Avoid worrying about the NZD/USD exchange rate when buying gold

An article on Stuff.co.nz this week was headlined “Bullion bullish but beware the bears”.

The excerpt below is taken from the beginning of the article (emphasis added is ours):

The price of gold, now near nominal highs at more than US$1180 an ounce, is expected to climb further, analysts say.

However, they warn New Zealand investors should be wary of exchange rate fluctuations.

Fund manager Liontamer, a specialist in capital protected funds, said the price could rise more than 15 per cent to over US$1400 an ounce by December 31, and continue rising well into 2011.
Investment manager Sean Butler said there was fundamental support for the gold price at current levels. “Central banks in China, India and Russia continue to buy gold, and investors are building up their gold exposures in the wake of global market uncertainty and the risk of higher inflation.

“In the meantime, the supply of gold is tightening. A combination of reduced supply and the large set-up costs associated with setting up new mines is helping to set a new floor under the price of the precious metal,” Butler said.

OM Financial senior dealer Kevin Morgan said the price “could be comfortably above US$2000 an ounce within 18 months”, but saw a possible dip to US$1050 in the next two months.

“I would view that as a buying opportunity,” Morgan said, but cautioned anyone investing in gold to remember that it is priced in US dollars and subject to currency fluctuations.

“A New Zealand investor who purchased gold in early 2009 at US$900 an ounce would actually be losing money despite gold being 25 per cent higher at US$1200 an ounce today.

“The reason for this is that back in early 2009 the NZD [New Zealand dollar] was trading at about 0.5 to the USD [United States dollar] and today we are trading closer to 0.72,” he said.

No counter party risk:

Talk about over complicating things!  Firstly, Liontamer’s new fund - as also discussed in this Otago Daily Times article - uses derivatives to track the gold price.  It doesn’t actually hold bullion.  While it does offer capital protection -  i.e. you will get back at least 100% of your money at the end of the 6 year investment period – this is also achieved using derivitivisation.

The reason we choose physical gold is because it has no counterparty risk.  This simply means we are not relying upon another party to remain solvent to get our funds back one day.  If we buy physical gold and take possession it is ours and ours alone.  Our only risk is keeping it safe from prying eyes and thieving hands.

The price of gold in any currency is volatile!

Secondly is the point that as per the Otago Daily Times article “the Liontamer index follows the movements in the international gold price and is not affected by currency [movements] between the New Zealand and US dollars.”

The stuff.co.nz article also mentions how Kiwi investors should be careful as gold “is priced in US dollars and subject to currency fluctuations”.

The thing is you don’t need to invest in a fund tracking the international/US dollar gold price using derivatives to handle currency fluctuations!  All you have to do is track the NZ dollar gold price yourself (simply the USD gold price converted to NZ dollars by the current USD/NZD exchange rate) and ignore what the media says about the US dollar gold price!  We live in New Zealand not the USA!  (As a bonus, you’ll also avoid paying fund managers fees!)

Best time to buy gold

If you believe gold remains in a bull market (or rather that paper currencies are still in a bear market), then the time to buy is when the NZD price of gold has fallen not when it is soaring.  This can be an emotionally difficult thing to do but this gets you the most bang for your buck – or rather the most ounces for your dollars.  You don’t actually need complex financial instruments and hedging with futures contracts to achieve this.  Just buy when the price has fallen as this is likely to be when the NZ dollar is strong.

NZD Gold 3 Year Chart - Buy the price dips

Do this on a regular basis and the average buy price will be at a good low level and allow for maximum upside and you should hopefully avoid the heavy feeling of watching the price drop sharply just after you’ve bought.

In the above 3 year chart you can see that the NZ dollar price of gold has just dipped down to the 200 day moving average (the red line).  Over the past 3 years this has generally been a good time to buy, with June last year being the only time the price fell substantially further below the moving average.

Our website has gold price graphs from 1 day all the way to 40 years – all in NZ Dollars.  (See Gold Survival Guide Gold and Silver Price Charts.)  The 1 year, 2 year and 5 year charts are particularly useful in seeing where the current price is compared to the past and can help identify when the price dips.

Anyway, that’s just our opinion and as always we offer it freely - but with no guarantees!

Time to Board the Gold Stocks Train?

Casey Research’s Jeff Clark indicates that gold shares may well have separated from the broader US stock market.  Before we get to his thoughts, we’ve quickly plotted for an NZ comparison the largest gold stock on the New Zealand share market, Oceania Gold, versus the NZX50 index for the last 2 years.

Oceania Gold versus the NZX50 - 2 Year Chart

As we don’t have a gold stocks index it’s not a direct comparison to the US since Oceania Gold is just one company.  And especially as Oceania has made some significant improvements to it’s operations in the past year or so and so it’s share price reflects this.  However Oceania did track the broader NZ stock-market from March 2009 (when global markets bottomed and started to perform), through to the end of 2009 and since then it has out performed the NZX50 in a major way.

Interestingly this rise also was in line with when the NZ$ gold price started to rise in November 2009.

Nonetheless an interesting chart to consider and keep in mind for a New Zealander as you read Jeff Clark’s perspective on gold shares versus the broad US stock market below…

Time to Board the Gold Stocks Train?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
One of the big hints that gold stocks will be ready for take-off is when they stop following the broader markets and strictly track gold, particularly if the market falls and gold stocks don’t. We now have data showing this has just occurred.

From April 2009 to April 2010, gold stocks mirrored the S&P. The two markets held hands as often as high school sweethearts; there was very little separation between them. While it wasn’t always a daily connection, any weekly and especially monthly chart showed them moving in tandem.

Until now.

For the quarterly period of April through June, gold stocks advanced 11%, tracking gold’s gain of 10.7%. The S&P, however, lost 14.1%.

We haven’t seen this level of separation between gold stocks and the general stock market since the first quarter of 2009. This demonstrates obvious strength in our sector, and is precisely the kind of action that can signal we’re getting closer to our precious metals investments starting a major leg up.

In the big picture, this data should be considered a short-term indicator. However, it’s a refreshing reminder that at some point, it won’t matter what the broader markets are doing. In the precious metals bull market of the 1970s, the Barron’s Gold Mining Index soared 652%, while the S&P gained only 22% for the entire decade. This means that if you’re bearish on the economy, you don’t have to be bearish on gold stocks.

Whether this is the beginning of permanent separation or not, the following chart tells us the stock market, in relation to gold, is going one direction.

At gold’s bottom in April 2001, the Dow/Gold ratio (DJIA divided by gold price) was 41.2. It now stands at 7.9 (as of July 2).

When gold peaked in January 1980, the Dow/Gold ratio reached “one,” meaning they were both selling for about the same price. To hit that same ratio today, gold will have to go higher and the Dow simultaneously lower. The fundamental reasons gold will rise are far from over, and a second leg down in the broader markets seems almost locked in at this point.

In this context, Doug Casey’s call for a $5,000 gold price doesn’t seem so farfetched. It also coincides with his call for a Greater Depression, an environment not exactly suited for higher stock prices. $5,000 gold = 5,000 Dow.

Where do you think they’ll meet – three? Eight?

This has obvious implications for your investments. If you’re investing for the big picture, you first want to think twice about any conventional stock investment. You might even consider a short position on one of the indices, something without a time limit, such as an inverse ETF.

Second, you should plan on higher gold prices. While pullbacks are inevitable, it does mean that even if you don’t own gold yet, it’s not too late. In fact, any excuse you have now for not buying gold will seem shallow and meaningless when the dollar begins cratering and so does your standard of living.

Third, don’t shy away from gold stocks. Yes, they’re still stocks and thus vulnerable, and we’re not sure the separation is here to stay, but selling your core holdings would be, in my opinion, a mistake. One of these days gold stocks won’t wait around for you to jump back in. And you could find yourself chasing them, a tactical error for the investor looking to maximize profit from what we believe will be a once-in-a-generation bull market.

In fact, if you had followed only this strategy since the precious metals bull market began in April 2001, you’d be up 375% in your gold holdings and up 707% in your gold stocks. An investment in the S&P, meanwhile, would’ve returned you exactly zero.

It’s our opinion this trend will continue. Gold stocks could very well get cheaper in the short term, handing us an excellent buying opportunity. But in the big picture, they’re destined for much higher levels.

My advice is to make sure you’re on the right side of this trend.

—-
What’s a good price on gold, silver, and precious metals stocks? We’ve charted every summer pullback in prices since the bull market began in 2001, giving us target zones for every asset in our portfolio. Our Summer Buying Guide is an invaluable resource for identifying a good bargain in our industry. And you can access it right now, for $39 per year, with a risk-free 3-month trial. Click here for more.

Silver Price Charts: What Can They Tell Us?

An NZ Video Guide to Investing in Silver: Part 2

Here’s the second video in our new ”Gold and Silver Videos”  category.  The first video An NZ Video Guide to Investing in Silver covered a range of topics on silver investment.

In this video “Wild Bill” (who also writes our “Weekly Wanderings” column every week) returns and hones in on silver’s price performance with a discussion of US and NZ silver price charts, including:

• Silver’s performance over the past 10 years in US dollars
• Charts of Silver in NZ dollars versus Silver in US dollars
• A look at silver’s performance versus gold
• Taking the historical price movements into account, how best to purchase silver
• The gold/silver ratio and how to use this measure as a trading strategy

Please post a comment below and let us know what other topics you’d like to hear more about in future videos…

Whither the NZ Dollar Gold Price?

Gold has just made another all time high priced in US dollars reaching an intra-day price of $1261.90.  In Euros and sterling and many other currencies it also has hit new highs recently.

Here in New Zealand, while it has rallied sharply since the start of May, the previous February 2009 high of $1980 has yet to be breached as can be seen further down the page on the 2 year chart of the New Zealand Dollar Gold Price.  In early June it touched $1900 briefly but has since fallen away sharply.

The mistake many new gold investors make is trying to guess where the price is going.  They either sit on the sidelines waiting for the price to get cheaper while it rises and rises, or they jump in when the gold is hitting mainstream headlines as it makes new highs, only to subsequently see it fall steeply.  Often they make their initial purchase in one big hit hoping to pick the “bottom” and then see their purchase lose 10 or 15% in no time. 

We prefer not to guess where the price is going and rather buy at regular intervals, ensuring a good price overall. 

However we also like to keep some “powder dry” for when the price dips, and this is when it is useful to keep an eye on the charts to pick buying zones where you can grab some bigger handfuls.

Technical analysis is as much an art as a science. You could ask 5 or 6 technical gurus about a chart and probably get 5 or 6 different answers!  And particularly in these days of manipulated markets it is of dubious value. 

However, technical analysis does have some predictive value, chiefly because so many people use it, so it’s worth taking into account when making purchase decisions in our opinion. 

The 1 year chart below has Fibonacci retracement levels drawn in from the recent high at $1900 back down to 0% at $1372 last October.  You can see $1700 at the 61.8% retracement and $1637 at the 50% level.

 1 Year NZ Dollar Gold Price Chart with Fibonacci Retracements

Also worth taking into account is the 50 day moving average (red line) of $1723.  Further below is the 200 day moving average at $1581.  You can see on the 1 year chart that the price has not dipped down to touch the 200 day moving average (red line) since the start of the year.

These price levels all offer good “support” in technical terms, so in our opinion, could likely be good buying zones. 

2 Year NZ Dollar Gold Price Chart - Cup and Handle Pattern

 

The 2 year chart above has a very interesting look about it, namely, in chartist terms, what is referred to  as a “cup and handle”.  You can see the cup highlighted in green.  This is known as a “bullish continuation pattern” and while it is usually seen over a period of months rather than a year and a half it is worth looking at more closely.  For a full description of the cup and handle pattern, see http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:chart_patterns:cup_with_handle_cont

The handle usually trends down for a short period before eventually heading up and breaking out and recording new highs. 

So from here we could see the price head up to test $1980 and with then possibly a “handle” forming, or maybe we are already witnessing the formation of a handle.  If this break out were to occur we can make an estimate of an upside target by taking the difference between the bottom of the “cup” at $1400 and the high of approxiamately $1950.  Adding the difference of $550 to the current high gives an upside target of $2500.

Of course a “double top” may occur where the price rises to test the $1980 resistance but fails to break through this level and we might then see the NZD gold price fall significantly.  However unlike the February 2009 high, we haven’t seen a sharp rise in the space of a few months but rather a series of sideways movements followed by some steady gains.  So you could say we are at a lower risk of a significant breakdown in price than we were in February 2009.

As always, these are just our opinions.  The charts clearly demonstrate that the gold market is a very volatile market, however, this makes for opportunities, so long as you have a plan to handle this volatility.  A plan which could be as simple as buy the dips and keep buying until your big picture view of the global financial landscape hints at some real improvement, which we haven’t seen a lot of as yet, and which looks increasingly unlikely, given the current economic and financial situation.

Note: Both live and historical gold and silver price charts in New Zealand dollars are available here: Gold Prices

Stephen Leeb: The Real Threat to Europe, the US (and NZ)

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

The opening headline in this week’s NZ Sunday Star*Times Business section reads “Gold Production heads to $1b”. It seems that gold is starting to attract mainstream attention, even in New Zealand. Over the page, in Rod Oram’s piece, we find this fact reported:

The sum that we (NZ) owe the rest of the world – our net international liabilities – are now 90% of GDP, the third highest in the world after Iceland and Hungary - and are forecast to reach 100% of GDP by March 2014.

Finance minister Bill English correctly referred to this as “New Zealand’s largest vulnerability”.

I for one would like to know the ratio of our debt servicing costs to our income – this is actually a much more important number then the one above, for the simple reason that it defines our ability to pay our way. Suffice it to say that New Zealand’s vulnerability lies in its requirement to continually borrow from abroad, and therefore our interest rates are inescapably tied to overseas rates. The remarks I made last week about the effect on US debt repayments of rising interest rates apply to us in spades.

Now to some of the articles that have grabbed our attention this week…

• William Engdahl: Euro slump due to Attack from Wall St and Washington

• Stephen Leeb: The Real Threat to Europe, the US (Ed: and us)

• Jim Rickards: Financial Warfare, and More

• Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

 

Euro slump due to planned Wall Street and Washington’s attack - William Engdahl

Germany’s Chancellor Merkel says the Euro currency is at risk and that Europe faces its greatest challenge since the EU was formed.

It comes as stock markets in Europe and Asia tumbled on the surprise news that Berlin was banning types of ’short selling’ – where investors profit by betting that shares will drop in value.

The euro is under pressure after nations using it had to pull together to bail out Greece, which is struggling under a massive debt and from strikes that are bringing the country to a halt.

Many say the aid package came too late and that the crisis in Athens may be a prelude to the currency crumbling.

William Engdahl, author and economic researcher, thinks it is the greatest challenge since 1999 when the euro was created.

He said the crisis is the result of an orchestrated attack by the U.S. on the dollar’s main rival.

“The whole attack on Greece and the attack on the euro originated from a concerted strategy of Wall Street and US Institutions to permanently cripple or try to cripple the only alternative reserve currency anywhere in the world that can challenge the dollar,” Engdahl told Russia Today.

 

Stephen Leeb: The Real Threat to Europe, the US (Ed: and NZ!)

Stephen Leeb was trained as a mathematician and psychologist, and I have found him to be right on the money on a number of occasions. He’s another guy I listen to carefully when he speaks… In these remarks he discusses the indirect taxes that increasing energy and commodity prices impose, and his view on gold.

Don’t mistake us: the euro will disappear in time. It’s just that, for now, European nations are taking some positive actions that the market sees as reducing the risk of economic Armageddon. France and Spain have decided to cut benefit packages for their civil servants to reduce their deficits. Germany has approved of the massive bailout package to help Greece, which amounts to de facto quantitative easing.

If there were no further problems down the road, we might expect the euro to eventually bottom out at around $1.10 – maybe a dollar. The EMU might eventually unwind the recent quantitative easing and come through the current crisis intact.

Unfortunately, the road ahead is far from smooth. And the problems that lie ahead have far more to do with resource scarcity than Western governments’ excessive debt levels.

Let’s take an example from the U.S. (just because the data is readily at hand).

While some people enjoyed the weather this past weekend, I confess I spent my time crunching numbers. By doing so, I came to some poignant conclusions regarding the average American family’s energy costs in recent years. Between 2000 and 2005 (the most recent year for which government stats are available), energy expenditures per U.S. household rose from an average of $2,200 (or 4% of expenses) to $5,000 or 10% of expenses.

Although more recent figures on energy expenditures are not yet available, we know that household incomes have fallen since 2005 while energy prices have risen. So it’s fair to say that the average household pays an equal or greater percentage of its income on energy today.

That’s a huge after-tax increase in Americans’ cost of living. It’s like paying nearly $3,000 more each year in taxes – after you have finished paying Uncle Sam. This money doesn’t go towards fixing potholes, making education affordable, or stimulating the economy. Instead, much of this money goes overseas to enrich the oil-exporting nations.

Naturally, the same is true of increases in the price of virtually every other raw material the U.S. imports. Copper, nickel, zinc, platinum, and many other commodities have gained substantially over the past 10 years. And every resulting increase in the cost of living suppresses consumer spending, much as a tax would, but without any redeeming side effects.

Naturally, Europe faces similar problems. (Ed: - and so do we here in NZ) Like the U.S., it imports a lot of oil and raw materials. Admittedly, it has been further ahead than the U.S. when it comes to developing alternative energies. But now that Europe faces pressure to cut government deficits, alternative energy projects may take a back seat for a few years. (Instead, the new world leader in alt. energy is China and it is widening its lead every day.)

Going forward, the combination of greater fiscal restraint and rising commodity prices will put a lot of strain on Europe. It will probably lead to a sustained period of quantitative easing, which will pit European nations against each other.

In the end, resource scarcity more than sovereign debt will cause the biggest problems in both Europe and the U.S. It will restrain people’s ability to send their kids to college, pay for healthcare, or retire while they’re still young enough to enjoy it.

As for gold, we remain confident that gold offers us long-term security against market declines.  Simply said it is the world’s strongest currency in times of uncertainty.

 

Jim Rickards: Financial Warfare, and more

Jim Rickards, Senior Managing Director of Omnis Inc, is interviewed often by Eric King of King World News. King World News is a very important site for followers of the precious metals markets to keep a close eye on. Nothing of importance to these markets escapes Eric’s eagle eye. The full interview is carried on the site, and I urge you to check it out; I attempt to paraphrase the important points below.

Financial warfare: it may not be obvious at the time it’s happening – there is a slippery slope from open markets to closed markets to adversarial markets. Now, while China may not be engaged in actual warfare at the present time, it is certainly wielding a huge deflationary hammer against the US - thus contributing to Ben Bernanke’s worst nightmare, because of the impact deflation has on banks and on debt. Currently, we have apparent price stability because the forces of deflation, coming from China and elsewhere are balanced by the forces of inflation i.e. money printing by the central banks. However this is an unstable equilibrium – the balance can easily tip from one side to the other or shift back and forth.

Interestingly, gold is an investment that does well under both inflation and deflation.

It is interesting to speculate who the buyers are, now that gold is undergoing a correction; in any case these short term fluctuations are not of concern. Jim still has a short term target of $2000 per oz, and $5000 per oz for the medium term.

Credit default swaps do not form part of the free market – they form part of a rigged game. To be clear, the fiscal situation in Europe is a mess. However, CDS make the situation many times worse. With derivatives, you can attack a country with no money down. The $1T rescue package will not work; GS could create  $5T worth of shorts in the form of credit default swaps, which they can do over the phone. Governments, led by Germany are fighting back, however. Jim makes the point that these countries are important Nato allies; the investment banks have been allowed to run riot, but this situation may not continue.

 

Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

(Ed: wonder what Steve Keen will say about this…)

Insanity Down Under: ING Says Thanks to Capital Appreciation, Paying Principal on Mortgage Loans is Unnecessary

from Mish’s Global Economic Trend Analysis by Michael Shedlock

Myths that home prices rise forever and interest rates stay low forever are alive and well in Australia. Please consider this amazing story of corporate insanity as described in the Sunday Telegraph - Revealed: The home loan that could save you a fortune.

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
 
At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.
 
“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”
 
Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.
 
Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.
 
Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.
 
But ING says this preoccupation with paying off the loan is unnecessary.
 
“There is no economic reason for banks to insist on regular capital repayment,” Mr Koch said. “It just makes the loan more expensive for the borrower.
 
Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: “Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

Economic Idiocy
 
Koch’s proposal, seconded by CEO Shaun Cornelius of InfoChoice, is economic idiocy at its finest. No one “saves” anything by not paying down mortgages, the money is simply spent (most likely wasted) elsewhere. Moreover, home prices do not perpetually go up.
 
The US housing market has without a doubt proven both statements.
 
Ask any homeowner in the US who is headed for retirement and severely underwater on their home what they think of Koch’s hypothesis.
 
With so many underwater mortgages, only a complete fool think estates would be in a position to repay the original capital from their estate, after death, especially in countries where the bubble has not yet popped, such as Australia, Canada, and China.
 
Of all the proposals to keep the housing bubble alive in Australia, especially in light of what has happened in the US, this idea from ING needs to go straight to the top of the idiotic ideas list.
 
ING Direct CEO Don Koch is testament to the idea “there is always the greater idiot who never learns a thing from history, who instead proposes to do something that the market has recently proven preposterous.”

Simple Questions
 
By the way Mr. Koch, I have a few simple questions for you:
 
Are you aware of what interest rates were in the 1970’s and 1980’s?
 
“What happens when interest rates rise, perhaps even double, and your borrowers struggle to make even the interest payments?”
 
Alternatively, “Are you dumb enough to offer low rates forever?”
 
Either way. Mr. Koch, you and your banks are screwed, and it should not take a genius to figure that out.
 
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Gold: The Safest Bet, Unlimited Demand, Vending Machines, and Price Projections

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

Looking around the economic landscape, it’s hard not to have a sense of foreboding. Despite the optimistic propaganda from our governments and financial centres, it is clear that things are not good out there on the ground. I have had talks with many ordinary people in the US and have heard stories of increasing hardship, like the lady in Massachusetts who has just lost her job at the medical centre where she has worked for 14 years. Her boss told her he was very sorry to have to lay her off but he had never seen the economic situation so bad. I also talked to a guy who had lost his job in a business supplying parts to the auto industry. Aged in his late 30s, he had no skills apart from what he had picked up during his job there, so had very few prospects. I also talked to my plumber mate in New York, who told me he was surviving, but had seen many of his mates losing jobs.

Now this is all anecdotal evidence, but stories like these abound all across the US.

The financial markets remain in a precarious state. The financial crisis that exploded publicly in 2008 has not been defused; on the contrary the crisis is protracted, ongoing and has no end in sight. The cracks have simply been papered over with another layer of derivatives. The cause of the crisis – TOO MUCH DEBT – has been answered by the creation of yet more extensive and expensive layers of debt. At the moment, with artificially low rates of interest, the interest that the US pays on its national debt is manageable, but if interest rates were to rise to a “realistic” level – say at least greater than 6% - then it becomes a different story, with the servicing cost of each layer of debt rolled over multiplied 6-fold.

Although deflation seems to be the story of the day, the truth is that, behind the scenes, price inflation is increasing rapidly – wholesale food prices in the US have been rising inexorably for the last six months.  It is not an accident that the top 3 US states doing best in the current environment are North and South Dakota and Nebraska. These are states heavily reliant on farming for their income. Of course North Dakota has the undoubted advantage of having its own bank – but that’s another story.

This inflation genie will NOT go back in the bottle… Notice that the price of technology is going down – but what will happen as time goes by is that the average household will have to spend increasingly more on food and energy, and therefore less on everything else, as the supply of credit to these households has all but dried up. Now, if there is indeed rapid inflation – indeed even possibly hyperinflation about to occur in the US, there will be downward pressure on the US dollar, and increasing reluctance of foreigners to fund US borrowing requirements.

Meanwhile, we have a European sovereign debt crisis, and a situation in the US where at least 40 of 50 states are insolvent – the most notable being California. At the same time the price of gold is rising inexorably, having broken out to new highs above USD1200 per oz. This is occurring at a time when the US dollar index is rising. Of course the price of gold in euros is reaching new records almost daily as the euro plunges in value against the dollar.

What can we learn from all this?  Just think about the consequences if the US (to take an example) is forced to close financial markets – and currency markets – for some period of time. We have been informed that that very situation came very close (only hours away) to happening in 2008. Foreign markets would be forced to shut down as a result. New Zealand has to borrow $240 million per month from abroad, just to stay functioning. We are NOT isolated from foreign currency or banking events. What do you do when your ATM no longer works? Do you have enough currency available to you to survive for say a week?   How would you deal with a situation like that in Argentina not long ago when people went to bed one night with savings in the bank and woke up the next morning to be told their money had vanished? Might be worth thinking about…

Of course, you might also consider the fact that in the early 1970’s, before Nixon closed the gold window, you could buy a good man’s suit in the US for $35 which was the value of 1 oz of gold at that time. Today a comparable suit costs more than $1000 – around the value of 1 oz of gold now.

 

Now to some of the articles that have grabbed our attention this week…

·        JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

·        The Safest Bet During Uncertain Markets – J.S. Kim

·        Abu Dhabi Hotel Installs Gold Vending Machine

·        Louise Yamada’s Projections for the Gold Price

 

JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

From: Businessinsider.com

JP Morgan’s John Bridges believes the latest breakout for gold was a huge positive sign for the metal.

Euro weakness fears, coupled with dollar weakness fears, could lead to an enormous amount of demand:

JP Morgan:

A German banker once told us that gold normally trades like a commodity. However, when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited. We believe the European version of “QE” is generating serious currency worries and led today to the breakout of the gold price above the previous intraday high at $1,226/oz.

We see this breakout as significant: The market might have welcomed the European’s latest solution to the Greek crisis with a weaker gold price. If the gold price had fallen, bears could have pointed to a “double top” in the chart, and this could have contributed to a period of weakness for the metal.

They’re recommending exposure both through gold and gold-related stocks, as insurance, since despite the fact that gold is a record price levels, they believe that it could feasibly go far higher. Guessing just how wild investors will get for an asset is still a horribly tricky game nonetheless.

 

John Kim is one of our trusted sources – we have examined his recommendations over a long period and now listen very carefully to his perspective.

The Safest Bet During Uncertain Markets

from The Underground Investor by J.S. Kim

With six consecutive intraday triple digit swings from high to low in the DJIA index, here’s the safest bet during these uncertain times. Beginning last Thursday, volatility has returned to US markets with a vengeance. So who’s going to win the battle between the bulls and bears now? With the loss in confidence in global markets and the further exposure of the rigging games of markets precipitated by the 700 point drop in the DJIA in ten minutes last Thursday, sustained volatility and further corrections are likely in our near future. If so, then where’s the safest place to be now? The same place it has been for the past five years – precious metals.
Since we’ve launched our investment newsletter in June of 2007, precious metals have been a core holding of our newsletter. Since we began publishing our newsletter, at times we have held Chinese RE and technology stocks, Brazilian oil producers, various agricultural stocks and so on, depending upon our assessment of the risk-reward parameters of holding stocks in these specific countries and specific sectors. During other times, our holdings in precious metals have been much more concentrated. However, the common denominator throughout all 35 months we have published our newsletter has been the holding of precious metals. During this 35-month period, our Crisis Investment Opportunities newsletter has outperformed (as of May 12, 2010) the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% during the comparable investment period.

And yes, our core foundation in precious metals is what has provided stability and tremendous growth to the core portfolio of our investment newsletter during this time. Listen to the propaganda of western commercial firms, however, and you may not even know PMs are an investment asset. Consider the following story reported by the Los Angeles Times in April 5, 2010:

At least one-third of Kimberly Sterling’s clients have sought advice in the last year about investing in gold. The Orlando financial planner has successfully discouraged all but one from doing so. That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually she referred him to a gold-commodities exchange-traded fund that has done well during the metal’s decade-long run-up in price. But her firm, Resource Consulting Group, still wouldn’t buy in. “Our bottom line is this: Gold is a bubble now, and it is too late to get in,” she said recently. “It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly.”

Since the time that article ran, gold has since returned 10.08% and silver 10.17%. The S&P 500? -2.5%. Terrible advice like the above is typical from advisers that work for large commercial investment firms because (1) most are willing participants in the massive fraud inherent in the world’s stock markets today; and (2) they fail to understand the mechanisms of our monetary system. If they truly understood the mechanisms of financial markets today, they would understand that all the commercial investment advice about gold being a risky asset is pure propaganda along with 90% of the other advice they dole out to their clients.

If you understand how the global monetary system and financial markets truly operate, then your vision will expand from the tunnel vision of most commercial investment firm advisers to a much wider perspective that would recognize the importance of owning gold and silver.

Almost four years ago in this article, on August 16, 2006, I stated the following:

“Over 7-½ years, if your portfolio has tracked the S&P 500’s index as some 97% of professional money managers aim to do, you have about the same amount of money you had 7-½ years ago. Only with the rapid devaluation of the dollar, your same amount of dollars buys much less today, so…tracking the index has lost you money…And that’s the good news. The bad news is, as of 2006, the US stock market’s performance will likely become even worse for the rest of the decade.”

Though it’s hard to remember the sentiment surrounding US stock markets four years ago, I can assure you that at the time I delivered my above predictions, the general consensus was that I was crazy. So how did my above prediction pan out? On August 16, 2006, the S&P 500 closed at 1,295.43. Today, it stands at 1,157.43 for a loss of 10.65%. Consider the devaluation of the dollar and your losses amount to a much more significant amount than 10.65%. And what about gold during this time period? On August 16th, gold was selling for $629.75 an ounce. Since then, at $1,236.80 an ounce, gold has risen 96.40% (less the inflation of the dollar during this time). But even back on August 16, 2006, thousands of advisors that work for global commercial investment firms were dispensing terrible advice similar to Kimberly Sterling’s even as I was outlining, in this article, the reasons why “Gold’s Speculative Stigma is Unwarranted”.

How do I know this? Because when gold was trading at $500 an ounce, I recall reading analyst reports by precious metal “experts” at top financial firms that warned their clients of a massive gold bubble and a pending crash of gold from $500 an ounce back to the $250-$300 an ounce range. How can these experts have been so wrong?

Three reasons.

ONE: Commercial investment firms do not earn fees from their clients buying gold and silver. Thus, the reason they perpetually discourage it. Precious metals are the enemy of all fraudulent fiat money including the SDRs of the IMF and the financial derivative products of Wall Street. Consider this story in which HSBC ordered their clients to remove their gold from their vaults, all at their own expense.

TWO: Commercial investment firms do not educate their financial consultants regarding precious metals. Most of their consultants probably could not even properly explain something as basic as the difference between ounces of metals classified as resources and those classified as reserves and the significance of the different categories among these classifications. Having no basic understanding of precious metals leaves their consultants woefully unprepared to provide any type of meaningful guidance regarding PMs. For example, when the aforementioned Kimberly Sterling finally gave in to her one client that insisted on owning gold, she steered him into a paper gold ETF. But here’s why even that advice will most likely turn out to be a huge mistake.

THREE: Most commercial investment firms rely on the naïve trust their clients place in them and their client’s lack of understanding about how they reap their profits to exploit them. They manipulate their clients’ fear about volatility and misunderstanding about diversification to ensure that their clients don’t invest in PMs and instead, invest in financial instruments likely to return less but generate more fees.

Yes, gold and silver are volatile, and have historically been volatile due to the price suppression schemes against them engineered by Central Banks to discourage investors from investing in gold and silver. Remember that I noted above that gold has increased, in US dollar terms by 96.40% since August 16, 2006. How then, have we been able to produce a 281.80% return in our investment newsletter since the later date of June 15, 2007 (in a tax-deferred account)? Simply by understanding how the global monetary system operates and using this knowledge to predict the effects of these price suppression schemes in advance. Commercial investment firms always tell their clients that volatility is terrible and to fear volatility, but the only reason to fear volatility is if you don’t understand what causes it. Of course, whenever volatility occurs in the stock markets, they inform you not to be shaken out of the stock market, because the stock market always goes higher in the long run (a myth we have also deconstructed in this article, unless your investment time frame is 50 to 100 years). When volatility strikes the PM markets, however, they seize this opportunity to label PMs as risky. As long as Central Banks and their governments scheme against PMs, gold and silver will continue to have sharp, scary drops in the future at times. If, however, one understands what causes the volatility in the gold and silver markets, one can actually leverage volatility to one’s advantage.

The myth about volatility in gold/silver being bad while volatility in stock markets is okay is equivalent, on a propaganda level, to the myth about the “safety” of diversification. In this video here, I explain why diversification is more Wall Street propaganda as well. In conclusion, one should know that ulterior motives and ignorance drive commercial investment firms to misinform you that precious metals are a risky investment while stock markets are the safe place to be. Furthermore, the 30, 40, 50-year time frame that commercial investment firms’ gold analysts utilize to belittle gold’s performance is also bogus. When Alan Greenspan was Chairman of the US Federal Reserve, one of his stated missions was to get the world to view the dollar as if it were backed by gold even when it was backed by nothing, and for a while, he succeeded in selling the world the lie of a strong dollar. However, now that this deceit has been revealed to the world, one needs to assess gold as an investment asset under a much more narrow time frame. Unless you figure out that Wall Street has flipped this equation upside down, you’re liable to be hurt very badly in the coming years. Of course, if you’re from Germany, Argentina, Thailand, South Korea, Zimbabwe, or any other country that has undergone a severe monetary crisis that produced bank holidays, runaway inflation, and government pleas to their citizens to hand over their gold, then you don’t need me to tell you this.

About the author: JS Kim is the Chief Investment Strategist and Managing Director of SmartKnowledgeU, LLC, a fiercely independent wealth consultancy company that guides investors in the best ways to build wealth through the progression of this global financial crisis. His investment newsletter, Crisis Investment Opportunities, has significantly beat all major developed stock market indexes since its launch in 2007, outperforming the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% (in a tax-deferred account, cumulative returns for the investment period, June 15, 2007 to May 12, 2010).

A Sign of the Times?

From: Yahoo News

Abu Dhabi Hotel Installs Gold Vending Machine

ABU DHABI — There’s no mistaking what’s in this vending machine. The well-heeled in the Gulf can now grab “gold to go” from a hotel lobby in the United Arab Emirates, when the need for a quick ingot strikes.

On Thursday, a day after its inauguration, the shiny machine attracted spectators of many different nationalities who gathered to watch whenever an enthusiast was struck with the urge to splurge on a bar of the precious metal.

Abu Dhabi’s Emirates Palace Hotel became the first place outside Germany to install “gold to go, the world’s first gold vending machine,” said a statement from Ex Oriente Lux AG, the German company behind the vending machine.

“In addition to one-gram, five-gram and 10-gram bars of gold, the machine also dispenses gold coins,” it added.

Gold rates are constantly updated inside the shiny machine — itself gold-plated — in the hotel’s lobby, courtesy of a built-in computer connected to a dealer which sells gold online.

“This eliminates the risk premiums usually associated with precious metal trading,” the German company said.

Hotel general manager Hans Olbertz said they wanted the hotel to be the first in the world to offer guests what he called “this golden service.”

The Emirates Palace is often used by visiting foreign dignitaries, and its top floor is reserved for the rulers of the UAE federation’s seven emirates, each of whom has his own suite.

 

Louise Yamada’s Projections for the Gold Price

Louise Yamada is one of the most respected technical analysts on Wall Street. When she speaks, it’s a good idea to at least consider what she says.  We’ve taken a screen shot that shows her short term Gold Price projections below…

And here is the full 4 minute CNBC interview…

When will you know it’s time to sell gold?

“The ultimate asset bubble is gold” said George Soros in late January. 

This was widely reported as Gold is now the ultimate bubble.  A subtle but very significant difference, thereby implying that Soros was stating that gold was in a bubble right now.

Only Mr Soros knows what the true intent of his remarks were.  However the fact that he had been purchasing shares in both gold mining companies and the Gold ETF at the end of last year would make you think he was likely doing his best to talk the gold price down so he could buy some more.  Most likely these were very carefully chosen words that he knew would be misinterpreted by an uninformed mainstream media and help to prod the masses to sell gold.

History proves that Gold is in fact the ultimate bubble.  5 years after the 1929 stock market crash, gold’s investment purchasing power rose 17 times.  From 1970 to 1979 it rose 15 times.  But from 2000 to now gold is up 4 times (Source: Bullionvault).  So with only a 4 fold rise so far in this bull market, the ultimate bubble seems like it is a few years away yet.  Or put another way gold is in fact the anti-bubble, the ultimate extinguisher of debt as per John Exter’s Inverse liquidity pyramid (A whole other topic in and of itself).

But the oft asked question is “When will I know it’s time to sell my gold?”‎

Unfortunately there is not likely to be someone holding up a sign proclaiming ‎‎“The top is in – Sell Gold Now!”  However history shows there may be some ‎not quite so literal signs we can still look out for.   Below is a list of them and ‎our verdict on their “bubblishness”.‎

1.  Dow Gold Ratio.  The Dow Gold ratio is simply the Dow Jones Industrial ‎average (a measure of the US stock market) divided by the price of gold.  It is ‎useful as a guide as to when stocks are cheap and when they’re overvalued.  ‎See the below chart care of sharelynx.com for these extremes. ‎

Towards the end of the 1930’s depression the ratio reached a low of 2 and at ‎the end of the inflationary 1970’s it reached a low of just over 1.  It’s currently ‎at just under 10.  So history shows the time to sell gold will be when the ratio ‎reaches these levels again.  Interestingly the below Log scale graph (hat tip to ‎Sharelynx.com again – a must visit site for great graphs) shows the ratio has ‎made higher highs each time it has peaked over the last century.  It also ‎made a lower low in 1980 so could fall below 1 at the end of the current ‎monetary crisis.  ‎

So while the ratio has fallen it’s still at 10.  Verdict: No Gold Bubble.  (For more on ‎the Dow Gold ratio see this earlier article Expert gold miners opinion on the dow gold ‎ratio.)  ‎

2.  Housing gold ratio. Much like the Dow Gold ratio the Housing gold ‎ratio also indicates when housing is over and undervalued.  In New ‎Zealand the ratio last bottomed out in 1980 at just over 50.  ‎

It’s currently at 250 so when it gets close to 100 that might be the time ‎to swap some gold for property.  We covered the US, UK and NZ housing gold ratio in ‎great depth previously here: Could NZ House Values drop by 80%.  Verdict: No Gold Bubble.

‎3.  Real interest rates rise.  A common misconception is that gold ‎performs poorly when interest rates rise as gold pays no dividend or ‎interest.  However the key is what real interest rates are doing.  That is ‎the nominal interest rate less the rate of inflation.  Currently there is ‎very little reward in the form of interest for keeping your money in the ‎bank, and real interest rates are actually negative as per the graph ‎below from McClellan Financial Publications, www.mcoscillator.com ‎

You’ll notice how gold continued to rise throughout the 1970’s until real ‎interest rates finally turned positive again.  However, today central ‎banks find themselves in a worse position than 1980 as it will be very ‎difficult to raise interest rates sufficiently to head off gold without ‎destroying their economies in the process. So interest rates could rise ‎from here but if inflation rose too then real rates would stay below zero, ‎and gold would continue it’s rise as there would still be insufficient ‎reward for dollars in the bank.  Verdict: No Gold Bubble.  ‎

4. Governments become fiscally responsible.  At the end of the ‎inflationary 1970’s we had the likes of Margaret Thatcher in the UK ‎cutting government spending and Paul Volker for the US Federal ‎Reserve raising interest rates significantly to fight inflation.  Here in NZ ‎the 80’s saw “Rogernomics” and some harsh medicine for the country ‎to swallow.  Worldwide generally this period saw taxes cut along with ‎government spending.  Cast our eyes across the planet at the politics ‎of today and generally we see more government spending and ‎increasing public debt and likely higher taxes - as much as they would ‎have us believe otherwise.  Verdict: No Gold  Bubble.  ‎

5.  People discuss how much their gold mining shares have risen at ‎dinner parties and where to buy the cheapest gold coins.  Most ‎likely you currently know very few people in your wider circle of friends ‎and acquaintances that have any gold or gold related investments.  ‎When the tables turn and gold is dominating discussions at social ‎gatherings and regularly on the mainstream news we are likely getting ‎near a top.  A long way from there yet I’d say.  Verdict: No Gold  ‎Bubble.  ‎

6.  There are Gold kiosks selling gold bars and coins popping up in ‎shopping malls everywhere.   As we have mentioned previously ‎here, we are seeing the opposite of this currently ‎with kiosks popping up buying gold from the public.  Verdict: No Gold  ‎Bubble.   (However, the counter to point 5 and point 6 above is that ‎Joe Public may be so tapped out and broke that he won’t be able to ‎afford to buy any gold.  In this case it will be institutions that are buying ‎gold bullion and gold mining shares.) ‎

7.  Our website visitors rise exponentially!  Highly likely if more and ‎more people start paying an interest in gold.  They’re rising steadily ‎currently.  Don’t worry we’ll let you know if our visitor numbers start ‎exploding without us doing anything to warrant it.  Verdict: No Gold  ‎Bubble.  ‎

 The other possibility to consider is that you may not have to sell your gold ‎at all.‎

‎“Huh?”  You may be thinking, “I’ve read stories of people who didn’t sell ‎gold when it was in the $800’s at the end of the 1970’s and then watched it drop all ‎the way down to $300 or less.”‎

Well, you see, the possibility exists that gold could become widely accepted ‎again as money.  This could come about in a couple of ways…‎

‎1.‎   The elites may be forced to reintroduce a gold standard and hopefully a ‎true gold standard as existed prior to WW1.  Whereby an ounce of gold ‎is worth a specific dollar amount.  So gold = money.‎

2.‎   The above doesn’t happen and so the global financial system totally ‎breaks down, maybe hyperinflation ensues, paper money is worthless ‎and people resort to trading and bartering.  Gold will still buy the same ‎amount of goods and services as it always has.  Again gold = money.‎

Another possibility bandied about by the likes of Jim Sinclair of jsmineset.com, ‎is that the elites merely introduce a loose gold link.  This would possibly be by ‎way of a new global currency with gold trading in a narrow range but at a ‎much higher price.  This would allow the master planners to still control the ‎currency issuance - albeit with a partial handbrake on their money creating ‎powers.‎

Whatever the final outcome, it appears that paper currency is slowly (or ‎maybe not so slowly) dying.  Who knows what will deliver the death blow, and ‎it could be a way off yet, but none of the above signs of a “gold bubble” are ‎here yet so don’t sell gold…..‎

Buy gold (and silver).‎ 

Hold gold (and silver).‎

Learn, observe and wait.‎

Could NZ house values drop by 80%?

Past data shows they sure could when priced in gold.

As usual there’s plenty of discussion in the mainstream media about where house prices are going. Given New Zealanders predilection for property it’s no surprise. However the prices used are always and only the nominal NZ dollar prices. And as discussed in this previous article, The Current Stage of the New Zealand Real Estate Market, it’s important to take into account money supply inflation and its impact on the buying power of the dollars you hold, when looking at historical returns.

So we’ve gone to the trouble of plotting NZ house prices against NZ gold prices to hopefully show house prices in a new light….

The below graph depicts the commonly publicised median house price (orange line and right axis). But also the house price to gold price ratio (black line and left axis) since 1962. This is calculated by dividing the median house price by the monthly gold price in NZ dollars. We then arrive at the number of ounces of gold required to purchase the NZ median house.

As it’s difficult to get long range median house prices, the prices were calculated using RBNZ house price index data and extrapolated backwards using the current median house price. Note: the index is for detached houses only. So while not perfect it should give a general indication of the trend in NZ house prices.

We couldn’t find NZ house price data back to the 1930s and earlier like the US and UK graphs care of bullionvault below. (The accompanying articles for the US and UK graphs on bullionvault can be found here and here.)

And while the UK and US data refers to average (not median) house prices, ‎we think we can still use the data to draw some broad comparisons.  So ‎please forgive our mixing apples with oranges!  Hopefully the resulting fruit ‎salad still makes sense!

Comparing the UK (above) and US (below), notice how towards the end of the 2 biggest recessions of the previous century – one, the deflationary depression of the 1930’s and the other the inflationary 1970’s – the ratios both dipped below 100 oz to purchase the average house.

While our NZ data doesn’t go back that far, notice how similar the NZ graph is to the UK data since 1962. Both peaked around 1970 at near to 300 ounces. Both then fell to below 100 in 1980 and climbed steadily with a bit of a stumble in the 90’s, to peak in the mid 2000’s.

So we reckon it’s probably reasonable to assume that the trend was similar during the 1930’s depression era here too.

Now, referring back to the NZ graph (reproduced again below for ease of comparison), note how at the end of the 70’s the housing/gold ratio drops down to almost 50 oz of gold to buy the median house!

If history repeats and the trends in the US and UK are similar to NZ, could we in fact be heading down close to 50 ounces again by the end of the current financial crisis?

Also worth noting is that while house prices in NZD terms peaked in 2007, priced in gold they had already topped out in 2005. So, at first glance it may seem like you’ve “missed the boat” if you didn’t sell housing and buy gold in 2005 when the top was in at 500 oz. With the ratio currently standing at about 250 oz you would have been able to buy back the same house now and still have 250 ounces left over. Or put another way you could now buy 2 houses. That is, twice the buying power in real estate by holding gold for 4 years.

However if we consider that in the 70’s the ratio bottomed at 50, this is a further 80% drop in the ratio from today’s value!

Key point: It’s the proportional drop that is the key factor.

So an average house sold today would net you 250 oz of gold. If the past trends both here and in the US and UK hold true, we may see the ratio drop below 100 and here in NZ maybe even bottoming out as low as 50, by the end of this financial crisis. That would mean you could buy back the same house for 50 ounces of gold and still have 200 ounces left over. Or using the same analogy as above you could now buy 5 houses! Even if the ratio only dropped to 100 ounces you could still buy the same house back twice and have 50 oz of gold left over.

Bear in mind that this drop against gold could happen without house prices actually falling in nominal NZ dollar terms as well but merely just through expanded money supply holding house prices up – i.e. the kiwi dollar being devalued. For example, for the ratio to bottom out at 50 the median house price could remain at the current price of $360,000 and gold could rise to $7200NZ (i.e. $360,000 / 50 = $7200). Notice how in the 70’s housing actually went up for the whole decade in dollar terms (orange line) while falling for the decade in gold terms (black line).

Or you could have gold holding steady and nominal house prices dropping markedly. With NZ gold currently at $1,585, the current median house price would have to drop to $158,500 to return just to 100 ounces! Ouch!

But perhaps the more likely scenario is to have a combination of the nominal dollar price of housing falling and gold rising. For example, gold at $3000NZ and the NZ median house price dropping to $300,000 would result in a 100 oz ratio.

Anyway, if history at least rhymes a little bit, holding gold should result in improved buying power when it comes to real estate in the coming years, whichever of the above scenarios play out.

So to summarise:

1. When priced in gold the NZ median house peaked in 2005 at 500 ounces.
2. Since then it has fallen 50%
3. UK and US data shows the ratio dipped below 100 ounces after the 1930’s depression and 1970’s inflation.
4. Past NZ data shows the ratio reached a low at the end of the inflationary 1970’s of just over 50 ounces. This is a further 80% drop from today’s ratio of 250 ounces.
5. It might be hard to time exactly but when houses priced in gold are below 100 ounces it might be a good time to think about exchanging some gold for property.
6. Hint: To do step 5 you need to have some gold!

Note: We’ll be updating this data every few months and publishing the changes so if you want to stay informed about when NZ housing will again be good vaule, then sign up for our email article updates in the box at the top right of this page.

When will the Australian housing bubble burst?

We know we’re not part of Australia - even if the rest of the world doesn’t - but we’ve posted this article under the “New Zealand Articles” heading, as where the Aussie housing market goes generally so does ours.  It also discusses the NZ housing market in terms of affordability or rather it’s unaffordability.  NZ may not have risen to the (even) giddier heights the Australian market has in the last year or so, but house prices here are pretty much back to the highs of 2 years ago.  So we should have plenty of room to fall too.  The author, Mike “Mish” Shedlock writes regularly in his blog ”Mish’s Global Economic Trend Analysis” and is definitely worth keeping an eye on.

Pool of Greater Housing Fools in Australia Finally Runs Out; OZ Dollar, Where to From Here?

Today the Reserve Bank of Australia (RBA) unexpectedly held interest rates at 3.75%. No doubt this was in fear of the Australia’s enormous housing bubble that exceeds the height of the bubble that long ago burst in the US. 20 economists predicted the RBA would hike. Not a single one predicted anything else.

Fear in the board of governors over the pending crash is palpable. Prime Minister Kevin Rudd did not learn a single thing from the US and the disastrous policies of Greenspan. He gave one last goose to the housing market with $14,000 tax credits in a foolish attempt to stem the tide of the global recession that started two years ago.

Prime Minister Rudd brags about Australia’s ability to duck the recession. It did not work. All Rudd did was delay the inevitable, fueling an even bigger housing bubble. The bigger the bubble, the bigger the crash, and rest assured Australia is headed for a housing crash.

Here are a few snips from the Bloomberg article Australia Unexpectedly Keeps Interest Rate at 3.75%.

The Reserve Bank of Australia kept the overnight cash rate target at 3.75 percent after three increases, it said in Sydney today. The decision confounded the forecast of all 20 economists in a Bloomberg News survey for a quarter-point move, and futures contracts that signaled a 74 percent chance of an increase.

Australia’s dollar tumbled to a six-week low and Asian stocks pared gains after the announcement sparked concern at the economy’s ability to withstand higher borrowing costs. Business confidence fell to a six-month low, a report showed today, and Woolworths Ltd., the country’s biggest retailer, warned last week that rate increases would hurt consumers.

Business confidence fell in December to the lowest level in six months, a report by National Australia Bank Ltd. showed today. The bank’s sentiment index dropped 11 points to 8. Lending to companies “has continued to fall as companies have sought to reduce leverage, and lenders have imposed tighter lending standards,” Stevens said today. “Credit conditions remain difficult for many smaller businesses,” he said.

Here is a statement from the article that particularly caught my eye: Prasad Patkar, who helps manage about $1.5 billion at Platypus Asset Management in Sydney said “Today’s decision reduces the serious risk of a policy blunder.”

Serious Policy Blunder

Sorry Prasad, a serious policy error was made long ago, and there is not a damn thing the RBA or anyone else can do to stop the impending housing crash in Australia.

What follows is a post I actually wrote yesterday. I intended to post this before the rate decisions, but it never happened. I too, thought one more hike was coming. That it did not come is a sign of panic at the RBA.

First Time Buyers In Severe Stress

Just as happened in the United states with subprime borrowers, Australia’s first-home buyers struggle as interest rates rise.

Almost half of first-home buyers lured into the market by the Rudd Government’s $14,000 grant are struggling to meet their mortgage repayments and many are already in arrears on their loans.

Thousands of young home buyers are using credit cards or other loans to meet obligations, while those in “severe stress” are missing payments.

Just weeks after the grant was withdrawn, a survey of more than 26,000 borrowers conducted by Fujitsu Consulting has found 45 per cent of first-home owners who entered the market during the past 18 months are experiencing “mortgage stress” or “severe mortgage stress”.

“The dream of home ownership has turned sour for many thousands of first-home buyers now that the reality of rising interest rates is kicking in,” said Fujitsu Consulting managing director Martin North.

“Rising utility costs and school fees are also cited as reasons for hardship, and many first-home owners are living without proper furniture or carpets as they divert all their cash to their monthly repayments.”

During the past 18 months, more than 135,000 first-home buyers have entered the market, encouraged by the generous grants and stamp-duty relief.

As a result, more than 50 per cent of first-home owners are forecast to be in the “mortgage stress” category by the end of this year.

“This was a disaster waiting to happen,” Steve Keen, professor of economics at the University of NSW, said yesterday.

“The grant panicked first-home buyers to rush into the market, which pushed prices up by far more than the grant itself. Now we have buyers falling behind with their repayments as rates increase and thousands of owners exposed to the danger of bankruptcy as the situation deteriorates.”

No Lessons Learned

“LD”, a reader from Australia who sent me the link asked and answered his own question: “What have Australians learned from Americans over the last 2 years? Nothing!”

Credit Squeeze Coming Up

Craig, another reader from Australia writes …

Mish

I’ve been waiting a long time to buy a house in Australia. Looks like I may not have to wait too much longer for the Aussie bubble to burst. As always, love your blog. Cheers, Craig

Craig is referring to Tighter credit rules to halve home loans.

Last week Westpac cut its loan-to-value ratio (LVR) for new customers to just 87 per cent of the property’s value - a new low for a big bank. Although it may appear relatively small, such a cut has a disproportionate effect on how much people can borrow and can halve the value of the property they can afford to buy.

“If you have a $50,000 deposit and you can get a 95 per cent loan, you are able to bid on a property worth $1 million,” said Steve Keen, associate professor of economics at the University of Western Sydney. “But if the LVR is cut to 90 per cent, your $50,000 deposit is only equivalent to 10 per cent deposit on a $500,000 property, so the amount you can spend is halved.”

Westpac’s reduction from a maximum LVR of 92 per cent means that buyers with a $50,000 deposit will see the maximum that they can afford to pay for a property slashed from $625,000 to $384,615. Somebody with a $20,000 deposit would see the amount that they could spend reduced from $250,000 to $153,846, says Professor Keen.

Experts are worried that, if other banks follow suit, credit to the property market will be choked off and property prices could collapse. According to research by broker Mortgage Choice, fewer than half of all new home buyers have a deposit of more than 10 per cent of the property’s value.

“Westpac’s move could affect many thousands of buyers and they will be forced to go to new lenders,” a spokesman said. “It’s a very worrying development because if others follow suit, we could see the majority of first-home buyers priced out of the market.”

Further restrictions now appear to be inevitable. “And banks can’t go on lending forever.”

Lenders have gradually been cutting back the size of loans that they are prepared to offer home buyers. Just over a year ago, 100 per cent - or even 105 per cent - loans were relatively common. But over the past 12 months, the LVR has fallen steadily to 95 per cent, then to 90 per cent, and now to 87 for new borrowers approaching Westpac.

It was this same tightening of credit that led to the collapse of property prices in the UK in 2008, even though the country was still suffering from a massive shortgage of homes at the time.

Deposit Math

Note the above paragraph in red by Steve Keen, one of few economists in the world who actually has a clue. His blog is Steve Keen’s Debtwatch.

Also note the worries of the so-called housing experts in the above article: Experts are worried that, if other banks follow suit, credit to the property market will be choked off and property prices could collapse.

If those “experts” had an ounce of common sense they would be worried the housing bubble would get bigger.

Indeed, housing prices are so stretched in Australia that the bubble will bust soon enough regardless of whether lenders tighten standards or not.

The US housing bubble burst with credit standards still getting looser a year or more later.

When Do Bubbles Burst?

Bubbles burst when the pool of greater fools runs out, and not before.

That is exactly why Economist Steve Keen lost housing bet against Rory Robertson.

AN ECONOMIST known as the “Merchant of Gloom” will have to walk from Canberra to the top of Australia’s highest mountain after losing a bet about the resiliency of Australian house prices.

Last November, University of Western Sydney associate professor of economics and finance Steve Keen made a high-profile bet with Macquarie Group interest rate strategist Rory Robertson.

The two parts of the bet were that house prices would tank by the end of 2009 and that house prices would fall 40 per cent from their all-time high within 15 years.

The loser of the bet would have to make the more than 200km trek from Canberra to the top of Mount Kosciuszko wearing a T-shirt that says “I was hopelessly wrong on house prices! Ask me how.”

Why The Bet Went Wrong

Keen’s mistake (miscalculation is a better word as I am positive he will ultimately be proven correct), was that he misjudged actions the Rudd administration might take to keep the bubble going.

Bear in mind that once the trend changes, it changes for good, but until the trend does change, efforts to keep bubbles alive frequently produce blowoff tops.

In Australia’s case I finally sense a blowoff top in fools. The US suffered the same fate in 2005 when the cover of Time Magazine went “gaga over real estate” and people were camping out overnight and entering lotteries for the right to buy Florida condos.

Inquiring minds might be interested in the following flashbacks, the first showing the funniest Time Magazine cover in history, the second shows approximately where we are today although I do have to move the arrow one notch closer to the bottom.

April 10, 2006: US vs. Japan Land Prices Pictorial Update

July 13, 2009: Housing Update - How Far To The Bottom?

How did Bernanke and other experts fair?
Let’s answer that with a few more flashbacks.

The initial data point on my chart came in the post It’s a Totally New Paradigm on March 26, 2005. Here are some excerpts from that post.

• Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that “South Florida is working off of a totally new economic model than any of us have ever experienced in the past.” He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.
• “I just don’t think we have what it takes to prick the bubble,” said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90’s. “I don’t think prices are going to fall, and I don’t think they’re even going to be flat.”
• Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership. “It is a new paradigm” he said.

Flashback October 27, 2005

Inquiring minds may wish to review Bernanke: There’s No Housing Bubble to Go Bust.

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.

Flashback February 12, 2008

Bernanke Expects Housing Recovery by Year End

Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday he expects the downtrodden U.S. housing sector to improve by the end of the year, a senator who participated in the closed-door meeting said.

“He let us believe that the housing situation should begin to ameliorate by the end of the year,” said Sen. Pete Domenici, a New Mexico Republican, told reporters.

“He gave a very good, succinct, short overview of where he thought the economy was right now and how it might move forward,” said Sen. Jon Kyl of Arizona.

Bubbles and Humpty Dumpty

Bernanke has proven all the king’s horses and all the king’s men cannot put bubbles together again.

For further proof please see Bernanke’s Deflation Preventing Scorecard.

After bubbles burst, nothing matters including loose lending standards in the US that lasted long after the housing peak in summer of 2005.

Supply of Fools Exhausted

I am willing to bet that at long last, Australia’s pool of greater fools just ran out. Rudd’s ridiculous $14,000 grant and stamp-duty relief programs were likely enough to exhaust that pool.

The ultimate irony of Keen’s bet is that by the time he starts his hike in April he will likely be right.

Bear in mind however, that prices tend to fall slowly at first as inventory builds up. Then the losses accelerate quickly.

A Long Wait

By the way, Australia buyers might need to wait 5-7 years or more for reasonable valuations. Look how long it took for the US housing bubble to implode. We have not hit bottom yet after 5 years, and the Australia bubble has a bigger starting point.

 

Please see Housing Bubble Comparison: US, UK, Canada, Spain, Australia, Japan for a county by country comparison of housing bubbles from the Ecomomist.

Demographia International Housing Survey

Inquiring minds are reviewing the results of the 6th Annual Demographia International Housing Affordability Survey. Countries in the survey include Australia, Canada, Ireland, New Zealand, the United Kingdom, and the United States.

Least Affordable Cities

The article shows the top 58, I captured the top 20 above.

Congratulations To Canada And Australia

Congratulations go to Vancouver, Canada for being the least affordable city in the survey. Vancouver thus wins the gold medal in the individual competition.

 

Sydney Australia proudly wins the Silver medal and the Sunshine Coast Australia wins the bronze. It was close but no cigar for Australia’s Gold Coast. Honolulu Hawaii came in a respectable fifth place.

Most Affordable Cities

Detroit, South Bend, Youngstown, Flint, Toledo, Akron, Peoria, Cleveland, and many other “affordable” cities are not places where anyone would particularly want to live. Indeed many cities at the top of the affordability list are places that most would hope to escape from.

The high school graduation rate in Detroit is a mere 25%!

I am willing to bet that Detroit’s graduation rate is far and away the worst of any city in the survey. See Michigan Forces Business Owners Into Public Sector Unions; Detroit’s Aura of Hopelessness for more details.

Moreover, there are houses in Detroit, Cleveland, Flint, etc, that one could buy for $500 that have no takers. Unlivable houses no one wants at any price skew the results.

Demographia Summary by Nation

All of the affordable markets were located in Canada and the United States, while most markets in Australia, New Zealand and the United Kingdom were severely unaffordable.

Australia: House prices have continued to rise in Australia (Figure 2), which registered the worst housing affordability (the highest Median Multiple) in the
history of the Survey. Overall, housing in Australia is severely unaffordable, with a Median Multiple of 6.8, more than double the 3.0 historic maximum norm. Housing had been affordable in Australia in the late 1980s, with a Median Multiple of under
3.0. The Median Multiple remained at or under 3.5 until the late 1990s.

All of Australia‟s major markets were severely unaffordable (Median Multiple above 5.0). Moreover, all markets, including smaller markets were severely unaffordable except Ballarat (Victoria), which was seriously unaffordable (Median Multiple between 4.1 and 5.0).

Canada: Housing is moderately unaffordable, as in previous Surveys. Canada‟s Median Multiple is 3.7. Housing had been affordable in Canada in the late 1990s, with a Median Multiple of 3.0. Canada had 5 affordable markets, 13 moderately unaffordable markets, 5 seriously unaffordable markets and 5 severely unaffordable markets.

Vancouver remained the least affordable market of any size in the surveyed nations, at 9.3, worsening from 8.4 last year. Toronto joined Vancouver as severely unaffordable, with a Median Multiple of 5.2. However, Barrie, within the Toronto region was moderately unaffordable, at 3.4. Victoria, Abbotsford and Kelowna (all in British Columbia) were also severely unaffordable.

Ireland: Housing in Ireland has become moderately unaffordable with a Median Multiple of 3.7, showing a trend toward historic norm of 3.0.20 Housing had been affordable as late as the middle 1990s, with a Median Multiple below 3.0. The extent of Ireland‟s recent housing affordability improvement is illustrated by the EBS/DKB Affordability Index, which indicates that mortgage payments have been halved in Ireland since the peak of the bubble in relation to first home buyer incomes.

New Zealand: Housing in New Zealand was severely unaffordable, with a Median Multiple of 5.7, nearly double the historic maximum norm of 3.0. Housing had been affordable in the early 1990s, with a Median Multiple of under 3.0. Auckland is the least affordable larger market, with a Median Multiple of 6.7, while Christchurch (6.1) and Wellington (5.7) were also severely unaffordable.

Tauranga-Bay of Plenty was again the least affordable market, with a Median Multiple of 6.8. Five of the 8 New Zealand markets were severely unaffordable, while Palmerston North, Napier-Hastings and Hamilton were seriously unaffordable New Zealand had no affordable markets and no moderately unaffordable markets

United Kingdom: Housing in the United Kingdom remains severely unaffordable, with a Median Multiple of 5.1, well above the historic maximum norm of 3.0. Housing had been affordable in the late 1990s, with a Median Multiple of under 3.0. Less than one-half of the United Kingdom markets were severely unaffordable (14 of 33), while the other 19 markets were seriously unaffordable. The United Kingdom had no affordable markets and no moderately unaffordable markets.

United States: Housing in the United States is rated as affordable, with the Median Multiple of 2.9.The recent house price declines have restored U.S. housing affordability to the below 3.0 historic norm (last achieved in the early 2000s), as the price bubble burst in many plan-driven markets. The United States had 98 affordable markets, 58 moderately unaffordable markets, 8 seriously unaffordable markets and 11 severely unaffordable markets.

The most affordable major market (population over 1,000,000) was Detroit. Other affordable major markets were Atlanta, Buffalo, Cincinnati, Cleveland, Columbus (Ohio), Dallas-Fort Worth, Houston, Indianapolis, Kansas City, Las Vegas, Louisville, Memphis, Minneapolis-St. Paul, Oklahoma City, Phoenix, Riverside-San Bernardino, Rochester, Sacramento, St. Louis and Tampa-St. Petersburg.

Gold, Silver, Bronze Medals

In terms of national unaffordability (the team competition) Australia wins the gold medal, New Zealand, the silver medal, and the UK wins the bronze medal.

Because of a preponderance of “affordable” cities in the US and the way the national rankings are made, I question the results of the national survey although it likely did not affect the top three medal-winning rankings.

Email Exchange With Survey Developer

I had this exchange with Hugh Pavletich of Performance Urban Planning who helped develop the survey.

Mish: When you come up with “national affordability” are all the cities given equal weight? Does Detroit count as much as San Francisco?

Hugh: Yes.

Mish: In my opinion, a weighted average is what matters most (at least for the purpose of figuring out how big the bubble still is).

Hugh: We are NOT attempting to explain how big the bubble is on a country wide basis. We are simply illustrating what the Median Multiple is at the 3rd Qtr of each of the urban markets listed.

Other researchers are most welcome of course to take the next step and do a population weighting, if they wish to do so.

Our goal is simply to illustrate the degrees of housing stress of the urban markets listed.

Bear in mind my goal is quite different than Hugh Pavletich’s. He wants to show the role local planning rules have in affordability. Hugh makes a case that local zoning rules play a huge factor on a city by city affordability basis while I am concerned with “How Big Is The Bubble?”

From my perspective, the US and Canadian bubble problems are very understated, and the national affordability rankings of the US and Canada are thus overstated. To be certain, one would have to take a weighted average of populations and rankings. One would also need to take into consideration unlivable houses offered at $500 that no one would take. If one did that, we would see the bubbles are where the most people live.

There is much more in the survey. Please give it a look.

Mortgage Stress in Australia

If this chart does not scream “nationwide bubble”, nothing ever will.

Australian Interest Rate Hikes

On December 2, the Reserve Bank of Australia hiked rates to 3.75%.

At its meeting today, the Board decided to raise the cash rate by 25 basis points to 3.75 per cent, effective 2 December 2009.

With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. These material adjustments to the stance of monetary policy will, in the Board’s view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.

Let’s come back to that last paragraph a year from now. Two years from now it is likely to look downright silly.

One more hike is in the cards, too, on February 2. Some will lay the blame on what is about to happen on these last couple hikes. The reality is the blame for the coming bust lay in the ridiculous expansion of credit that preceded it.

Australia’s problems have not yet started. Remember too, that commercial real estate follows residential with a lag. Australia can look forward to a bust in commercial real estate down the road as well.

Email From “Down Under”

Here is another email from Australia that readers may appreciate.

“Down Under” Writes …

Mish,

I actively watch this chart and a colleague of mine updated it today. RBA balance sheet collapsed in early part of 08 ahead of the debacle.

Add this to the recent report of Sydney being second most expensive city in the world. And add in likely tightening of bank prudential standards by our regulator APRA (extend liquidity requirements out to 21 days) and not looking so pretty. Deja vu all over again.

You can get the data straight from the RBA on the web: RBA Liabilities and Assets - Weekly

Kind regards,
“Down Under”

Australian Dollar Outlook

Two of the biggest factors affecting currency fluctuations are interest rate differentials between countries along with trends in interest rate differentials. The latter is more important. The Fed clearly is not going to cut rates (at zero bound it can’t).

The Australian dollar has strengthened vs. the US dollar on the back of rate hikes. If the RBA hikes once more and the Australian dollar sinks anyway, the top is likely in.

$XAD Australian Dollar vs. US Dollar Monthly

click on chart for sharper image

Déjà vu all over again?

At some point the RBA will stop hiking and start cutting. In turn, speculators in Australian dollars will start taking profits. At a bare minimum, at least a fair sized pullback in the Australian dollar vs. the US dollar is likely.

$USD - US Dollar Index Monthly Chart

click on chart for sharper image

Most underestimate how far the US dollar can strengthen. Another run at 90 is certainly not out of the question.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

How much gold does the Reserve Bank of New Zealand have?

We’ve had the odd query from other New Zealanders asking “With all the recent reports of ‎various Central Banks of the world buying gold, just how much gold does the Reserve ‎Bank of New Zealand (RBNZ) actually have?”‎

So we thought we should publish the specifics.  And we’re sorry to report folks, the news isn’t so great.‎

The RBNZ website has the following table:  (We’ve highlighted the gold related part in blue.  And the full table can be found here on the RBNZ website.)

 

New Zealand’s International Reserves and ‎Foreign Currency Liquidity

30 Sep 2009
(Information is disclosed in NZD 000’s)
I.	Official reserve assets and other foreign currency assets (approximate market value)
A.	Official reserve assets		19,994,933
	(1) Foreign currency reserves (in convertible foreign currencies)		17,074,379
		(a) Securities	15,079,813
		of which: issuer headquartered in reporting country but located abroad	-
		(b) total currency and deposits with:	1,994,566
		(i) other national central banks, BIS and IMF	1,912,062
		(ii) banks headquartered in the reporting country	-
		of which: located abroad	-
		(iii) banks headquartered outside the reporting country	82,504
		of which: located in the reporting country	-
	(2) IMF reserve position		382,538
	(3) SDRs		1,598,884
	(4) gold (including gold deposits and, if appropriate, gold swapped)		-
		volume in fine troy ounces	-
	(5) other reserve assets		939,132
		financial derivatives	484,080
		loans to non-bank non-residents	-
		other	455,052

 

Last time I checked a dash didn’t mean that the number was too big to report but was ‎rather a simple alternative for the number zero.  So according to the RBNZ website, ‎New Zealand has $0 worth of gold deposits from a grand total of zero fine troy ounces of gold.‎

Further confirmation of this comes from the World Gold Council.  They periodically ‎take information compiled by the IMF to create a ranking of gold deposits of ‎countries.‎

The lazy mans research site – Wikipedia means we don’t have to look too hard for the ‎latest figures though.  The table below ranks each nation according to it’s ‎officially reported gold holdings as of November 2009.‎ 

We can save you some time searching and state that unfortunately New Zealand does not feature - at all.‎

 

World official gold holding (November 2009)^[11]

Rank	Country/Organization	Gold (tonnes)	Gold’s share of total forex reserves (%)[11]
1	United States	8,133.5	77.4%
2	Germany	3,408.3	69.2%
3	International Monetary Fund	3,005.3	-
4	Italy	2,451.8	66.6%
5	France	2,445.1	70.6%
6	China	1,054.0[12]	1.9%
7	Switzerland	1,040.1	29.1%
8	Japan	765.2	2.3%
9	Netherlands	612.5	59.6%
10	Russia	568.4	4.3%
11	India	557.7[6]	6%
12	European Central Bank	501.4	18.8%
13	Taiwan	423.6	3.9%
14	Spain	416.8	42.5%
15	Portugal	382.5	90.2%
16	Venezuela	363.9	35.5%
17	United Kingdom	310.3	18.7%
18	Lebanon	286.8	30.0%
19	Austria	280.0	50.5%
20	Belgium	227.5	42.5%
21	Algeria	173.6	3.6%
22	Philippines	153.9	12.3%
23	Libya	143.8	4.5%
24	Saudi Arabia	143.0	12.4%
25	Sweden	135.9	14.2%
26	Singapore	127.4	2.2%
27	Bank for International Settlements	125.0	-
28	South Africa	124.7	11.0%
29	Turkey	116.1	4.7%
30	Greece	112.5	92.8%
31	Romania	103.7	8.4%
32	Poland	102.9	5.0%
33	Thailand	87.4	2.2%
34	Australia	79.8	7.3%
35	Kuwait	79.0	11.9%
36	Egypt	75.6	6.4%
37	Indonesia	73.1	4.3%
38	Kazakhstan	72.0	11.6%
39	Denmark	66.5	4.7%
40	Pakistan	65.4	20.3%
41	Argentina	54.7	3.4%
42	Finland	49.1	17.6%
43	Bulgaria	39.9	7.6%
44	West African Economic and Monetary Union	36.5	11.8%
45	Malaysia	36.4	1.2%
46	Slovakia	35.1	81.6%
47	Peru	34.7	3.3%
48	Brazil	33.6	0.5%
49	Bolivia	28.3	10.3%
50	Ecuador	26.3	11.6%
51	Ukraine	26.2	2.0%
52	Syria	25.9	-
53	Morocco	22.0	2.2%
54	Nigeria	21.4	0.9%
55	Belarus	20.3	11.6%
56	Sri Lanka	15.3[7]	3.8%
57	Jordan	14.8	5.2%
58	South Korea	14.3	0.1%
59	Cyprus	13.9	29.7%
60	Czech Republic	13.2	0.9%
61	Netherlands Antilles	13.1	31.4%
62	Cambodia	12.4	12.9%
63	Qatar	12.4	2.6%
64	Serbia	12.2	2.3%
65	Laos	8.1	23.1%
66	Latvia	7.7	3.3%
67	El Salvador	7.3	8.2%
68	Economic and Monetary Community of Central Africa	7.1	-
69	Guatemala	6.9	3.9%
70	Colombia	6.9	0.8%
71	Macedonia	6.8	7.6%
72	Tunisia	6.8	2.1%
73	Lithuania	5.8	2.3%
74	Ireland	5.5	16.3%
75	Mongolia	5.2	10.9%
76	Bahrain	4.7	-
77	Mauritius	3.9[8]	2.4%
78	Bangladesh	3.5	1.6%
79	Mexico	3.4	0.1%
80	Canada	3.4	0.2%
81	Slovenia	3.2	7.2%
82	Aruba	3.1	17.1%
83	Hungary	3.1	0.3%
84	Mozambique	3.0	4.6%
85	Kyrgyzstan	2.6	5.3%
86	Luxembourg	2.3	10.8%
87	Albania	2.2	2.6%
88	Hong Kong	2.1	0.0%
89	Iceland	2.0	1.9%
90	Tajikistan	2.0	-
91	Papua New Guinea	2.0	2.1%
92	Trinidad and Tobago	1.9	0.6%
93	Yemen	1.6	0.5%
94	Suriname	1.4	7.0%
95	Cameroon	0.9	-
96	Honduras	0.7	0.7%
97	Paraguay	0.7	0.6%
98	Dominican Republic	0.6	0.7%
99	Gabon	0.4	-
100	Republic of the Congo	0.3	-
101	Chad	0.3	-
102	Central African Republic	0.3	-
103	Uruguay	0.3	0.1%
104	Estonia	0.2	0.1%
105	Chile	0.2	0.0%
106	Malta	0.2	0.8%
107	Costa Rica	0.1	0.0%

 

It’s a bit of a worry when the Central African Republic of Chad, which the U.N. ‎reports as the 5th poorest nation on the planet, has more gold reserves than we do!‎

They may come in at number 101 on the list and only have 0.3 tonnes but that’s 0.3 ‎tonnes more than us!  (Or about $15 Million NZD in Gold reserves more than New Zealand)‎

Just like we believe the average person should have at least a small percentage of their ‎liquid net worth held in gold, we too think the RBNZ would be wise to convert some ‎of it’s foreign currency reserves into real money to ensure a store of value in a time ‎when currencies the world over are being depreciated at ever greater speed.‎

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