A New Gold Index

Paul van Eeden
I get a lot of feedback following each of these columns and I read and appreciate every comment. While I seldom reply to the messages (I also have work to do), I do intend to address some of the questions in later columns. But please realize that I cannot answer specific investment questions such as which stocks you should invest in or what you should do with your money. If you want to know what I do with my own money, you can subscribe to my newsletter. Please visit my website (www.paulvaneeden.com) for more information. The gold price took a dive yesterday on concern that the dollar may strengthen against the euro. This kind of volatility is going to become the norm, not the exception, so it’s best to get used to it. As the dollar declines, countercyclical rallies in the dollar are going to become more pronounced, causing severe, though temporary, declines in the dollar-gold price. These are, to use a cliché, buying opportunities.

Since the price of gold is intricately linked to currency exchange rates, how can we, without relying on any one currency, get a better sense of what the price of gold is really doing in a global sense? I have talked in the past about the gross domestic product (GDP) weighted index that I use to look at the gold price and individual currencies from a global perspective. For lack of imagination I call this index the PVE Index. The PVE Index consists of thirty-six currencies: the US dollar and the currencies of thirty-five of the United States’ largest trading partners. I started with the United States’ fifty largest trading partners but had to eliminate fifteen due to lack of data. Going forward I hope to expand the index as I source more data.

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