Pretty interesting correlation here.

[txlaw]

Obviously JP Morgan and the Federal reserve believe that Gold is money and is appreciating against the buck (or should we say the buck is depreciating against Gold).

 

 

I agree that gold should be viewed as currency, since the majority of the world believes that it is a store of value unrelated to the whims of the central banks. 

 

However, I don't understand why you would hold gold as an inflation hedge when you can buy great companies that generate revenues in currencies that will appreciate relative to the dollar in the long run.  Holding gold is like holding cash -- you hold gold so that you can convert it to currency and purchase an undervalued business.  But note that it's not easy to convert gold to cash, so even that is a dubious reason for holding gold.

 

Instead of gold, why not just hold another currency?  The loonie looks like it will be a petrodollar over the long run, so you probably could just keep your cash in Canadian dollars for the long run and be all right. 

 

I'd be interested in hearing what all the Canadians on the board think about the prospects for the loonie.

 

[Guest kawikaho]

Obviously JP Morgan and the Federal reserve believe that Gold is money and is appreciating against the buck (or should we say the buck is depreciating against Gold).

 

 

 

Instead of gold, why not just hold another currency?  The loonie looks like it will be a petrodollar over the long run, so you probably could just keep your cash in Canadian dollars for the long run and be all right. 

 

 

Really?  When did you hear that?

[txlaw]

Obviously JP Morgan and the Federal reserve believe that Gold is money and is appreciating against the buck (or should we say the buck is depreciating against Gold).

 

 

 

Instead of gold, why not just hold another currency?  The loonie looks like it will be a petrodollar over the long run, so you probably could just keep your cash in Canadian dollars for the long run and be all right. 

 

 

Really?  When did you hear that?

 

From the last Brookfield Asset Management letter:

 

"The other 50% of our capital is invested predominantly in three healthy, commodity-based countries where we believe the odds favour the currencies doing well compared with the U.S. dollar. This is as a result of their current fiscal situation, but more importantly because the drivers of their economies (oil, iron ore, coal, copper and agricultural products) should enable them to maintain positive fiscal positions."

 

I believe Buffett has also mentioned in the last two years that he thought the Canadian dollar would be worth quite a bit more than the dollar five to ten years from now.  I think he was basing this projection on the Canadian fiscal situation and the backing of the currency by commodities such as the Canadian oil sands.

 

If you're in the U.S. and you're looking to protect your cash from the effects of inflation and U.S. dollar devaluation, you could probably open a Canadian dollar interest bearing account and do fine, I'm thinking. 

 

Thoughts?

 

[txlaw]

Instead of gold, why not just hold another currency?  The loonie looks like it will be a petrodollar over the long run, so you probably could just keep your cash in Canadian dollars for the long run and be all right. 

 

I'd be interested in hearing what all the Canadians on the board think about the prospects for the loonie.

 

 

Here's a Bloomberg article on speculation in the Canadian dollar: http://www.bloomberg.com/apps/news?pid=20601087&sid=aFdI9y_5K3Pw

 

Makes me think that we could have a reversal in the short run, though the long run story remains intact.

 

Also, I went back and found a very interesting thread on the loonie that I skipped over a few months ago: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=610.30

 

[beerbaron]

I agree with watsa. I would happily invest in gold if I could understand it. It seems to me gold is responsive to macro-economics and not a lot of people are good at understanding/predicting long term macro. Too many variables.

 

If two people are left alone on an island. One has 10 ounce of gold, the other has 10 acres to grow. Which one would you prefer being?

 

BeerBaron

[ERICOPOLY]

I agree with watsa. I would happily invest in gold if I could understand it. It seems to me gold is responsive to macro-economics and not a lot of people are good at understanding/predicting long term macro. Too many variables.

 

If two people are left alone on an island. One has 10 ounce of gold, the other has 10 acres to grow. Which one would you prefer being?

 

BeerBaron

 

 

I would use gold as a hedge if I could understand the price movements.  I don't understand why it makes the Swiss Franc look like it is hyperinflating over the past 5 years.  Ditto for gold vs CDN and AUD.  I do understand why the USD is falling in value against Swiss Franc, CDN, and AUD.  That's pretty clear.  It makes sense that it is losing value to gold too. 

 

But what doesn't make sense to me is why the CDN/AUD/CHF are quite literally collapsing relative to gold (the past 5 years).  There is no theme of rapid devaluation of those currencies, except when held up to gold.  So it is a conundrum.

 

Julian Robertson is staying away from gold because he thinks gold is driven by psychology, and he isn't a psychologist.  He does believe in the possibility of a USD collapse so he is hedging via derivatives that effectively short US Govt bond market (the curve steepener).

 

 

 

 

[txlaw]

I would use gold as a hedge if I could understand the price movements.  I don't understand why it makes the Swiss Franc look like it is hyperinflating over the past 5 years.  Ditto for gold vs CDN and AUD.  I do understand why the USD is falling in value against Swiss Franc, CDN, and AUD.  That's pretty clear.  It makes sense that it is losing value to gold too. 

 

But what doesn't make sense to me is why the CDN/AUD/CHF are quite literally collapsing relative to gold (the past 5 years).  There is no theme of rapid devaluation of those currencies, except when held up to gold.  So it is a conundrum.

 

Ericopoly,

 

I just wrote a long post on this in another thread.

 

My theory is that the price of gold was severely depressed between the late 90s and the early 2000s due to central banks leasing gold to bullion banks as part of their easy money policies.  A bunch of gold was dumped into the market as a result, and so gold hit bottom in 2001 and 2002.

 

Then between the early 2000s and the financial crisis, two things happened: (1) supply and demand for gold began to revert back to more normalized levels, which resulted in the price of gold reverting back to its mean; and (2) people began buying gold as insurance against systemic crisis and a sharp devaluation in the dollar. 

 

These two things caused gold to appreciate rapidly relative to even the most sound currencies.

 

Going forward, I believe that sound currencies will appreciate at a more rapid pace versus the dollar than gold.  We are beginning to see this in the one year charts.