By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman
Here is a Great Graphic I saw on marketoracle.co.uk, which picked it up from Scott Barber at Thomson Reuters. It depicts the price of gold in a number of different currencies, including the dollar since the start of 2007. Over this period, the price of gold has appreciated 175% in dollar terms.
There are a couple of interesting observations. First, the divergence among the different measures of gold did not begin in 2007, when the crisis first began, but in late 2008, around the Lehman event.
Second, despite Japan having the largest debt in the world at 200% of GDP and engaged in quantitative easing for much longer than any other country, the price of gold has appreciated the least in yen terms. After Japan comes Switzerland, where the price of gold in terms of the franc appreciated a little more than it has in yen. Gold in sterling terms has rallied the most. The dollar and the euro are in a dead heat for the dubious honor of being second to sterling.
The divergence is solely the function of currency movements against the dollar. Over the period charted, the yen has appreciated 53% against the dollar, the most among the major industrialized countries. The Swiss franc has appreciated by about 30%. The euro has fallen about 2.5% against the dollar over this time period, while sterling has depreciated by around 17.5% against the dollar, the most of the major currencies.
Yet this does not due currencies justice. Unlike gold, currencies also associated with an income stream. Since the beginning of 2007, in addition to the spot appreciation, yen deposits have returned 2.7% and Swiss franc deposits have returned 6.5%. In the same period, euro deposits have returned 13.5%, which is more than enough to offset the spot depreciation of the euro. Sterling deposits have returned about 18%, which is essentially the same as magnitude of sterling’s decline.