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Visualizing the Power of Gold Versus Currencies

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The Power of Gold Versus Currencies

Visualizing the Power of Gold Versus Currencies

The Power of Gold Versus Currencies

Since the gold standard was abandoned in 1971, the relationship in value between currencies and gold has moved in only one direction: down.

At that time, U.S. President Richard Nixon suspended the convertibility of the dollar into gold, effectively bringing the Bretton Woods system to an end.

Today’s visualization comes from the In Gold We Trust report, and it shows that over the last 40 years, the purchasing power of the world’s most popular currencies have declined significantly against the precious metal.

Turbulent Years

In the first decade after the gold standard was abandoned, the international monetary system was seriously shaken. Several U.S. recessions, coupled with international conflicts and high price inflation put the world’s reserve currency under enormous pressure.

During the 1973-74 oil crisis the price of gold rose 65%. In 1978, U.S. bonds had to be issued in the hard currencies of the Swiss franc and the German mark–the so-called Carter bonds.

The next decade saw the rehabilitation of the dollar through a highly restrictive monetary policy run by the Federal Reserve that led to sky-high interest rates. The trend continued with the fall of the communist Eastern Bloc in the early 1990s.

The Erosion of Purchasing Power is Accelerating

Gold is still the universal reserve asset to which central banks, investors, and private individuals return in times of crisis. Since 1971, the average annual growth rate of the metal price in U.S. dollars is just over 10%. Since the Euro was introduced in 1999, the gold price in EUR has risen by 356%, or on average 7.8% per year.

Unsurprisingly, over the last 40 years, the best performing G-10 currency was the Swiss franc, largely due to its close relationship with gold. The Swiss National Bank has one of the largest reserves worldwide.

CountryGold Reserve (Tonnes)
Value (US$ billions)
🇺🇸 United States8,133.46$493.6
🇩🇪 Germany3,362.45$204.1
🇮🇹 Italy2,451.84 $148.8
🇫🇷 France2,436.19$147.8
🇷🇺 Russia2,298.53$139.5
🇨🇳 China1,948.31$118.2
🇨🇭 Switzerland1,040.00$63.1
🇯🇵 Japan765.22$46.4
🇮🇳 India676.64$41.1
🇳🇱 Netherlands612.45$37.2

Despite significant corrections, gold was able to outperform virtually every other asset class and above all, every other currency between 2001 and 2019.

Gold breakout

Amid the turmoil brought about by Covid-19, investors again increased their exposure to gold. In August, the metal price surpassed $2,000 per ounce for the first time ever.

As political and economic tensions tend to endure over the next decades, so does gold’s role as an anchor during uncertain times.

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The Next Frontier: Mineral Exploration in Saskatchewan

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Saskatchewan Mineral Exploration

The Next Frontier: Mineral Exploration in Saskatchewan

Lying in the heart of Canada is the next great mineral exploration frontier, Saskatchewan. This humble province lies at the center of one of the greatest mining countries in the world, but despite Canada’s long history with mining, Saskatchewan is still open for discovery.

This infographic from our sponsor SKRR Exploration shows where the next mineral frontier for discovery lies in Saskatchewan.

The Road to Resources: Opening for Business

Saskatchewan covers 588,239 square kilometers, roughly the size of Iran or Mongolia, with a population density of only 1.8 persons per square kilometer. This central province sits on the edge of a vast frontier that is rich with mineral resources that could power and feed the world.

In order to encourage investment, Saskatchewan has several incentive programs for the mining industry.

  • The Targeted Mineral Exploration Incentive: 25% rebate on eligible drilling costs in regions of high potential for base metals, precious metals and diamonds.
  • The Saskatchewan Mineral Exploration Tax Credit: A non-refundable 10% tax credit to Saskatchewan taxpayers who invest in eligible flow-through shares issued by mining or exploration companies.
  • A 10-year royalty holiday for new gold and base metal mines.
  • A 5-year incorporation tax rebate for mineral processing.

While the province is encouraging mineral exploration, there are already proven success stories that are just scraping the surface of the opportunities available.

Resources Ready to Go

In 2020, Saskatchewan sold C$7.4 billion worth of metals and minerals, the fourth highest amount in Canada. Saskatchewan’s mining sector provides business opportunities and jobs for over 12,400 individuals across the province, and contributes an additional 25,000 indirect jobs.

  • Potash: The province has the largest potash industry in the world, accounting for about 1/3 of annual global production and hosting nearly half of the world’s known reserves.
  • Uranium: The world’s richest deposits of uranium lie in Saskatchewan, giving the province the ability to produce more uranium with less land surface disturbance than almost anywhere on Earth.
  • Diamonds: In 2004, Shore Gold discovered diamonds near Fort à La Corne in central Saskatchewan. There is a plan to bring the 66-million carat Star-Orion South project into production.
  • Base Metals: The Flin Flon mining camp, on the Manitoba-Saskatchewan border, is a large base metal producer region and is estimated to have the highest contained value of ore per square kilometer in Canada for VMS deposits.
  • Gold: The province holds two multi-million ounce discoveries to date, the Seabee and MacLellan gold mines in the Trans-Hudson geological formation.

There is more to discovery. Exploration expenditures in 2019 were $264 million, and companies planned to spend $242 million in 2020.

SKRR Exploration: Opening a Frontier

SKRR Exploration is leading mineral exploration into Canada’s final frontier and has secured prime mineral properties to take advantage of the wave of demand for metals. SKRR has six gold and one base metal exploration projects in the heart of one of the most prospective geological belts in North America.

At the helm of SKRR exploration are two leaders who know the geology of Saskatchewan well and have a proven history of discovery, Ron Neolitzky and Ross McElroy. Neolitzky was inducted into the Canadian Mining Hall of Fame for his development of two successful precious metals mines. McElroy was part of the exploration team that discovered Cameco’s McArthur uranium deposit.

SKRR Exploration is bringing together the right elements of Saskatchewan to make the next great discovery.

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Visualizing Gold Investment Compared to Global Assets

Gold is an important hedge against inflation and currency depreciation, but how does the precious metal compare against global assets?

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gold vs. other assets

How Gold Compares to Global Assets

Gold has been a vital asset for investors and speculators to hedge against uncertainty and currency devaluation, but today it is just a small part of the investment landscape.

While gold investment holdings stand at $1.1T, this figure is dwarfed by various other global assets and funds.

This graphic compares the size of gold investment holdings to global assets, highlighting the difference in dollars invested, and where modern day investors have (or haven’t) been allocating their money.

Gold vs. Global Assets

Despite amounting to over $1 trillion dollars, gold investment holdings are a small fish in the large pond of major global assets.

Largely outsized by private equity funds, hedge funds, and more, gold has taken a backseat for today’s investors when it comes to where they allocate their capital.

AssetValue
2020 Gold Investment $90.0B
Total Gold Investment Holdings$1.1T
Top 10 Global Private Equity Funds$1.9T
U.S. Hedge Funds$3.1T
Sovereign Wealth Funds$7.9T
10 Largest Investment Banks$32.3T
Global Pension Funds$49.3T
30 Largest U.S. Mutual Funds$59.0T

Sources: Mutualfunddirectory.org, Willis Towers, relbanks.com, swfininstitute.org, barclayhedge.com, investopedia.com, CPM, Incrementum AG

Even with 2020’s large inflow of gold investment worth $90 billion, gold investment remains small on the scale of the world’s financial assets.

With its fairly small market, around 90% of gold’s global trading volume flows through three major exchanges, with the remaining volume coming from smaller OTC and secondary markets.

The Major Gold Exchanges Today

Although gold investment has been overtaken by other global assets, it still remains an important investment asset and has one of the most active markets in the world. Gold markets are split among three primary trading hubs which transact millions of dollars in volume every day.

  • London Metal Exchange (LME): Established in 1877, the LME offers futures contracts for metals including gold.
  • COMEX: A division of the Chicago Mercantile Exchange (CME) COMEX offers physically settled gold futures and options contracts.
  • Shanghai Futures Exchange (SHFE) and Shanghai Gold Exchange (SGE): While relatively young, these two exchanges have captured a large amount of gold trading volume, with the SGE being the largest purely physical gold spot exchange in the world.

Gold Exchange Trading Volumes

Gold ExchangeFY 2020 Trading Volume
London Metal Exchange (LME)$160M
COMEX$54.4B
Shanghai Futures Exchange (SHFE)$6.19B
Shanghai Gold Exchange (SGE)$6.22B

Source: World Gold Council

These three hubs and four exchanges host the majority of the world’s gold trading, and saw ~$67B worth of gold trading volume in the fiscal year of 2020.

ETFs are Making Gold Investment Accessible

While the exchanges mentioned above transact millions of dollars worth of gold a day, gold-backed ETFs have made gold more accessible to the everyday investor. The top 3 U.S.-traded gold ETFs have more than $94B in assets under management between each other.

These ETFs offer investors one of the easiest ways to get gold exposure in their investment accounts, and see billions in flows every year.

Quarterly Gold ETF Flows

RegionQ1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021
North America$6.8B$18.2B$11.8B-$5B-$8.1B$1.1B
Europe$8.1B$4.4B$3.4B-$2.1B-$2.4B$1.6B
Asia$0.7B$0.5B$1.2B-$0.3B$1B-$0.1B
Other$0.3B$0.5B$0.4B-$0.3B$0.1B-$0.1B
Total$15.9B$23.6B$16.8B-$7.7B-$9.4B$2.5B

Source: World Gold Council

Last year saw record inflows into gold ETFs, as investors sought a safe haven for their capital during the COVID-19 pandemic. However, gold ETFs have seen an overall outflow of $6.1B in 2021 so far, with North American gold ETFs seeing $402M in outflows just this July.

At the same time, European gold ETFs have seen a recent rise in inflows, highlighting a divergence in sentiment between the two regions. In the month of July, European gold ETFs saw $999M worth of inflows, with Asian gold ETFs also registering positive inflows of $54M.

Central Banks Still Believe in Gold’s Future

While gold is not attracting immediate investment flow into ETFs, the world’s central banks still maintain large amounts of their reserve assets in gold. While they primarily hold gold to hedge against currency depreciation and to diversify their reserves, gold has proved an incredibly valuable investment for central banks over the decades.

Some central banks like the U.S., Germany, and Italy, have more than 50% of their reserves’ dollar value in gold, showing truly how much they value the precious metal.

With the world’s central banks holding around $1.69T worth of gold in their reserves currently, gold remains an essential investment for both big and small players alike.

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