G20 meeting amid increasing currency tensions

The currency fell from a high of US$1.36 on Wednesday to below $1.335 this morning, but has recovered slightly. We’ve been hearing more concerns from eurozone leaders about this recently, what with Francois Hollande’s comments on this subject and German finance minister Wolfgang Schäuble expressing “deep concern” about the direction of Japanese monetary policy, with the Bank of Japan now trying to force a substantial depreciation in the yen.

Even the Venezuelans are getting in on the act: with Hugo Chavez’s government last week announcing a devaluation in the country’s fixed exchange rate with the dollar – from 4.3 bolivars per dollar to 6.3 bolivars. Elsewhere in Latin America Cristina Kirchner’s Argentine administration is resorting to evermore farcical attempts to disguise the extent of Argentina’s inflation problem, with supermarkets and electronic retailers now banned from advertising in the country’s top newspapers. This follows hot on the heels of government orders to freeze prices for two months. Unofficial estimates place annual inflation in Argentina at 26%; priced in Argentine pesos, gold has been doing very well recently.

Currency wars will likely again be a hot topic in this week’s financial press, given that Russia is hosting a meeting of G20 finance ministers and central bankers. The Russians, like the Chinese, have been steady gold buyers since 2007 – in fact, as Bloomberg reports, at 570 tonnes over the last decade Russian bullion purchases have actually slightly exceeded official Chinese purchases over the same period. Of course the caveat in that sentence is the word “official”: given the uncertainty about bullion flows around the world – highlighted by this morning’s London Times front page story about Iranian oil-for-gold sanction-busting – Chinese gold accumulation likely far exceeds that claimed in official data.

The point is that the Chinese and the Russians both recognise the simple truth stated by one Russian parliamentarian to Bloomberg: “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency”. Too bad more people in the West don’t understand this.