I’m not sure whether I should buy gold priced in USD or in other currencies. What difference does it make for me? I’m wondering what the situation is if I hold gold priced in a foreign currency and want to sell it and convert my gains into my home currency. Could you help me out?
The short answer is that generally, it does not matter much as far as profit and currency risk exposure are concerned. For example, if you live in Great Britain and have British Pounds and you want to buy gold, you need to either use your pounds to purchase the gold, or convert your pounds into another currency (USD for instance), which you would then use to purchase the gold.
The bottom line is that you are not holding USD or British Pounds - you are holding gold. When you decide to sell your gold, you will either get GBP or else USD, which you would then need to convert into GBP (since that is the currency that you use for your daily life.) The only difference is that if you use USD for the purchase you will need to buy it and then sell it, paying currency conversion fees for both transactions. If the price of gold in USD terms goes up because the dollar moved down, you would have a gain in the USD, but very soon after you convert your dollars into GBP you would not see this tremendous gain. This is just an example. We believe that in the long run gold is likely to move up in all currencies.
Here is another example (we have featured it as a reply to another question, but we believe it could still be useful as there appears to be a lot of disinformation on the Internet regarding this topic):
Gold in Euro moves up by 100% from 1,000 to 2,000.
Dollar goes up against Euro from 0.7 to 0.9 (meaning that 1 dollar used to buy 0.7 Euro and now it buys 0.9 Euro).
What impact would that have on gold priced in dollar terms?
At the beginning of our hypothetical case, gold traded at $1,429 (1000 / 0.7) and now it trades at $2,222 (2000 / 0.9), which means that it increased by about 56%.
So - we have an increase in the value of gold in both: USD and EUR, which means that gold increased its value against the U.S. Dollar while the Euro decreased its value against the U.S. Dollar.
Of course, the numbers above are hypothetical, and everything depends on the sizes of the respective rallies/declines, but the above example clearly shows that a decrease in the value of the Euro (against the dollar) does not need to translate into a lower price for gold.
At the moment, it is not surprising to see European investors purchasing gold in response to their economic problems. Yes, there will be investors willing to purchase dollars as a safe-haven, which we find ironic bordering on foolish. On the other hand there will be some savvy Europeans willing to purchase gold and silver.
If you're interested in comparing the usefulness of buying gold in terms of various currencies, then you'll probably be also interested in the current outlook for the precious metals market and in seeing how the regular "gold in terms of USD" analysis is applied in practice along with other precious-metals-related factors. Good news - we have a free newsletter in which we let people know about our free analyses (we cover gold, silver, crude oil, stocks, forex and bitcoin). The signup for the free newsletter is accompanied by a bonus of 7-day access to our premium Gold & Silver Trading Alerts, so we encourage you to check it out. Use the following link to continue. Sign me up!
Back
