As Joe Weisenthal previously highlighted via Reuters, the Norwegian Krone is an interesting alternative to gold for those who wish to short the U.S. dollar. This is because Norway has a budget surplus, is rich with natural resources, a stable economy, etc.
Yet we’ll take it one step further.
Sure the Krone has done well year to date against the dollar. Yet so has gold, and in fact gold has done far better than the Krone, as shown below (we used the gold EFT ‘GLD’ to represent gold). This shows how gold may have been overhyped and moved too far, even as a dollar-short position, since it outperformed even the rock-solid krone as well.
Thus this spread between the performance, shown below, could represent gold’s hype, above and beyond its value as a hedge against the dollar.
Which means that a far more interesting krone trade, in our view, might be to long the krone yet short gold. You would simply be betting that the spread below closes, no matter where the dollar goes. Thus it’s dollar neutral (you don’t have to become dollar-bullish), yet allows you to act on a belief that gold has been over-hyped.
This is just the beginning of an idea, everyone should of course due their own due diligence.