GOLD Takes Center Stage in a Fiat World

Saturday, January 5, 2019
By Paul Martin

by Sprott Money
Sat, 01/05/2019

Written by David Brady- CFA, Sprott Money News

Just as Neo flexed his muscles upon learning he is “The One” and took out Agent Smith at the finale of The Matrix , Gold is now letting fiat currencies know who is really in charge.

Many take credit for anticipating Gold’s ascent from the lows in August, and yet they cite all of the wrong reasons for its appreciation: peak DXY, peak USD/JPY, falling real yields, speculative buying, and so on. The truth is that Gold is doing its own thing and taking matters into its own hands. We know this because Gold isn’t just rising against the dollar or the euro or the yuan, it is soaring against ALL major currencies.

Gold has risen significantly against them all by over 10% on average. Its gains are not solely against the dollar or yuan due to U.S.- or China-specific policies, but against ALL of them. What is the common denominator here? Gold.

Retrospection can be extremely informative in terms of where we’re headed next. Most of my readers are familiar with this equation:

XAU/USD = XAU/CNY divided by USD/CNY

When XAU/CNY was relatively fixed within a range, Gold in dollar terms was almost perfectly correlated to USD/CNY on an inverse basis. This is what happens when one variable in an equation is fixed. Then something strange happened on August 16 th. XAU/CNY bottomed at 8084 and proceeded to rise from that point forward. At the same time, USD/CNY became fixed in a range of 6.78-6.98, as a stalemate developed in the trade war between the U.S. and China. This meant that XAU/CNY and XAU/USD became directly correlated. It was no coincidence that both bottomed out the same day.

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