As we mentioned to you in our daily price alerts on Friday and Monday gold and in particular silver were in oversold territory and potentially due for a bounce higher. This is indeed what happened on Tuesday when the 2 rebounded after equalling previous lows in 2011. Today are back down at the lows again.
Of course there is no guarantee they will not fall further. As we have mentioned many times before Gold did in fact drop 50% in the middle of the 1970’s bull market so there is a historical precedent. There could yet be more indiscriminate selling on the back of end of the Euro/end of the world worries. But then again there are just as many reasons it could go in the other edirection as well!
This actually ties in with a couple of points of view we’ve been mulling over lately:
1. Compared to 2008 when the vast majority of people were totally caught by surprise, most people the world over are well aware of the risks right now and many have therefore gone to cash and not much else. So if everyone is aware of the troubles and this has become the consensus trade, will the opposite happen? Will govts muddle through, and will markets bounce higher from here? Therefore the Euro troubles won’t cause the end of the financial system – for now at least.
2. Everyone thinks “we will get through” and therefore things will get much worse in the near term.
Who knows what the outcome will be, but it seems a safe bet will be that all these fiat currencies will continue to devalue against precious metals and so either way a bit of bullion will likely do you no harm.
1. If we manage to muddle through it will likely be as a result of further bailouts and therefore devaluation.
2. If things turn really ugly and there are bank failures and the like then bullion will also protect you having no counter party risk (as long as you hold the physical stuff anyway).
This week we received an email from a frustrated reader who commented all this research into the monetary system was doing his head in. And that it seemed a bit hopeless as Governments will likely just change the rules whatever we do. It prompted a lengthy response from us which you can read in this week’s feature article: Reader Question: Why is Gold More Valuable Than Worthless Paper? So check that out if you’ve ever wondered if it was all worth the effort.
The other article this week has an actual quantification of how gold performed during the German Weimar Republic hyperinflation. You can see just how gold performed compared to the rate of inflation:How Does Gold Fare During Hyperinflationary Periods?
We read a few days ago that a potential candidate had emerged for the head of the RBNZ and yesterday that candidate Graeme Wheeler was confirmed to take over from Governor Bollard in September. Mr Wheeler was with the World Bank from 1997-2010 so he is well qualified to continue the work of his many predecessors in the role of stealthy stealing an extra 2-3% per year from the populace through the RBNZ and Government agreed Policy Targets Agreement (PTA). A.K.A a mandated inflation rate of 2-3%.
Given his background, we won’t give any odds of the new head exchanging some of the RBNZ’s forex reserves for gold though.
Perhaps we could start a conspiracy theory here that with his World Bank connections Mr Wheeler will be well placed to take more “proactive” action in weakening the NZD. Something which Bollard did only once. RBNZQE anyone?
With regard to Dr Bollard’s 10 year tenure, Bill English was quoted as saying “At the same time, he ensured that this country continued to enjoy one of the most stable inflation environments in the world.”
So we headed over to the RBNZ’s trusty “How much has been stolen from you calculator”, sorry we mean “inflation calculator” to check his record.
You can see he has been pretty much on target over the past 9.25 years (the calculator only goes up to March 2012). With a CPI of 2.7% over this period which amounts to 27.2% loss of purchasing power. But remember these CPI figures from Stats NZ include the likes of substitutions, so when an item gets too expensive they swap it for something cheap. Sirloin Steak too expensive? Everyones now eating mince to make up for it, according to Government statistics.
English is right that Bollard has produced a stable inflation rate, so as far as Central Bankers go we could have done worse. Of course we don’t believe there is even a need for a Central Bank. But unfortunately the concept of steady inflation is so ingrained into the populace that we accept a 25% loss of purchasing power as stable and okay.
We were reminded last week of a handy online tool called Google Trends where David was looking at the search trends for the phrase “Bank Run” on Google. Which not too surprisingly were at all time highs in May for News Stories and search volume.
So yesterday we plugged in “Buy Gold” to see what it would show. There wasn’t enough search volume for New Zealand so we have just gone with worldwide numbers.
You can see search volume and news stories hit all time highs in August 2011 (D) which was pretty much the high in gold. So that was a good contrarian indicator for not being the best time to buy. Likewise you can see on the chart 3 other points we have circled where highs in search volume and news references coincided with highs in the price. Conversely you can also see the lows in price soon followed as did lows in news stories. Right now we have historically very low numbers of news stories and a corresponding low price (see red arrows).
Giving silver the same treatment now, there isn’t quite so much data for the phrase “Buy Silver”. However we can still see that it hit high search volumes and media coverage at the same time as high prices in late 2010 and also March 2011. Currently we can see that media references are at a very low level along with prices having dropped significantly (red arrows), so time to buy perhaps?
If you’re thinking of nabbing 5 or more kilos of silver there is the option via one supplier to pay a 20% deposit to lock in a price and then pay the remainder when the silver is ready to be shipped or picked up a few days later. This is also the best price for silver we’ve found at 5% above spot plus a $13.80 ingot charge. Give David a call or email to discuss the specifics.
1. Email: firstname.lastname@example.org
2. Phone: 0800 888 GOLD ( 0800 888 465 )
3. or new and improved Online order form with indicative pricing
Have a golden week!
This Weeks Articles:
Long term view of gold in NZD
This week: • Long term view of gold in NZD • A Windfall tax on Gold – a New Zealand perspective • European absurdity and ludicrosity • How do the Euro Troubles affect New Zealand? • Germany to leave Euro? • Will more QE be announced by the Fed this week? Chart of the […] read more…
How Does Gold Fare During Hyperinflationary Periods?
Here’s an actual quantification of how gold performed during the German Weimar Republic hyperinflation. You can see just how gold performed compared to the rate of inflation. Then read on to get Clark’s thoughts on what percentage of your total assets should be in gold to protect you during a highly inflationary period. By Jeff […]read more…
Reader Question: Why is Gold More Valuable Than Worthless Paper?
Whether you’re new or an old hand to the matters of gold, silver and what is money, you’ll probably have something in common with a frustrated reader who we received an email from this week. He admitted that all the conflicting information about how the world monetary system works was “doing [his] head in!”. Here […] read more…
The Legal stuff – Disclaimer:
We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.