The role of Gold as a currency and hedging instrument
FORUM ABSTRACT:
Recently I have tried to view Gold in detail through a different lens, that is new to me. I wanted to examine Gold strictly as a currency and Gold traded in the Forex market as a hedging mechanism or as part of structured instruments/contracts created in other markets for hedging purposes. The hedging addendum is motivated by the fact that if Gold is used as an element in structured hedging, then Gold will be impacted greatly by events in other asset classes that might not otherwise seem closely related.
In general, the reason for this new interest is, that "conventional wisdom" is unable to explain what we are seeing at present in the Gold market, and it is not satisfactory for me to just declare "that it is all manipulated".
Since I have sunk a substantial part of my financial future into Gold, I am very keen to remedy the huge mistake of mine, that I clearly do not understand exactly and fully what is driving this market, and therefore I am uncertain about precisely what I have gotten myself into.
I am sure my investment decision is 100% correct for all the fundamental reasons. However, since there are so many moving parts in those allegedly manipulated markets, and they are so big and distributed, it is no small accusation to bring forward.
It is not wise to justify resignation from doing any further homework based on a mantra, that any living person, who has ever looked at a Stock chart and a Gold chart will know to be true, but where no structured investigation of my own had been put together to substantiate the hearsay, and actually prove that this is indeed the case.
Since I also have a profound need to be able to survive the meantime - until fundamentals begin to assert themselves again - with my sanity intact, I set out to try to find the answer to HOW the control is carried out, and what that would suggest in terms of timeline and what to expect from the market action in the medium term.
With this goal in mind, I decided that there is only one market that is central enough to drive activity in all the others, and that is the Currency Market. The control had to start here - also because Interest Rate Management must be closely connected with currency values - and the continued confidence in the bond markets is what keeps the situation from coming unglued. In addition to this, the Forex market is trading 24 hours and is highly computerized, so from a market management perspective, it is perfect!.
Further, I wanted to understand how the events going in in Japan is influencing the different asset classes, because clearly the relationship between the USD and the YEN is what drives the action right now. So on a more concrete level, I wanted to learn more about which assets, the activity in the currency crosses have an impact on, in which parts of the world.
Based on a few posts I wrote on Main Street, that received some very appreciated positive feed back, I have created this forum, so we can continue the investigation and discussion over time and so we can keep the results compiled in one place.
I will copy the relevant parts of the Main Street writings into the following posts, to form the basis for the Forum activities, and then we will see where it goes from there.
So in the interest of defining what is on topic - the following guideline applies:
Anything that discusses or attempts to prove how the Market Management is done, especially with regards to the Currency Markets, the Bond Markets and the Precious Metals Markets, and anything that endevours in general to explain with substantiating material, what the heck is going in the markets - with relevance to the Precious Metals ;-)
Disclaimer: Anything I write are my feeble thoughts, ponderings, assumptions and research. I have no facts from any inside source, so please do not read my writings as facts - no matter how convincing they may sound - until unequivocally proven by examples and evaluated method or unless the information comes with identification of trustworthy source.
