Gold is shining again - after several years of being in the doldrums. It's an understatement to say that gold hasn't been a good investment for the past few years. After reaching a high of over $1900 an ounce in August 2011, it fell sharply, trading below $1180 last fall, before its recent rebound.
Everyone "knows" that gold is a hedge against inflation - and there is little inflation in sight, anywhere around the world. In fact, the great current global fear is deflation - a general economic slowdown in demand and falling prices. But gold has another role: a store of value in times of financial insecurity. It is that aspect of gold that has sent prices higher in recent days.
As Americans we are conditioned to think of value in terms of dollars. We get paid in dollars, shop in dollars, invest in dollars, and plan for retirement in dollars. So when we think of the price of gold, it's natural to think in dollar terms. For example, in 2014 the price of gold fell 1.2 percent in dollar terms. No wonder gold has been out of favor for investors.
Well, at least it's out of favor for American investors. But that's not the case for the rest of the world.
In the past 14 months, gold has gained 18 percent in Euros and 16 percent in yen! That is, while Americans were nicely satisfied to hold dollars with no fear of diminishing value because of inflation, Europeans and Japanese were very anxious to get out of their currencies and into gold.
But wait. There are no signs of inflation in Europe or Japan, either. In fact, quite the opposite. Japan is facing a huge deflation. So the government there has been creating new money by purchasing Japanese government debt in a desperate move to actually create inflation and growth. They haven't been too successful in moving their stagnant economy. Yet gold, in yen terms, has risen sharply.
Similarly, Europe is worried about deflation, not inflation. The European Central Bank is openly promising to create more inflation by purchasing debt of its member countries and creating more Euros. No inflation -yet - but the value of the Euro has fallen sharply, against both the dollar and gold.
And the recent actions of the Swiss National Bank in allowing its currency to become stronger have created even more problems in Europe. Now Europeans - businesses and homeowners -- who borrowed in Swiss francs because of the low interest rates in that currency will have to scrape together more Euros to repay their loans.
Gold vs. Currencies
The simple way for an American to buy gold versus the U.S. dollar is to buy the exchange traded fund -GLD. It moves up or down directly with the price of gold. But what if you want to speculate that gold will become even more attractive in other currencies?
You don't have to be European or Japanese or Russian to buy gold in those currencies if you expect more disruption in the future. In fact, you can buy ETFs that allow you to diversify your gold investment against some major foreign currencies.
Advisor Shares Gartman Gold/Euro ETF trades on the NYSE under the symbol GEUR, and AdvisorShares Gartman Gold/Yen ETF trades on the NYSE under the symbol GYEN. Similarly, GGBP allows you to trade gold against the British pound. Each of these funds gives you exposure to gold prices denominated in foreign currencies.
The ETFs use gold futures to establish their investment in gold, and then offset that long position by taking a short position in the specific currency, whether Euro, Yen, or Pound. [Full Disclosure: I am on the board of directors of CME Group, Inc., parent company of the Comex, where gold futures are traded, and the Exchange on which currency futures are traded.] As NYSE-listed securities, you can buy the ETFs easily through your broker and track the share prices daily.
Learn more about these ETFs at www.AdvisorShares.com. As always, it's important to understand the risks involved as well as the potential rewards. But as the world grows smaller, and the headlines grow more international, American investors need to expand our horizons beyond the dollar, with at least a portion of our portfolios.
All that glitters may not be gold in dollars, but gold could shine against other currencies in the uncertain economic year ahead. And that's The Savage Truth.