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long of gold in euros

Discussion in 'Economics' started by billyjoerob, Mar 7, 2013.

1. billyjoerob

There is a guy on tv who says he is "long of gold in euros." I think he's talking about two positions;

Long gold
Long Euro

So he started out:

1 dollar
0 euro
0 gold

and then:

1 euro/dollar
1 gold

But what's also missing from this picture? His liabilites, which are also in dollars. Let's set his liabilities (his future expenses) for the next ten years to -1:

A more accurate picture looks like this:

1 euro/dollar
1 gold/dollar

In effect, his liabilities are all in dollars, so he is doubly short the dollar. He went from flat vs. dollar (not long) to doubly short the dollar.

Of course, this amounts to nothing more than "you are always short the currency of your liabilities," and most of our liabilites are future expenses denominated in our national currency. However, I've never really thought about it that way . . . usually you think "If I have a \$1, I am long the dollar." But actually you're short ALL OF YOUR FUTURE LIABILITIES. So most of the time we are actually massively short the dollar (if living in the US).

(All of this assumes no future earnings or income, of course).

2. billyjoerob

So if someone says to you, "The dollar is about to collapse - buy gold!" Explain to them (especially if they are a retiree) that they are already short the dollar, so they have nothing to worry about. Using dollar to buy gold simply makes them doubly short the dollar, which is far more risky than the status quo ante.

3. atticus

No, it means he paid for the Gold in EUR.

4. billyjoerob

Then what is the difference between gold and gold in euros? If the account is denominated in dollars, the purchase of gold in Euros will ultimately be converted to the account's base currency. That's why I said it disaggregated into two positions, gold and euro/dollar, if dollar is the base currency. Every currency is a cross.

5. Visaria

, lol.

If you want to buy gold, you should buy it using a weakening currency such as Yen or British Pounds.

My purchases of gold have all been in pounds

6. zdreg

twist of fate makes you lucky in one regard.

8. Visaria

Nah, the guy is long gold (in US dollars) and SHORT the EURUSD cross.

9. billyjoerob

OK . . . so he's long gold and long dollars.

10. zdreg

a sign in cuba which applies: will the last person to leave please turn off the lights.

#10     Mar 7, 2013
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