now for the last few months in the 1250 to 1325 USD / ounce
price range - more recently trading in the 1250 USD / oz price. 

In early June 2014, a modest earthquake hit the markets with the European Central Bank (ECB) deciding to  lower two key interest rates. The ECB refinancing rate goes to plus 0.15% down from 0.25%. However, it is the ECB's decision to move the interest rate for banks depositing monies with the ECB to negative 0.1 percent, this policy move is the initial fuel to start a major fire within the global gold market.

That is, banks now pay the ECB to hold their money instead of receiving interest. The central bank is implementing this negative rate to try and encourage European banks to lend the money to help foster economic growth within the currency union.

With current inflation in the Eurozone at 0.5%, well below the 2% target, the central bank is now pulling several levers to stimulate the velocity of money and encourage domestic inflation within the common currency zone.

Also, keep your eye on the U.S. Federal reserve to perhaps surprise the markets in July 2014 with a pause on tapering. This too would add much bullish sentiment to USD gold price going forward with silver following the trajectory of gold but likely at a faster velocity of USD price rise then gold.

In our view, we believe that gold is now very close to a major turn back north in price towards 1400 to 1500 USD / oz by year-end 2014. By year 2016 - 2017, inflation will return to modest levels within the United States and Europe, thus we expect gold prices to be over 1700 USD.

Finally, gold priced in other currencies such as Canadian will account for CAD dollar depreciation, expect much higher CAD dollar gold prices going forward. Over the last year for example, CAD gold is only down 3.4% whilst USD price gold is down 9.73%. Our research suggests a medium term floor price for the CAD further depreciating to the 83 US cent level. If the oil market makes a major turn south in price, this forecast could be further revised downward with a new floor in the mid 70 USD cent range for each CAD.

A quick general snapshot on currency valuations shows heightened risk for the Swiss franc (CHF) with the CHF maintaining upwards of a 55% purchasing power overvaluation to USD. A good time to buy gold in CHF is right now. Conversely, the Turkish lira is upwards of 50% undervalued to the USD, a good time to accumulate and hold lira currency in our view.

For further research on currencies, please visit us at: