invest in gold


Why do you look at gold priced in Japanese yen?

November 4, 2011, 12:00 PM Przemysław Radomski , CFA

I was wondering why you look at gold priced in Japanese yen? Since gold is priced in London why not look at it in GBP? Are the signals from the Gold:GBP chart the same as those from the Gold:YEN chart?

Before replying to this particular question, we would like to remind one of the previous replies that we provided on a similar topic.

One of the questions we received recently was about buying gold priced in USD vs. buying gold priced in other currencies. Subscriber asked what currency it is best to buy gold with. 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 dollars or pounds - you are holding gold. When you decide to sell your gold, you will either get GBP, or USD which you would then need to convert back into pounds for use in 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 goes up because the dollar moved down, you would have a gain in the USD, but soon after you convert your dollars into pounds 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 against all currencies.

Here is another example:

Gold in Euro moves up 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 this have on gold priced in dollars?

At the beginning, 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 this 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. Some investors are willing to purchase dollars as a safe-haven, which we found ironic when we first commented on it several months ago. We still find it ironic, bordering on foolish. On the other hand, some savvy Europeans will be willing to purchase gold and silver.

Moving back to the original question - from the purely technical perspective, signals coming from GOLD:GBP and GOLD:YEN charts are somewhat similar but different. However, GOLD:GBP is very similar to the GOLD:UDN ratio that we feature on a weekly basis, so we take into account the GPB factor as well.

Now, since the GOLD:YEN chart is significantly different from the GOLD:UDN ratio, we can see confirmation/invalidation either in the USD picture, or in GOLD:UDN.

The GOLD:GBP chart would not provide a significant confirmation/invalidation of the GOLD:UDN ratio, simply because it's so similar to it. We would be double-counting the factors.

We realize this may be difficult to visualize without looking at the charts, so it might be a good idea to move back to the Gold section of one of our Premium Updates (update: to our Gold & Silver Trading Alerts) and compare gold charts to the GOLD:UDN ratio.

Did you enjoy the article? Share it with the others!

Gold Alerts


Dear Sunshine Profits,

gold and silver investors
menu subelement hover background