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Thursday, March 4, 2010

WANT A HARD-ASSET-BACKED CURRENCY? HERE IT IS

Yesterday, we studied the horrible price action in the British pound... one of the worst-performing currencies in the world. Today, we study a currency enjoying a far different fate: the Canadian dollar.

Traders call the Canadian dollar a "commodity currency." Reason is, a large portion of Canada's economy is devoted to exporting commodities. Canada is the sixth-largest oil producer in the world, and the No. 1 foreign supplier of oil to the U.S. Canada is also a major producer of gold, copper, wheat, aluminum, and timber.

This "resource factor," plus the soundness of Canadian banks, has sent the Canadian dollar soaring... while the British pound and the euro are tanking. The value of the "Candol" has gained more than 20% in the past 12 months. This is an enormous move for a major currency.

Many people would like to see a world with currencies backed by "real assets" like gold and silver... rather than ones backed by "full faith and credit." That might happen someday. But for now, the Canadian dollar is about as close to a "backed by hard assets" currency as you can get. This underpinning of value supports the uptrend you see below.

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