The majority of gold market news and commentary focuses on the US dollar price of gold, which has fallen by 16.5% since the high in September 2011. However, gold hasn’t declined nearly as much when priced in other major currencies.
Since reaching an all-time high of $1,895 on 5 September 2011 the price of gold in US dollars has fallen by 16.5% to $1,581.80, and it is this decline that continues to capture the headlines. In the mean time the sterling price of gold, which peaked the day after the US dollar price, has since declined by 10.5%.
The price of gold in euros peaked much later, on 1 October 2012, and has since declined by 12%, while the price of gold in Japanese yen peaked on 6 February this year and has since only declined by 2.9%.
Gold priced in Canadian dollars, Swiss francs, Indian rupees, Russian rubles, and Australian dollars has declined less than it has in US dollars. In fact, the only major currency in which the price of gold has fallen by more than 16.5% is the Chinese renmimbi. Gold in the Chinese currency peaked in February 2011 and has since declined by 18.8%.
A 2 year chart of gold in various major currencies (Click on the chart for a larger version)
Source: Chart data courtesy of World Gold Council. Note: The gold price used both in the chart and elsewhere in this article is the London PM fix.
Although a 16.5% correction in the gold market is scary, it is by no means unusual, and the extremely negative sentiment in the sector almost certainly has more to do with the length of the correction than its severity. The old stock market adage that a bull market will do its best to “scare you out or wear you out” certainly applies here.
Investors need to be mindful however, that when push comes to shove it is paper currencies that will be sacrificed in the search for economic growth. Just look at the Japanese yen.
Having sat through a correction which lasted from September 2011 to January 2013, gold investors in Japan are now being rewarded for their patience as gold protects their wealth from the actions of an increasingly desperate central bank.