Hedging the Aussie Dollar

On Friday the world’s largest asset manager, BlackRock, predicted the Aussie dollar could drop below 70c in the first half of this year.  We’ve discussed before what a great currency hedge gold and silver are.  There is an inverse relationship between our currency against the USD and the Aussie price of gold.  And it’s not just ours of course, it applies to any currency against the USD.  That is why any Russian holding gold last year saw a staggering 73% gain for 2014 as their Rouble fell.  So whilst most focus on gold’s performance as the spot price rises on increased demand when there is a flight to safe havens (as we clearly saw last week), Aussie’s get the potential double whammy of a falling AUD as well, as many predict our dollar to decline in the post resource boom conundrum we now face.  For example, at the time of writing the spot price for gold is USD1280 and the Aussie is at 82.2c.  If the AUD falls to 70c, the current AUD1557 gold price goes to AUD1829 without the US spot price changing at all, a 17.4% capital gain.  Most other currency plays are purely that.  Right now you have the chance of a currency play using an asset priced at a cyclical low and amid a range of bullish factors.  Whilst the SNB drama looks to have subsided, just remember the full repercussions of the Lehamns collapse took a week to flush through the system as we live in an increasingly interlinked and ‘derivativised’ financial system.