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Can Gold Steal A March On The Dollar?

By Dominic JeffCommoditiesDec 05, 2018 11:15AM ET
Can Gold Steal A March On The Dollar?
By Dominic Jeff   |  Dec 05, 2018 11:15AM ET
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Gold is renowned for holding its value, but looking at the last half decade it’s surprising to see just how stable its price has remained. The charts show the price of an ounce has hardly moved from where it was one year ago, or five years back. Of course, it has moved a little in between times, but it has rarely strayed more than 10% in either direction from its current valuation.

Which is interesting, because there has arguably not been a set of circumstances more likely to send investors scurrying for a safe haven for a decade. Markets have suffered in recent months, ever since President Donald Trump managed to get his trade war going with China. But in the last few weeks the potential for political action and events that can really harm the markets has surely grown: the Italian deficit, ever greater worries over Brexit and now, civil unrest in France that looks like derailing President Macron’s economically liberal reform plans.

None of these events - and they are a mere sample of the swirling global uncertainty listed corporations are having to navigate at the moment in their search for an honest profit - are particularly comforting to bond holders either, nor do they make currencies such as GBP and EUR look safe. So where are worried investors putting their money?

The traditional options are gold or the Greenback, and if we look at USD’s performance against the Euro, we see it has gained steadily since markets started to turn bearish in the spring. That steady gold graph I mentioned earlier, of course, was priced in dollars. For Europeans, gold would have been a good play.

How long can these two old safe haven rivals keep on dancing to the same tune? Currently they each have one advantage over the other: Gold has no government to mess things up - a source of envy to the rest of us; but until now, it is not possible to buy a coffee with gold. In times of uncertainty, the greenback continues to be the go-to currency for the weary citizens of unstable economies. But that could be about to change.

In Europe, a company called Aurus is about to launch its gold tokens using blockchain technology. Aurus’ management has already argued that gold is due a significant boost from its safe haven status, early 2019 looks like the perfect time to launch its token. In a recent blog, they said: “The sustainability of today’s stock market performance is over. After the gold rally that run into 2013 many investors had been selling gold to invest in stocks. Although it was not necessarily a bad idea to have exposure to the stock market [at the time], selling off precious metals to invest in more risky assets which are currently at all time highs would potentially set us up for serious wealth destruction in the future. This is starting now, making the opposite sound better.”

But Aurus’ primary pitch is not to investors: the company believes its tokens - fully backed by real gold thanks to an alliance with leading vaults around the world - will finally make the yellow metal a viable medium of exchange. Therefore, not investors but ordinary folk seeking a haven for their hard earned cash might turn to gold in larger numbers than before thanks to the ease of purchasing it and the possibility of using it to buy goods and services directly. Such networks are most likely to develop in emerging but inflation-prone economies.
Could this tip the balance against the Dollar - or will Donald Trump do that all by himself?

Can Gold Steal A March On The Dollar?

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Can Gold Steal A March On The Dollar?

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