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The Golden Hedge

Aside for being a natural hedge for inflation and currency devaluation, I view physical gold as the ultimate form of wealth insurance. It is very liquid and widely recognized by almost all countries. As an investment vehicle, it's a great diversifier. Gold prices soar when everything slumps.

There is this industry belief that no asset goes to the moon without a few big declines to scare everyone.

The precious metal is on an uptrend since 2001. It trotted from US$250 per ounce to US$450 per ounce in 2005. It doubled in just over two years to breach US$1,000-per-ounce level.

As seen from the chart, there is a short-term decline in the price of gold. And the price could fall even farther and still be in "bull mode".

Euro's rise causes Big Mac in Europe 50% more expensive than in the U.S.

The Economist magazine's Big Mac Index suggests that a McDonald's Big Mac hamburger in Europe is now 50% more expensive than in the United States. This is because of the continuing appreciation of the euro as against the greenback. Currently, the EUR/USD pair trades between the range of 1.5250 and 1.5750.

The Big Mac Index, which is based on the theory of purchasing-power parity (PPP), is a useful gauge of ascertaining which currencies are cheap and which are expensive by simply comparing the price of a McDonald's Big Mac in all the major currencies of the world. The theory goes that countries with similar levels of development should have similarly priced Big Mac hamburgers.

Could the Big Mac in Euroland continue to get even more expensive? Most probably.

The trend is still bullish in favor of the euro. But as the chart suggests, the euro "rubber band" is stretched as far as it's ever been stretched. And we all know that a rubber band returns to its original state once stretching has stopped. Thus, we may expect that the EUR/USD pair will return to its "equilibrium" state of value anytime soon especially so that some European central banks are beginning to worry about inflation.

Just when and how soon is the question.