Revisiting that alternative hypothesis on gold12 March, 2012, 16:55. Posted by Zarathustra
Tags: Chinese Yuan, Economy, Gold
Obviously, I am not a big fan of gold, being largely ignorant (and wrong) about gold for quite a while, missing the bull cycle.
Last year, I set out an alternative hypothesis on gold as an indication on how the Chinese economy is doing (instead of an indication on how much the Fed is printing). As said last year, last time when gold peaked in 2008, it did not revisit that peak until about a year an a half later, and soon after the 2008 peak of gold, Chinese Yuan stopped appreciating.
I believe the strength of Chinese Yuan, because largely controlled by the central bank, reflects the authorities’ assessment on the strength of the Chinese economy. When the economy is weak, the authorities would be more reluctant to let Chinese Yuan to appreciate, as we could see since the summer of 2008 till 2010. Gold price seemed to have anticipated that, thus I suspected that one could use that as an indicator of the strength of the Chinese economy.
Gold reached its peak in last summer. Although I am not sure if that’s really the end of the bull cycle, here’s how it looks now, plotted along side with USDCNY.
And I will leave you to judge if the movement of USDCNY has slowed, and/or will soon stop.