Chart of the Day: Gold at $2000 AUD oz?

Today’s chart is inspired by a conversation with the The Bullion Baron’s whose blog has been successful in forecasting the price of gold – but in AUD instead of the oft-quoted price in USD.

The dynamics between the USD, the AUD and gold are interesting, to say the least. We have seen how risk assets inversely move to the USD price (represented best by the US Dollar Index, with my latest update here).

But as The Bullion Baron points out: (emphasis added)

However, since 2008 Gold has shown mixed price action during periods of heightened systematic risk and tension in the credit markets, at times it has plunged like a stone, other times it has risen with the USD. While a repeat of 2008 where basically all assets (including the precious metals) are smashed can’t be ruled out, it also can’t be counted on that Gold will react in the same way.

I would suggest even if we see Gold correct (priced in USD) it’s likely only to fall to $1600 (as suggested by The Prince on MB) and in the event of systematic risk and RBA rate cuts we could see the AUD fall to 80c against the USD or maybe even lower.

US$1600 Gold and 80c AUD gives us a local Gold price of $2000.

There is of course the possibility that Gold acts more like a safe haven during the next crisis and rises at the same time as the AUD falls, the last few months show that either could happen during a period of volatility (Gold could rise when AUD falls or they could both fall together)..

If we saw Gold rise back to $1800-1900 in USD and the AUD returned to 80c then we could be faced with an AUD Gold price of $2250 – $2375.

The Bullion Baron ends his blog with a very interesting chart, which I have reframed with an interception point at the start of 2008, plotting not only the US Dollar Index (DXY – green) and gold (AUD – black), but the AUD (blue) itself:

Perhaps Australian investors should look more closely at using gold in AUD as a hedge instead of the USD (both of which can be purchased as ETF’s just like a share), regardless of the capital upside potential of gold itself, considering that the trajectory of the AUD during crises has not been favourable.

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  1. Thanks for the coverage The Prince.

    Of interest to readers might be the ASX codes for particular securities that can be traded. Some are still fairly new so not that well known:

    AUD Gold (ASX Listed): GOLD, PMGOLD

    USD Gold (ASX Listed, hedged AUD): QAU

    US Dollar ETF (ASX listed): USD

    Of course for exposure to the AUD price of Gold you could also buy physical from a dealer 😉

    • And physical gold has other benefits. You can guarantee that you actually have it and any capital gains are untaxed (not sure if they are meant to be reported, but nearly all transactions are in cash anyway).

  2. “Perhaps Australian investors should look more closely at using gold in AUD as a hedge instead of the USD (both of which can be purchased as ETF’s just like a share)”

    Just for the avoidance of doubt, it doesn’t matter which one you buy as the end result is the same when translated back to AUD (the ETFs aren’t internally hedged).

    I like the trade too.

    • PMGOLD is a gold option from the Perth Mint backed by the WA government.

      As close to an ETF as you can get while still technically owning gold.

  3. Prince
    Off topic, but still on investment strategies – what does the average punter with savings in the bank do if the ECB and FED both decide to seriously ‘print’ again soon?
    Shares, gold, other commodities?
    A post like this would be good – showing the ‘winners’ and ‘losers’ from our experiences so far with QE recently.

  4. What EFTs are available for gold?.
    I know of GOLD, and PMGOLD (which is a call option from the Perth Mint).

    GOLD seems to have a slowly diminishing gold content attached to each unit, while with PMGOLD there is always 1/100th of an ounce attached to each unit, but you lose a few units each year.

  5. Prince, BB, It’s a good way to look at gold in AUD, but in what time frame will the AUD be 80c? I can see the FED, and possibly ECB printing and in that case the USD will weaken, and conversely the AUD strengthen, unless we have a commodity crash, but while I think commodities will weaken I can’t see them being a problem for a while.

    I can see the AUD correcting to 80c at some point, but I’d be talking rubbish if I predicted anything on FOREX.

    Your post is spot on for anyone holding gold in Australia however.

    Maybe a better play these days is oil; we’re past peak oil, and even with a global contraction oil is likely not to get any cheaper…that’s my view.

    • There is certainly a possibility that ECB/Fed print. I guess it depends on whether they choose to get ahead of the curve or if we start to see things collapse and that’s when they react.

      I would suggest AUD 80c within the next 6 months, however as you suggest QE could kick this can down the road.

      • What does it matter where the AUD goes in 6 months? ‘Paper money always reverts to its intrinsic value – zero’ (Voltaire).

        US gov debt is currently, and I think has been for some while, way past the point where it can be repaid. A large proportion of it is short term 2-yr T-Bills and much of it is owed to foreigners. There’s no way the US gov are going to cut spending or raise taxes sufficiently to pay foreign bond holders.

        I think its almost a certainty that the ECB and Fed will both continue to print. That’s all they’ve ever known. In such an environment where your own government is working to confiscate your wealth through inflation, what options are there aside from speculation on real assets + gold?