The best currency hedge: buying gold in EUR and per gram!
News Arnulf Hinkel, Financial journalist – 10.10.2016
Almost all daily media report on the gold price in US dollars (XAU/USD), giving readers the impression that this would have to be the original gold price, valid worldwide. This – false – view can be explained historically: not only had gold been seen as a currency of its own since the ancient times, but the gold price was actually linked to the US dollar until some 40 years ago. Today, however, this is completely different, since the gold tradable in the eurozone, as well as most gold-based securities, are denominated in euro. The relevant gold price is expressed in euro per gram. Not only is the currency sovereignty of the eurozone thereby recognized, but also the only globally valid measure of gold: its weight – measured in grams, not in troy ounces, as in the US. A troy ounce fine, by the way, equals 31.1035 grams.
However, there are also gold products tradable on the European market which are denominated in US-dollar and measured in troy ounces. In addition, investors can purchase so-called Quantos – securities representing the percentage appreciation of gold in US-dollar as yield in euro. Although these Quantos are often referred to as products offering currency hedging, the investor usually speculates on both the increase in gold and the depreciation of the US-dollar. This product complexity has to be paid, however, in the form of fees which in turn hurt the return on the securities. Quantos on gold are only suitable for real risk takers who want to participate not only in the development of the gold price, but at the same time profit from movements of the Euro/US-dollar currency pair – a highly speculative form of investment that is in total contradiction to the main function of gold, which is to increase the stability of an asset portfolio and to reduce risk by investment diversification. Hence, it is only logical to effectively eliminate currency risks right from the start of an investment: with the purchase of gold securities in euro.