The implications for gold
One way of looking at gold’s long run price behavior is to view it not as a commodity, but as a currency. Gold’s bull market over the last decade or so can thus be viewed as one currency (gold) gaining value against its central bank-issued counterparts.
As we have noted before, gold’s day-to-day moves – against all currencies – tend to be determined by what is happening with the Dollar. But over a longer period, it makes a significant difference against which currency you measure gold.
From mid-2007 to last September’s peak, Dollar gold prices gained around 180%. Sterling gold prices, however, rose around 260%.
With Britain mired back in recession, prospects are slim that the Bank of England will consider a move away from its current accommodative stance any time soon. That will weigh on Sterling.
British investors who made a gold investment early in this crisis have seen their decision to ensure themselves pay off. As the crisis drags on, though, the need for a hedge has not gone away.