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.

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