Gold Price Appreciation in Reserve Currencies

Real-time Monetary Inflation (per annum): 4.5%*

You had to own brass, well, er, um, somethings last week if you wanted to trade British pounds for gold. Sterling's purchasing power dropped 2.2% against the yellow metal in a dramatic reversal of this year's trend. The British quid has distinguished itself in 2009 as the only reserve currency that has actually appreciated against gold.

It's precisely because of that track record that some market observers wonder if sterling's actually a "canary in a coal mine." Does the turnaround in the pound foreshadow a generalized flight from fiat currency?

 

Gold Price Appreciation In Reserve Currencies

 

There's no shortage of voices lined up on either side of that question. And, as we've noted many times in this column recently, the gold market's been winding itself into an ever-tightening coil. Something's gonna give and we won't have to wait much longer to see the direction gold takes.

In sifting for directional clues, many observers have been surprised to discover that the U.S. dollar's not been the inflationary bad boy this year. Among reserve currencies, in fact, the greenback's been something of a middler.

 

Gold Price Appreciation In Reserve Currencies

Currency	Year-to-Date Appreciation	10-Year Average Annual Appreciation
U.S. Dollar (USD)	8.1%	12.0%
Euro (EUR)	6.9%	9.9%
British Pound (GBP)	-3.5%	12.2%
Japanese Yen (JPY)	12.2%	10.0%
Swiss Franc (CHF)	9.3%	9.4%

 

In the longer run, it's quite a different matter. Pounds and dollars have been neck-and-neck in the race to devaluation over the past decade.

And so, we wait. A little bit longer. For the other shoe ... er, currency ... to drop.

 

 

*Note: To provide a longer-term perspective, we've pushed back the base for our real-time monetary inflation indicator to May 2006. The base previously was January 2008. The indicator represents the average annual rate of monetary inflation over the period. The current 12-month inflation rate is 0.2%.