Sunday, January 4, 2015

How Did Gold Perform in 2014? - It Depends on where you Live

Now that 2014 is in the books, we can take a look back at one of the key sign posts we watch here that relates to potential monetary system change. The price of gold is always an important key to watch. When gold is moving up sharply, it indicates confidence in the existing system is falling. When gold is steady to down, it indicates that confidence in the existing system is solid. 

Many pro gold advocates expected gold to move sharply higher in 2014 alongside a sharply falling US dollar. They were wrong on that forecast, but 2014 did provide proof that they are right that gold moves higher when a currency is falling or when people are losing confidence in the monetary system they live under. Let's look at the actual data which may surprise you if you live in the US. Gold actually had a very strong year if you live most everywhere else.

Below are links to the Kitco one year gold price charts (as of the day this was written) to various currencies around the world. I show the % gain or loss just to right of each link for 2014. Below that are some final comments.

Gold price chart for major world currencies (Dollar, Pound, Euro, Yen, Swiss Franc) 

US Dollar price             -3.89%

Hong Kong Dollar price  -3.87%

Indian Rupee price     -2.21%

Chinese Yuan price   -1.43%

British Pound price  +2.3%

S. African Rand price  +5.56%

Australian Dollar price      +6.30%

Swiss Franc price   +6.32%

Canadian Dollar price  +6.48%

Euro price     +8.73%

Brazilian Real price   +6.81%

Mexican Peso price    +8.80%

Japanese Yen price    +10.47%

Russian Ruble price     +70.08%

My added comments:

From the above we get the true picture of how gold performed in 2014 around the world. We can make some observations from this actual price data.

- the US dollar was the strongest currency in the world in 2014 and even stronger than gold which was also very strong on a global basis

- the Chinese Yuan and Hong Kong dollar also held up well. Interestingly, China and Hong Kong reported major imports of gold in 2014

-the Indian rupee also held up well. India is another major importer of gold (and silver)

-the two areas of the world said to be fighting deflation forces saw gold rise strongly. Gold did very well versus the Euro and the Yen (which also fell against the US dollar in the ongoing currency wars)

-If you lived in Russia you got to see what happens when your currency collapses and confidence in your existing system is lost. Gold exploded higher in terms of rubles (+70%). This is what Jim Rickards sees happening to the US dollar eventually (with gold reacting this same way priced in US dollars)

Conclusion: The factual information above is solid proof that gold still functions like it has down through history. If your currency is falling, gold goes up providing you a hedge against the loss of purchasing power in your local currency (see the EU and Japan). If a crisis breaks out and people lose major confidence in your currency and the overall system, gold soars higher (see Russia). If you are adding gold reserves to your country, your currency is more likely to maintain stability versus the price of gold (see India and China).

The US dollar is somewhat of an exception because it is still the global reserve currency for the world. The world still looks at it in the same way it looks at gold. Interestingly, so long as the US dollar holds this status, we could see a period of time where BOTH the US dollar and gold go higher at the same time. This is because world demand for gold might create a supply/demand shortage as people move money from weaker currencies to the US dollar and gold at the same time (the so called "flight to safety")

But the US dollar is slowly and surely losing sole global reserve currency status as China moves to make the Yuan a global alternative. If we get another major financial crisis in the US due to debt or derivative problems, someday the US dollar might look like the Russian ruble does right now. If Jim Rickards ends up being right, someday your dollars may lose value versus a new SDR type global currency in some kind of global currency "reset". It seems like a remote possibility today, but is taken quite seriously around the world. Also, events can move quickly in a world as inter-connected as the one we live in today.

This is why all this is important to you. And why everyone needs to add some precious metal insurance hedge to their savings if possible. It will be there if you need it like the people in Russia, Europe, and Japan did in 2014. It has a role as a hedge for everyone who has any savings.

Added note: a question I get here frequently is how can the average person prepare for such an uncertain future?  I wrote this article on 01-01-2015 to address that question.

Update 1-6-15: 

James Turk provides this interview with King World News which agrees with the gold information shown above (gold up against other major currencies in 2014) and also agrees with my "Fearless Forecast" that silver will outperform gold in 2015.

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