Currency Fluctuations and Troubled Global Economy to Drive Gold Higher

Gold Investors’ Insurance in 2015There are too many analysts who are concerned about deflation, a period during which the price of general goods declines. Because of this, analysts are not too keen on gold. They say the yellow metal is only good for one’s portfolio when there’s inflation. When prices are declining, it’s not really worth anything. I beg to differ, though.

While I’m not denying there are deflationary pressures building up, this negative take on gold may just be proven wrong. Certainly time will tell more, but I say this because of two main reasons:

  1. Volatility in the currency market
  2. A global economic slowdown

These two factors will drive gold prices higher.

The Currency Market

The only phenomenon that’s keeping gold prices suppressed is the rising dollar. When you look at the major currencies in the world, they are facing wild swings. Please look at the chart below; here I have plotted the U.S. dollar (black), Canadian dollar (red), British pound (blue), Japanese yen (dark green), and the euro (neon green) since 2009.


US Dollar Index- Cash Settle

Chart courtesy of

Looking closely at the chart, it’s noticeable that major global currencies are seeing wild swings, that it’s very difficult to pinpoint a clear trend. If you add currencies from emerging economies—Russia, especially—the picture becomes even more gruesome.

When there’s volatility in currencies, investors tend to run towards something that provides them with safety. Gold has done this—served as a hedge against volatility—for a very long time. It will do the same this time around, as well; I don’t doubt it. Keeping all this in mind, central banks will need the precious metal to stabilize their currencies and investors will need it to protect their wealth. This, despite deflationary pressures building up, will cause gold prices to soar higher.

But this isn’t all. The conditions in the global economy are working in favor of higher gold prices as well.

Slowing Global Economy

No matter where you look, with the U.S. economy being the only exception, the troubles continue to grow. The indicators that say where we are headed next are sending out a very obvious message: an economic slowdown is becoming evident in the global economy.

You don’t even have to dig deep into the details to see this; the data on the surface are showing dismal news. And I wouldn’t be surprised to see these data becoming even anemic. The Chinese economy is slowing down, the eurozone is struggling—with countries like Italy witnessing one of the worst slowdowns since World War II—and Japan is in a recession.

When major economic hubs of the global economy suffer, the smaller ones tend to follow suit, since they are too reliant on the larger economies.

At the very core, a global economic slowdown creates uncertainty and increases fear—which, essentially, is great for gold.

Why Own Gold?

I am a big believer in gold. I continue to see these low prices as nothing but a great opportunity. The yellow metal received its fair share of scrutiny in 2013 and throughout this year. Now, when I look at the global economic situation and currency fluctuations, I see the precious metal’s prices soaring higher in 2015.

I am not saying investors should just buy gold and nothing else. Diversification is important, and it works. However, I do continue to believe that investors should consider holding 10%–20% of their portfolio in gold. Investors should be looking at gold as insurance, rather than just a simple investment.