Believing in Gold

Gold touched an intraday high of $1,254 in U.S. dollar terms today but its appreciation in Europe’s major currencies has been the story for the past few weeks.

A few weeks ago (April 13) we showed you a similar chart detailing gold’s appreciation in major currencies but since then the deteriorating situation in Europe has sent gold soaring in terms of the euro and the British pound.

Since mid-April, gold has jumped 76.3 percent in euro terms and 60 percent in terms of the pound. This far outpaces gold’s advances in terms of the U.S dollar (29.21 percent) and Japanese yen (18.96 percent). For the year, gold is up more than 111 percent in euro terms and 102 percent in pounds.

This illustrates the effect of currency debasement on gold prices. Greece and Spain’s debt issues and the subsequent “fixes” by the European Union have raised questions about the long-term stability of the euro and sent investors looking for a hedge against monetary instability.

Not surprisingly, holdings in gold bullion-backed ETFs have hit a record and the SPDR Gold Trust (GLD) now holds more gold than all but five of the world’s central banks.

It seems the masses are beginning to lose faith that policymakers will be able to correct the debt issues without debasing their currencies; as a result a new class of investors are turning to gold.

Frank Holmes,
for The Daily Reckoning

P.S. You can visit my blog, Frank Talk, for more daily insight and commentary.

[Editor’s Note: Frank Holmes will be back for the Agora Financial Investment Symposium this July, along with other speakers including Marc Faber, Bill Bonner, and Doug Casey. You can find more details here.]