Gold is traded in dollars (traditionally). That is slowly changing though with (for example), the Shanghai Gold Exchange, and increased trading using local currency in Asia. I noticed that my portfolio value hasn’t really dropped in the last few weeks. In fact it went up 2% in the last fortnight or so. I keep forgetting that my balance won’t necessarily alter as the dollar value of PM’s and the rest of my investments changes. The weaker pound has seen the GBP value go up. This is the gold price chart we’re all used to seeing, still $600 or approx. 30% away from the peak in 2011…

But in GBP it’s about £200 or 20% off the highs…

This got me thinking. Gold is mined in places like Canada, Australia and South Africa, and many other places outside the US. If the ‘value’ of gold is doing well in those areas, that must surely be a positive for them because they pay all their wages and local costs in the currency of the country they mine in (as far as I know). Some experts in this side of the equation might want to comment here. But, in many cases it looks like gold in other currencies is ready to make new all time highs. Another way of looking at this is to say gold is static, stable and constant, all fiat currency is losing value when measured against it. It takes ever increasing amounts of paper to get hold of a nice shiny gold coin.

Here’s gold in Canadian Dollars just about 10% off new highs…

In South African Rand it’s about 17% off the highs now…

In Aussie Dollars were almost there, just another $50 (less than 3%) to go, then it’s blue sky…

One by one these are going to break out during this cyclical upturn in commodities (in my view). This may also help to explain the relative strength in the miners at the moment. It’s a very good sign.

This brings me back to our current ‘mini crisis’ with a rising dollar and falling gold (priced in US dollars). I’m a good deal less worried after taking a look back in history at the behaviour of the dollar index during its last cyclical bear. RTV prompted me with his excellent chart. I hope he doesn’t mind me reproducing it here…

As you can see the dollar behaved exactly as expected and hit it’s cycle low, and bounced up and out of it. The (very) important question now is, just how high will the dollar go and for how long ? Dollar bulls, no doubt, think we could see a rising dollar for week or months, with some believing we’ll see new highs. After looking at the evidence, I think we could see the dollar roll over much sooner than that. Let’s have a look back and see what happened in this exact situation in 2002…

So we hit the apex, bounced, and almost immediately resumed the plunge. We’d barely even moved out of the cycle low. This is the same chart for today…

Will the 50 week moving average be the turning point ? I’m not sure, but the evidence strongly suggests trouble ahead for King Dollar.

That’s more than enough from me. I’m quite excited to see if this plays out the way I think it will. Think I’ll grab a strong coffee, and chill out for a bit.