While the US dollar continues to maintain its strength, many investors opt to buy gold in other currencies, taking advantage of gold’s appeal as an alternative currency. Gold recently set its all-time high against the British pound and the euro, with the latter reaching 828 per ounce on February 19th. Frank Holmes, CEO and CIO of US Global Investors says, “There are many compelling factors both from a supply side and then from the demand side that looks like gold will trade higher."
Not unlike the factors in the United States, deficits, inflation, appeal and supply lead investors to buy gold in other countries’ currencies. These factors affect gold purchases by:
* Deficits – Gold is looked upon as a safe haven investment and alternative currency. As Greece’s deficit problems have weakened the price of the euro, gold bought in euros has become increasingly valuable.
* Inflation – Overspending by federal governments and devaluing of currency such as is occurring in England makes gold more valuable as well. Like it has done against the euro, gold set an all-time high of 1,133 per ounce against the pound as England’s inflation rate climbed to 3.7 percent.
* Demand – Gold has tremendous appeal worldwide. China and India consume the most gold of any country and citizens there buy gold not only for investment, but due to their strong appetite for jewelry as well. Frank Holmes says that, “Rising incomes in Asia, where affinity for gold runs deep, will have a sizable positive impact on demand.”
* Diminishing Supply – While China has been increasing its production of gold, overall gold supplies have not been able to meet demand. Worldwide production of gold fell 10 percent in 2008, while demand continues to increase. This leaves shortages in many countries and pushes the cost to buy gold higher in their currencies.
As the US dollar continues to hold its strength, some analysts are advising clients to buy gold in foreign currencies, such as economist Dennis Gartman, editor of the Gartman Letter. This allows investors to profit from gold’s strength, even when the dollar is strong.
John Halloran
Senior Gold Specialist - Buy-Gold.org
