Could this be the start of the next significant rise in the New Zealand dollar price of gold? If history is any guide it could well be…
The New Zealand dollar (NZD) price of gold has risen quite sharply over the last half of November. Today as I write it is at $1860 having risen from a low of $1730 in mid November which was itself a higher low than the low earlier in November. $1860 is also worth noting as this is higher than the price of $1850 recently reached on 21 October 2010. So gold in NZD is currently making higher lows and higher highs – always a good sign of a trend in place.
Rightly or wrongly the USD remains a safe haven and money returns to it in times of trouble and this is what seems to be playing out currently. But what is especially interesting is that the gold price quoted in USD has actually risen over the same time as well.
Gold is often referred to as the anti-dollar because the common view is that gold rises when the dollar falls. But is it possible that we are in a period where the USD rises, on the back of ongoing woes in Euroland, against other currencies (including the NZD), while the price of gold also rises or at least remains firm? (Translation: The USD is losing value (against gold) as a result of QE II but other currencies are losing even more currently.)
If we cast our gaze back, recent history shows there have been a number of occasions when gold and the USD have risen in unison. For instance, as recently as the first half of 2010, gold rose while the dollar rose alongside it against many currencies including the NZD. See the 2 charts below. In late 2008 and early 2009 on the back of the banking crisis and bailouts the USD rose dramatically against the NZD. While Gold in USD, having fallen initially then rallied strongly. This translated into a massive rise in the NZD price of gold over the same period.
Going back even further to 2005, the NZD gold price had been fairly flat for the previous 4 years or so. But this changed in 2005 when it rose markedly into 2006 as the NZD fell from 0.75 to about 0.60 against the USD. Over the same period gold priced in USD also rose from about $400US to $700US. So gold rose and the US dollar rose, resulting in a significant rise in the NZD gold price. (You probably get the picture so we won’t worry about charts for this period).
So could this be the beginning of another large rise in gold priced in NZD? Who knows? Our guess is as good as anyone else’s. But it makes sense to the contrarian in us that the USD is rallying now when the masses were incredibly negative on it just a few short weeks ago. It could also follow that gold (and silver) rise from here (or at least hold steady) when everyone has been expecting a decent correction. This could then translate into a decent gain in the NZD gold price as it has done in the past.