Gold Trading At All-Time High In Argentine’s Currency
Commodity Trade Mantra | Aug 31, 2014 01:47AM ET
Argentine’s currency “the Peso” fell another 2.2% and is trading at 12.9541 per dollar at 4:04 p.m. Buenos Aires time. Since last month’s default, the currency has declined 22%.
From Bloomberg :
Argentina defaulted last month for the second time in 13 years after the country was blocked from making debt payments because President Cristina Fernandez de Kirchner refused to comply with a U.S. judge’s order to also pay about $1.5 billion to a group of holdout creditors from an earlier default in 2001. Creditors including Elliott Management Corp., which is demanding payment in court, refused to accept losses of about 70 percent in debt restructurings following the earlier default and have spurned subsequent offers on similar terms.
Over the past week, the currency has weakened 0.9 percent in the official market, the most among 24 emerging-market currencies tracked by Bloomberg after the Chilean peso. It was little changed at 8.4014 per dollar today.
The future of the Peso is very much depending on a potential resolution of the default. If Argentines will rush for US dollars to protect themselves from further depreciation, the situation will become worse for the currency.
As gold is reflecting the value of currencies, it is no coincidence that “Peso gold” or gold in Argentine’s currency has exploded higher recently. The Argentine Peso, expressed in US Dollars, is trading at all-time lows. Consequently, Peso gold is trading at it all-time high. The following chart is courtesy of Sharelynx.
The chart shows the Argentine Peso over a period of 10 years with the black line, expressed in US Dollars. Before 2002, both currencies were pegged at parity. The lower part of the chart represents Peso gold. It goes without saying that the Peso and Peso gold are inversely correlated.
Dollar gold is represented in yellow. One could observe that Dollar gold and Peso gold have been tracking each other closely till June 2013. As of then, Dollar gold has gone sideways, while Peso gold has gone higher and truly exploded in 2014.
In terms of outlook, Zerohedge summarizes Bank of America’s view as follows:
The perception of many locals is that the risks of an economic/currency crisis before year-end have increased significantly. This compares to a view they had before of a muddle-through till the 2015 presidential elections. Policy decision-making is ever more concentrated, and the administration has radicalized, but the severe economic downturn will change political incentives in 2015, in BofA’s view. With the official peso rate at record lows once again, the black-market Dolar-Blue tumbled to over 14/USD – a record low indicating dramatic devaluation ahead (which of course, sends ARS-denominated stocks surge to record highs).
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If that scenario would come true, Peso gold should go much higher in the months ahead.
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