**[investwise]** Adrian Ash: The only anti-dote to currency devaluation remains Gold

 

More Cash Will Shift Into Gold Adrian Ash   All those who watch cross currency moves, especially Euro/Dollar, Euro/Yen, Yen/Dollar and even Rupee/Dollar cannot help but notice how strong has been the appreciation of the US Dollar against all principal currencies. In certain cases, the appreciation has exceeded 10-15 per cent in as little as one month. The latest currency to slide against the Dollar has been the Rupee, losing closing to 7 per cent in a matter of days. Suddenly, the Re/Dollar is Rs 47.60 when a fortnight ago it was Rs 44. All those voices that spoke of Re/Dollar at Rs 39 by December 2010 have died down.   But what has Gold done-it has moved from roughly Rs 1680 a gm in April 2010 to roughly Rs 1920 a gm in May 2010, a gain in rupee terms of more than 10 per cent. This is what Gold has done against the Dollar, Euro and Rupee if we broaden the trading range to over 6 months. And this trend will accentuate as the Euro and the Yen fall against the dollar, and investors find refuge in an appreciating currency-Gold.   For the first time, the de-coupling of Gold from paper currencies is now self evident. So much so, that this is the only precious metal which seems to show positive returns for the 13th year running,   So what is happening?   Inflation-Proof Deflation Hedge Knowing how governments will respond to deflation, the case for inflation-proof gold looks increasingly clear to cautious wealth... USELESS for pretty much everything except storing wealth (its economic value is social, not industrial), gold acts as inflation-proof money when investors need it most - right in the middle of an asset-price deflation. At least, that's how people choosing to buy gold amid today's global deflation in risk assets see it. Why else do you think German coin and small-bar dealers are being emptied, even at 5% (and worse) premiums to "melt" value? Why else did gold-hoarding deliver secure, rising purchasing power amid the Great Depression of the 1930s...? Given central banks' default response to any level of financial stress, it's a unique and appealing attribute. Because rather than leaving cash hoarders alone, sub-zero real rates of interest - plus the ever-present threat of massive devaluation - force sleepless nights on cautious savers. (The risk of banking collapse is an extra, but non-government-inspired threat.) So when there's a dash for cash, it's little wonder that "worried wealth" finds gold better even than Dollars. Because gold cannot be inflated, nor destroyed. And it has 5,000 years of human use as a secure store of value behind it. Yes, this month's flight from everything into cash (which still means US Dollars worldwide) has knocked the gold price 6% off its recent record high vs. the greenback. But compared with all other assets bar Treasuries, however, gold shows phenomenal strength so far. Oil is down 20%. Platinum is 15% off. Aussie Dollars have dropped 10%, despite paying 450 basis points above cash deposits at the US Fed. And should the slump continue, investment demand for physical gold is likely to put a floor under gold prices much sooner than other "risk assets" find their floor, just as it did during the Lehmans Crash. Amid financial stress, physical gold hoarding creates a source of deep and widening demand that no other asset class enjoys. Not even silver comes close, because institutional and high-net worth buyers would rather get gold's significantly deeper wholesale liquidity and much lower storage costs. Indeed, it's hard to class all "precious metals" together - in terms of price behavior - when the inevitable hits the fan. Gold, unlike platinum and silver, commands a "safe haven" premium that industrial commodities can't - a critical point when credit dries up and risk assets are converted back into cash. Compare gold's price-action with any other raw material, in whatever currency. When confidence and economic demand sink, gold attracts capital. Whereas crude oil, copper, soybeans, even silver and platinum...they're all vulnerable to risk aversion, because their bull markets tend to rely on economic growth, whether or not it's fed by money-supply inflation. Gold, in short, is not merely the "inflation play" that most analysts and journalists think (if, indeed, they're thinking at all). Hoarding physical metal may not seem a "sophisticated" reaction to current events. Hedging your move into cash may not even outperform an all-Dollar position, short or long term. But it is perfectly normal, historically evidenced, and sane response. It also remains a minority sport at present. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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