For our (financial planning) moment of the week we cross not the channel, but the Atlantic. The US this week announced interest rates would be held at the current 0-0.25% until the end of 2014. No big deal, you might think – but the ramifications are profound. 

Since owning the US currency is now (ostensibly) less attractive it lost value against near all others. Stock markets soared. Treasuries (US gilts) and most other sovereign debt prices rose, as did those of gold and other commodities. Even the blighted Euro has gained 2% since the news broke. Good old Uncle Sam – your Accounts have bucked up over the past few days too, so everyone’s a winner, eh? 

On the face of it there were sound economic reasons for the US action; for example providing US companies and public with a more certain financial backdrop against which to plan, thereby stimulating the economy. The cynic, however, might not look so much at the actions as the consequences; a rising stock market, lower borrowing costs, and boost to the competitiveness of US exports – all in an election year. 

Most countries want a weaker currency, and this is just the latest move from the key player. We covered this paper currency “race to the bottom” in a bulletin long ago, and it has intensified since. The US and UK are printing more money to defray their debt problems, which in turn accelerates the devaluation process. The Eurozone has not done so openly, but has achieved similar effects under various guises. 

Global currency fluctuations matter deeply to all of us, as they affect us both directly and indirectly. So, to the extent you must be exposed to any foreign currency, which would you fancy? Anyone want to bet on a rising Euro? The Eurozone needed this week’s surge like a hole in the head, since if it does not weaken substantially against the Dollar it will look more imperilled than it already does. Devalue it must. 

The US Dollar, despite interest rates pegged at zero until 2014; massive US debt, and further money printing pending might perversely be a strong bet. Sterling has many of the same problems, compounded by others we mentioned last week. In a decade the Chinese Remnimbi may be a global reserve currency, but its ascendancy may be horribly erratic and there are few ways (or reasons) to gain exposure. 

Picking any paper currency over any other is to us akin to choosing the best looking horse in the glue factory. The sole currency that makes any sense to us is gold. It may not increase in value, but should hold it. So as major currencies lose value, that of gold should increase in relative terms. We have bored for Britain on this topic for years so leave you with two points – one technical, the other whimsical.  

Gold pays you nothing to own it, so loses appeal when interest rates are high. The price therefore shot up on the US interest rate announcement which was not, in fact, earth shattering news – it is hard to envisage interest rates rising in any developed economy for some time. Second, muse on what might happen if demand for gold ever exceeds available supply. Unlike paper money, you cannot print more. 

So ignore “bubble!” headlines. With luck the price will plummet soon (that is why we limit exposure) heralding the economic crises will be over. That is unlikely, leaving gold to our minds one of the strongest risk: reward propositions there is. We still balk at suggesting your current weightings be increased, but certainly urge you to hold on to every speck of your gold dust – because it could become just that in every sense. 

This time of year our minds turn to holidays. Despite reigning optimism the Eurozone crisis is far from over, so that is seventeen countries we at KB Towers have crossed off our list. Unless it declares independence from the UK and adopts the Euro the Isle of Wight looks good.