Gold as a Currency:

Gold is a currency by all means in today’s market system. It has exchange rates like any other currency that fluctuate with the changing market trends. Although gold is not used for direct transaction, it can be readily converted to any other currency. Otherwise, it can be stored for future use.

The rates of gold fluctuate much like any other currency. It generally fares better when there is not much public faith in paper currencies. The rates for gold especially increase when there are chances of war, a lack of confidence in paper currencies and loss of faith in trading instruments.

You can be involved in gold trading in a number of ways. You can buy solid gold, a gold ETFs, get a futures contract or you can participate in just the price movements by buying a contract for difference.

Relationship Between Gold and the US Dollar:

There is a very interesting relationship between gold and the US dollar. When we take a comparison in the long-term, then the relationship is pretty much defined. The gold prices rise whenever the US dollar is waning. But it cannot be assumed in a short-term relationship. Still both are inter-related. As the US is a superpower, whenever there is talk of gold, a talk about the US dollar follows.

Global Commodity:

One unique thing about gold is that it is a global commodity. It is not affected by a small group of people or inflation in one part of the world. Neither does the threat of war play much part. Gold reflects the global sentiment so it is affected only whenever there is a global reason for it.

Investing in Gold:

People need to understand that gold is just like any other currency, affected by the changing trends of the market. However, investing in gold is a relatively safer option as it does not fluctuate much over minor issues. Still, it is affected by global sentiment and other currencies, so it should not be treated in a different way than other currencies.

Whenever there is a climate of global economic uncertainty, owning gold can be a plus point. This is only the case when you have invested in gold beforehand. You will not profit much by buying gold at such a juncture because prices would already have gone up.gold is just like any other currency, yet it is forward-looking. So, anyone who wants to invest in gold should have the ability to look in the future and anticipate events that might prove to be profitable.

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Gold vs Silver

However if we look at gold for instance, then we would have to back in history because since centuries, gold has been used a form on investment to secure money in. Today, due the movements in the price of silver points to a potential end to the gold’s rally which has been going on for years now. This is the reason why most experts believe that gold is nearing the end of its long rally.

If we look at the future forecast then forecast for the month of December closed at $1,310.30 an ounce on a weaker U.S. dollar and it is believed that money would have to be invested in the economy if this rate has to be taken up. As mentioned above about the ending rally, if we look at silver then even if its closing rate for December is at just $21.95 an ounce, but its growth has been over 30% where as for gold has been only 19%. Recently, silver had reached its peak since the year 1980 at about $22 an ounce.

Past Trends of Gold vs Silver

If we look at the past trends then whenever silver has surpassed the growth of gold then it could be said that its nearing an end of the rally. Often when economies are going through  a rough patch, most people tend to invest in gold because it sustains its value over the period of time where as the value of silver is only temporary and nobody would want to invest in it for long term basis.

Many investing firms believe that this period is only a period to be caution in because silver is only on a rise for a temporary period but gold’s value will rise persistently over the period of next ten years. Therefore, if an investor is just caution at the moment then it would be better than making a hasty decision by investing in silver. If we look at the past stats then from the year 2000, gold has increased by 353% because of the weak dollar and financial crises which started in 2008.

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While people in India and other places are buying gold bars as per their capacity, majority of trading is happening in “paper metals”. Paper metals are any instruments that are not physically a metal but are options, future contracts, exchange traded funds. most popular form of paper metals are metal “accounts” with hedge funds and investment companies that hold Gold or Silver for their clients.

The outlook is quite scary as it indicates a major change in investor confidence on dollar and other paper currencies. currencies no longer backed by Gold or other precious metals as they used to be few decades earlier.

In my humble opinion, this trend of increase in gold prices and decline in dollar value is indicative of market’s intent to embrace a new global currency fully backed by Gold/silver or other real physical assets.

For over six thousand years, Gold and silver are being used as valid and reliable currency that remained inflation/deflation proof. Till start of last century, gold maintained a stable ratio of 1:15 with silver. that means every ounce of gold was worth 15 ounce in silver and vice versa.

Now that we know that the ratio of Gold and Silver is 1 to 17 in earth’s crust. Silver has been and is still being used in industrial products in huge quantities. It has a potential to become more scarce in future. I am not saying that it will be expensive than gold at any time in near future but the prices can pickup pretty quickly.

It is also very interesting to take a look at historic purchasing power of Gold. It’s an old saying that the price of a nice custom tailored suit for a gentleman is always stable at one ounce of gold. In 1930, the price of one ounce of gold was around $35 and price of a decent suit was nearly the same. Interestingly, this old saying still holds true. A decent suit these days set you back roughly $1100 to $1200 range. Same is the price of gold today.

Even thousands of years ago, best clothing can be bought at cost of one ounce of gold or 15 ounces of silver. the purchasing power of gold and silver has been stable for so long and there is no reason that it will not remain so in future.

The above few paragraphs make it very clear why in times of uncertainty, investors rush toward gold to safeguard their investments. This time is different, the difference is that central banks around the globe have joined the gold rush of 2009 and this could result in unknown outcomes.

If such trend continues, it will lead to major destabilization of political and economic systems across the globe. what do you think?

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Greenback’s gains reversed

The remarks helped in encouraging a broad rally in global stocks, oil, gold and higher-yielding currencies that reversed the greenback’s gains from late last week.

Position of Major Currencies

In New York on Monday morning, , according to EBS via CQG the euro was at $1.4988 from $1.4851 late Friday. It has been noted that the dollar was at Y88.80 from Y89.00, whereas the euro was at Y132.97 from Y132.26. The U.K. pound was at the position of $1.6621 from $1.6491. The dollar was at CHF1.0089 from CHF1.0183.

The Dollar Index

The Dollar Index, was at 75.024 from 75.647. This index tracks the greenback against a trade-weighted basket of six currencies.

Gold and oil prices become Higher

Overnight gold hit a fresh high record, while oil jumped to as far as $78.72. It has been indicated by futures that U.S. stocks are set to open higher. Better-than-expected economic data in Europe has also supported the euro.

Purchasing managers’ index data

In November purchasing managers’ index data from the euro zone has shown a rise to a two-year high, having the composite index including the manufacturing and services sector that has climbed to 53.7 from 53 in October.

Canadian dollar gains

Monday morning as the currency benefits from the overall weakness in the U.S. dollar the Canadian dollar is markedly higher. The U.S. dollar is trading at C$1.0557 from C$1.0704 late Friday.

Canadian retail sales rose 1%

An added boost has been secured by the Canadian unit from news Monday that Canadian retail sales rose 1% in September to C$34.9 billion (US$32.6 billion).

Higher equities and commodity prices

It has been said by the TD Securities that higher equities and commodity prices and the broad-based U.S. dollar selloff are all supporting the Canadian currency.

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Sharp rise in third-quarter JPMorgan results

A sharp rise in third-quarter results has been reported by JPMorgan Chase & Co (JPM.N) as underwriting revenue at its investment bank offset deeper losses on credit cards and other consumer loans.

Reduction in the attractiveness of U.S. assets

At this time the U.S. dollar remained under broad selling pressure on anticipations that the U.S. interest rates will stay at very low levels for some time.

The attractiveness of U.S. assets will be reduced by the low rates and it will ease demand for the dollars to buy them.

In early New York trade, the euro after going to its highest since August 2008 was last up 0.3% $1.4900 EUR= .

Dollar fell against Yen

The dollar fell 0.2% to 89.55 against the yen JPY=.

Dollar index .DXY, slid to 75.436

The dollar index .DXY, slid to 75.436, a trough last seen in August 2008. It is the index which tracks the dollar’s value against a basket of currencies. The Swiss franc CHF= has rose to around 1.0167 francs versus the dollar, which is its highest since July 2008.

Crude oil and Gold prices Jumped

As U.S. crude oil prices jumped to a 2009 high and gold prices reached to a record high, the Australian and Canadian dollars AUD= CAD= also hit their strongest since August 2008, while the Norwegian crown NOK= has raised up to its firmest since September 2008.

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Data last week showed that large dollar short positions has been held by speculators.

Pound Wallowed against both the euro and dollar

After a a report said British interest rates would stay at rock-bottom levels for some time the pound wallowed against both the euro and dollar.

Dollar was 0.2% higher at 89.98 yen JPY=

In early New York trade, compared with late Friday’s levels the dollar was 0.2 percent higher at 89.98 yen JPY=, after rising to 90.46 yen, which is the highest since Sept. 25.

The gains has pushed the dollar further from the trough touched last week, which has been the lowest since January.

While recovering from early losses the euro rose 0.2% to $1.4765 EUR=. The single European currency also has shown a rise of 0.5% against the yen at 132.85 yen EURJPY=R.

Sterling fell broadly

Sterling fell broadly, it has lost 0.2% against the dollar GBP=, 0.6% against the euro GBPEUR=R, and 0.6% against the Swiss franc GBPCHF=R, after a report said British interest rates would stay at rock-bottom levels for some time.

Sterling has been traded around a five-month low against the dollar and a seven-month low against the euro.

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