The Golden Ruler

We’ve said it before, but we’ll say it again…

The bull market in gold starting 10 years ago is about much more than the Dollar – a fact that investors and savers worldwide might want to consider in 2010 if the US currency continues to rally.

Given G7 interest rates averaging 0.4% too (Reuters’ data), gold looks likely to keep drawing strong bids worldwide.

10-Year Gold Performance

BullionVault’s Global Gold Index tracks the price of gold against the world’s top 10 currencies.

Weighted by each issuing state’s GDP, its 2010 make-up is based on the latest IMF forecasts. Meaning that the basket is led, as always, by the US Dollar (32%), with the Euro (27%) in second place. Behind that, China (12%) overtakes Japan (11%, down from 18% a decade ago) for the first time this year.

The GGI then includes the price of gold in British Pounds (5%), Russian Roubles (3%), Brazilian Real (3%), Canadian Dollars (3%), Indian Rupees (3%) and finally Mexico Pesos (2%)…thus covering well over two-thirds of the global economy and more than half its population.

Its value? Think of the GGI as gold minus the noise. The index is significantly less volatile on a daily basis than the gold price in Dollars, Euros or Sterling alone. It shows you what’s happening to the price of metal overall – rather like you might track the Dollar Index to see how the greenback’s doing – instead of focusing solely on one single pairing.

And it’s telling us…?

• The GGI outperformed global equities in Q1, rising 4.28% from the close of 2009. The MSCI Barra World Index (local prices) added 4.16%.

• The index has yet to fall for two consecutive quarters since the start of 2000.

• To date, the GGI shows the world’s money en masse shedding very nearly three-quarters of its value in gold since the start of 2000.

Our guess here at BullionVault is that this loss of purchasing power in cash and bank-savings worldwide would require strong, positive real rates of interest – after inflation – to reverse it.

Our second guess? There’s fat chance of that worldwide anytime soon.

Regards,

Adrian Ash
for The Daily Reckoning