The Fed doesn’t have a pile of cash sitting in the vault. It just creates money out of thin air.
When it comes to gold and currencies and holding value, some will tell you that gold – against the price of a loaf of bread – has held its value since Biblical times. During times of volatility in other markets or in crisis, it becomes the go-to safe haven.
Gold and other precious metals provide a store of value outside of fiat currency. But as investors, we deal with currencies on a daily basis. And when it comes to global investing, the outlook for a foreign currency paired with your home currency becomes critical.
The key is to understand the drivers of value for gold and precious metals, along with the ravages of inflation that may erode the value of fiat currencies over time.
Outlook for gold and silver
Quantitative easing and other ‘money printing’ type machinations by central banks, have led to increased concern over the value of money.
This has led to increasing interest in gold, silver and other precious metals as a store of value.
At the same time, low interest rates – ‘cheap money’ – continue to push stock and asset prices to dizzying levels. Some investors are nervous of a coming crash. Bigger than we’ve ever seen before.
Gold can provide a safe haven. Although it’s not readily usable as a means of exchange. Which is why we’re also seeing new rises in cryptocurrencies as a possible alternative hedge.
Globalization has hurt many industries in the developed world. And populist leaders are fighting back with tariffs and other measures.
Some say big export countries like China have been manipulating their currency for years.
Either way, when you’re investing globally, the pair between your home currency and the offshore one becomes vital.
A currency pair is expressed like this: GBP.USD.
In that case, you can either sell GBP for USD, or buy GBP with USD at the going rate.
After the Brexit vote in the UK, GBP softened against many of the other major currencies. Then it rose again with news on a deal. Falling when that became less clear.
In volatility there is opportunity. There is also risk. So foreign exchange can also drive return.
But for those looking to avoid volatility, it often comes back to gold. And its these dynamics between precious metals, currencies and now – cryptocurrencies that we’ll be keeping you abreast of.
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Buying the Dow with 40 ounces of gold in January 2000. By January 2011, the Dow 30 stocks would cost 8 ounces.
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Central bankers usually add gold to their reserves to diversify, and to provide a hedge against inflation. According to Bloomberg, central banks now hold about a fifth of the gold ever mined.