Feb. 15, 2013, 4:06 p.m. EST

SAN FRANCISCO (MarketWatch) — Talk of a so-called currency war has been heating up, and it might finally light a fire under gold, too.

Efforts by countries such as Japan to boost growth with massive stimulus programs — which in turn have devalued their currencies, an aid to exports — can benefit prices for gold. These have started to alter the precious metal’s relationship with the foreign-exchange market and expand its role as a safe-haven asset.

“We are now moving irrevocably to a time when gold will measure currencies, not currencies measure gold,” said Julian Phillips, a South Africa-based contributor and founder at GoldForecaster.com. Read: Michael Casey: Japan needs a weaker yen.

Historically, the precious metal trades inversely to the U.S. dollar DXY +0.12% , as it did on Thursday and Friday. It was a usual story: gold prices fell sharply as the greenback strengthened at the expense of the euro EURUSD -0.0294% on Thursday and as the Japanese yen USDJPY +0.7039% weakened on Friday. See Friday’s story: Gold settles sharply lower, down over 3% on week.

But as various currencies become devalued, gold may take on an even stronger role as a haven.

“We are about enter a phase in the gold price where it will rise against all currencies,” said Phillips. “The loss of the Swiss franc USDCHF +0.0698% and the Japanese yen as ‘safe-haven’ currencies, as [the countries] forced their currencies to weaken, has made us all realize national currencies are the same animal in different guises.”

Gold’s bull run began more than a decade ago, with ultra-easy monetary policies by central banks a key reason for the rally.

In February 2001, gold futures GCJ3 -1.54% traded at around $260 an ounce on the Comex division of the New York Mercantile Exchange. Gold closed at $1,609.50 on Friday — a six-month low, but also more than six times higher than 12 years ago.

“The methodical debasement of fiat currency, via super-accommodative monetary stimulus, is an continuing trend that has hugely contributed to the 12-year rally in gold,” said Peter Grant, chief market analyst at USAGold.

“Whether this has already degenerated into a currency war or not, it is a trend that seems likely to continue for some time to come,” he said. “And that is ultimately a positive for gold.”

War now or later

So what’s a currency war and are we in one?

A currency war refers to a competitive currency devaluation by countries trying to ease strength in their currencies.

It “takes place when countries actively compete to gain an advantage against each other by weakening their currencies, thus making their exports cheaper and imports more expensive,” said Julian Jessop, chief global economist at Capital Economics, in a recent note to clients.

But in order for the term “currency wars” to have any meaning, policy has to “target the exchange rate specifically,” he said, noting that loosening monetary policy would not in itself fit the bill.

Prices dropped Thursday after a report said finance ministers and central banks from the Group of 20 nations would repeat a vow at a weekend meeting to refrain from competitive devaluation and to monitor possible “monetary-policy spillover.” Read: G-20 to vow no competitive devaluation: reports.

Some took that as commitment to avoid a currency war, though some analysts believe a war has already begun.

Jeff Sica, president and chief investment officer of Sica Wealth Management, said he believes the currency war has been going on since at least 2010. “It is the sole biggest threat to an economy which is relying on obscene leverage to bring economies out of recession,” he said.

And as central banks “have initiated a policy of mutual-assured destruction by destroying fiat currency,” Sica said he considers “gold to be the best asset.”

Kathy Lien, managing director at BK Asset Management, agreed that the currency war has been happening for “some time now,” with central banks around the world debasing their currencies not only through easier monetary policy, but also through outright currency intervention like the Swiss National Bank.

Even so, that doesn’t mean that it’ll turn into an “outright publicly bloody battle,” she said. “Nearly every major central bank is guilty of weakening its currency and no one wants fingers pointed right back at them.”

Gold the victor

Whether it is a war, about to become one or just more chatter over currency devaluation, gold stands to benefit, analysts said.

Right now, “policy makers are trying to downplay the idea of a currency war because they know that in a currency war, there are no winners,” Lien said.

 

 

‘Once the individual investor sees the potential gold has as a portfolio protector, gold will take off.’

 

 

David Beahm, Blanchard & Co.

But “gold will benefit from an all out currency war,” she said, because “if the war heats up, investors could flock back into the safety of gold.”

Already, several countries are reallocating their currency reserves into gold, said David Beahm, vice president at precious-metals investment firm Blanchard & Co.

“The central banks realize that the U.S. and Europe are intending to continue to devalue their currency and in response, they are changing up their balance sheets,” he said, adding that the market is also seeing several institutional buyers prepare for the currency wars by purchasing gold.

“Once the individual investor sees the potential gold has as a portfolio protector, gold will take off,” Beahm said.

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.