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Predictions for Gold in Various Currencies

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I've been thinking about how a few currencies might change and what effect that might have on gold.

This thinking starts with Jim Sinclair's prediction of gold reaching about US$1600/Toz, I think by 2011.


This is what gold would look like in US$:




Just compare the graph from 2001 to 2011 to what happened between 1978 and 1981.

Note that this is not inflation adjusted, so the current price is low compared with the peak in 1981.



Now look at the GBPUS$ graph. The GBP and US$ might both fall together, leaving the rate at about 2.0 or the GBP might fall down to say 1.4.





Using those two possibilities, leads to these two predictions for gold in GBP:






Looking at US$JPY, this time with 3x possibilities, staying the same, dropping to 70.0 and dropping to 50.0. From this graph I don't have any confidence in a prediction.





Looking at GBPJPY, it seems likely that the rate will drop back to the 2001 level. That would be a 40% drop. If the GBPUS$ rate remains the same, that would equate to a US$JPY rate of about 70 (60% of 110). If the GBPUS$ rate drops, which seems likely, that would suggest the US$JPY rate could well end up below 70.0. That makes 50.0 a reasonable prediction.





And the 3x possible outcomes for Gold in JPY:






Both Gold and Yen have been put forward as great potential profit areas.

You can see that a Yen investment could be better than Gold. But Gold could be better than Yen.


It seems to me that a Yen investment will probably make more, but if you worry about the safety of holding paper currencies, Gold as the edge for safety.


I hope that gives those who question how Gold will perform in their own currency some idea.

Certainly Gold will do better against a falling currency. Against a potentially rising currency like the Yen it may not do so well.



I'd love to hear your views.



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Following on from my predictions for gold relative to other paper currencies, here you can see how gold has performed relative to the US$ and JPY so far:


Against the US$:



Against the JPY:



Thanks to Bullion Vault who provide the best gold charts IMO :)


It will be interesting to see which does better this year.

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Naive questioning: but I'm interested in your answers.


I read the other day how South African gold production was declining to the extent that China would soon be the world's largest producer.


China has a big stack of US Dollars in its Foreign Exchange reserves and no doubt they get bigger and bigger as they accumulate more trade surplus in trying as a consequence of their undervalued currency. Difficult also for them to use their reserves as a presumably a dollar crash is not in their interests and there will be political resistance in the US to China snapping up every asset in sight.


Avid readers, if you were the Chinese gentleman or woman charged with the task of overseeing China's massive currency reserves and using them to the good of China inc., would you be tempted to put the cash into the same gold that China is about to become the world's largest producer of?

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I've read a lot about gold recently. If I had time I could quote lots. From memory of what I've read:


1. Yes, worldwide gold production is actually falling. Despite the rising value of gold.


2. I don't know whether you're suggesting that China may be capable of producing so much gold that the price would fall. If so, I'd suggest that the world is not capable of mining enough gold to compete with the printing of paper currencies :)


3. I think I read exactly what you are suggesting. That Chinese money, rather than continuing to go back into the US, will go into things like gold. Not putting more money into the US$ is a compromise position, between putting more in and taking it all out.


A few recent things:


Flight to gold as investors lose faith in money



From Jim Sinclair:


Hi Jim,


I am a big fan of your work. I ran across this passage in one of your recent links to the Telegraph:


"New conduits such as ETFs have opened up, giving investors access to a market that used to be off radar. It has led to a slow, glacial flow of big money into gold that is immune to profit taking. On January 9, China will start trading gold futures in Shanghai,"


What effect if any will China’s new Shanghai trading have on prices? Does this give them access to what they don’t already have?





Dear DJ,


It gives more access. More access in a bull trend means COT is taken to the shed. Thank God it is a real generational BULL market in gold.





Bullion outshines record from 1980



Ross Norman, director of TheBullionDesk.com, said the world faces a new era of "peak gold" in which discoveries become rarer, leaving the market starved of the metal just as demand in China and emerging Asia begins to gather pace.


"Supply is declining despite a seven-year bull run," he said. "Production in South Africa is the lowest since the 1930s, and it is falling in Canada. As for the central banks, they are no longer quite so keen to part with their gold.


"New conduits such as ETFs have opened up, giving investors access to a market that used to be off radar. It has led to a slow, glacial flow of big money into gold that is immune to profit taking. On January 9, China will start trading gold futures in Shanghai," he said.


Another one from Jim:


Dear Jim,


I would first like to start by thanking you for keeping me in the game, so to speak. I have been following your advice on trading gold and select gold share royalty companies since the beginning of 2003. It has been very challenging at times to say the least with all the news and information we are bombarded with on a daily basis. I have since learned that this information overload accomplishes only one thing and that is to confuse the average investor and lead them to make very irrational decisions. I therefore do what most do not but should. I visit your website daily to keep me focused on the big picture where gold is heading and check the price momentum charts in IBD during corrections in gold for entry points and expected resistance and consolidation periods.


Doing these two simple things and using the charting tools that you have provided time and time again, I have managed to turn my retirement account from five (5) figures to seven (7) in just 4 short years. It simply amazes me how so many are looking for excuses to sell gold at every pullback. I have done what you recommend and taken delivery of my royalty company shares (over 100,000 shares to date) and have purchased and taken delivery of bullion gold and silver coins for my financial protection. What people don’t realize is you have given them the equivalent of the winning lotto numbers for gold reaching at least $1650. So, I will wait to collect my winnings in 2011 or when told by you to do so if at an earlier date.





Dear Rod,


Nothing could possibly give me more pleasure than to share in the joy of your accomplishment.


If I am wrong in gold it will only be because my goal of $1650 is too conservative. Error will not occur otherwise. Early 2011 is the target date. The Chinese have already helped gold get to $850. They will do a great deal more as gold trading futures are now authorized in China. With a 1/3 of the world’s population located there, what happens when even a small number of traders become interested in the small cap gold market? As we have already seen with the benchmark Shanghai composite index having soared nearly 97 percent, it is the world's best-performing major stock index in 2007.



Asia is too smart to be bears on gold. Only the COMEX knuckle dragging nit-wits are bears.





And this one makes another point for looking at gold in more than one currency. After all, the Chinese/Japanese etc are more interested in how gold is doing relative to the money they have/earn.


Euro Gold Breakout Above Resistance Analysis



If you are an American investor, this is great. We have always thought of gold as denominated in dollars and it is hard to imagine any other way of thinking about it. But if you live outside the States, the gold price is a lot more relevant as quoted in your own local currency. Your mind is wired to think in local-currency terms and various investment options are only comparable within this life-long mental framework.


Investors all over the world rightfully consider the relative attractiveness of gold as an investment only through the lens of their own currency. Universally investors are attracted to strong and rising markets in local-currency terms, including gold. But thanks to the US dollar's meanderings, local-currency gold charts can look considerably different from the baseline dollar gold chart.


So what we Americans see on the dollar gold charts is not always what other investors worldwide see on their own. If the US dollar is fairly stable, gold will have similar percentage moves in other major currencies. But if the dollar is volatile, which it has been for 15 years now, it can really impact local-currency gold prices. In order to understand how international investors perceive gold, we have to see it like they do.



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A couple more for you on the same theme:


How Will China Affect The Gold Market? - by Al Korelin, Jan 3 2008


Listen here:



SHFE Announces Gold Futures Contract Reference Price



SHANGHAI (Interfax-China) -- The Shanghai Futures Exchange (SHFE) today announced that the reference price for gold futures contracts has been set at RMB 209.99 ($28.84) per gram.


Gold futures contracts are to debut on the exchange on 9 January.


The gold futures contract reference price has been set at RMB 209.99 ($28.84) per gram for contracts that will be delivered midway through each month from June to December 2008. Contract price movement will be limited to plus or minus 10% of the reference price on the first day of trading on the SHFE, which will return to the normal level of plus or minus 5% from the second trading day onwards.


Each contract represents 1 kilogram of gold, and the minimum margin requirement has been fixed at 7%. Trial trading of the new contract kicked off on 2 January and concluded today.


"The relatively high reference price compared to the current spot price on the Shanghai Gold Exchange will help to invigorate gold futures trading," Chen Yiqun, an analyst from Suzhou Investment Co. Ltd, a futures brokerage in the Jiangsu provincial city of Suzhou, told Interfax today.


Au (T+D), currently the most active contract on the Shanghai Gold Exchange, the largest spot gold platform in China, closed at RMB 202.19 ($27.77) per gram today, up 1.1% from the previous trading day. The contract rose 22% over the whole of 2007.


"Gold mining and refining companies will be encouraged to hedge on the futures market through selling contracts. However, individual investors trading through brokerages will be exposed to greater risks when buying or selling contracts, as they are prohibited from making actual physical deliveries in order to settle contracts," Chen said.


The SHFE announced yesterday that four gold production companies, namely China Gold Group, Shandong Gold Mining Co. Ltd., Shandong Zhaojin Group and Zijin Mining Corp. have been licensed as SHFE members.


Gold futures trade is currently limited to SHFE members, some of which act as brokerage companies.

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