The traditional way to buy gold is to look at it in “dollar terms.”
Some investors even go so far as to look at it in euro terms, just to see if gold is actually moving higher on its own or if gold is heading higher due to the selloff of the U.S. dollar.
If gold is headed higher in terms of other currencies, then it’s a bonafide gold move. That’s what we have going on right now in the gold market: a bonafide gold move.
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Now, with that said, I think the best way to buy gold right now is in peso terms.
Yes … pesos.
In other words, you’re long (buying) gold and short pesos.
Why in peso terms?
It’s because the peso is about to “take it on the chin” as oil continues to break down, China’s economy continues to slow and stock markets around the world are starting to slump.
Also, volatility is continuing to ramp up (as noted by the VIX) and that’s never good for emerging market currencies like the peso.
So I think that gold will continue to prosper as volatility is high and stocks and commodities crumble. But I think that you’ll see it head the highest in peso terms as this emerging market currency takes a beating.
But why not in dollar terms?
It’s because when stocks and commodities fall, the dollar tends to benefit as money runs to the world’s reserve currency as a defensive mechanism. Therefore, gold and the U.S. dollar tend to both go up during those particular times.
What you want is a currency that’s likely to take it on the chin while gold goes up … and that leads us to buying gold in peso terms.
About the Author: Sean Hyman
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