The big factor in the past week has been the falling NZ dollar. Dropping from just over .8500 last Wednesday to as low as .8222 today. While both gold and silver have risen slightly over the past week in US dollar terms, the weaker Kiwi dollar has bumped both metals more sharply higher here in NZ.
Since a week ago, NZD gold is up $42.90 per oz or 2.70% to NZ$1633.50. While silver is up 67 cents per oz or 2.49% to NZ$27.63. As can be seen in the charts below, both metals are bouncing off the 50 day moving averages so it would not be a surprise to see them turn lower from here after such a sharp run higher over the past 2 weeks.
For something different, both charts have the USD gold/silver price superimposed in turquoise. This shows, particularly in gold, how much more volatile the local price has been due to the movements in the NZD/USD exchange rate since August.
Central Bank Announcements
We can summarise the latest US Fed and Reserve Bank of NZ announcements from early this morning in 3 words for you: Wait and see. Both Central Banks kept the artificial price of money on hold. As referenced in an article later in this email, it seems to us more printing is likely in the future rather than less, even though the talk is still of “when” rather than “if” the Fed will taper. So as we have mentioned more than once in the past months, we think local interest rates could stay lower for much longer than the RBNZ or bank economists say they will.
Update: Who Pays Tax in NZ?
In the weekend we spotted the following eye catching NBR headline (it’s subscriber only but we could read it on our iPad for some reason and so made a copy of the content.)
National now backs ‘communism by stealth’
It actually references a press release from Finance Minister Bill English on how New Zealand’s tax system has become more “progressive” since the governments 2010 tax changes.
But the key points in the press release were:
“…households earning over $150,000 a year – the top 12 per cent of households by income – will pay 46 per cent of income tax.
But when benefit payments, Working for Families, paid parental leave and accommodation support are taken into account, these 12 per cent of households are expected to pay 76 per cent of the net income tax. And that is before New Zealand Superannuation payments are counted.
By contrast, households earning under $60,000 a year – which is half of all households – are expected to pay 11 per cent of income tax.
“When we take income support payments into account, as a group they will actually pay no net income tax at all,” Mr English says.
“That’s because the $2.7 billion of income tax they are expected to pay will be more than offset by the $8.1 billion they will receive in income support.”
A few things we noticed:
1. Only 6% of NZers earn more than $100,000 per year. Now while many would like to be on $100k no doubt, it is hardly nowadays the income for a life of excess. Sad that so few earn this. (Of course this is income tax only so excludes many wealthier NZers who receive other sources of income such as dividends, but nevertheless it’s still a pretty pitifully low number).
2. Households earning more than $150,000 pay more income tax than they did in 08/09. In fact as a percentage of net income tax paid this has increased from 70% to 76% since we reported on this in 2011.
3. 50% of households pay less tax than a few years ago and in fact on a net basis pay no income tax at all.
Now you might think we are getting into a left versus right wing argument here. However our angle is that everyone is disadvantaged in these numbers, even those who think they are doing better by the hand of the government. Why?
Because these stats all ignore the fact that GST also increased to 15% in 2010. So those on lower incomes pay more for basic goods and services. Those on higher incomes pay more for basic goods and also pay more income tax as well.
Margaret Thatcher famously quipped, “The trouble with socialism is that eventually you run out of other people’s money”. Well, these numbers show that perhaps we should just replace “socialism” with “democracy”.
People will keep voting to get more and more for less and less. Here in NZ we have the situation where 50% of households pay no net income tax. So they are not going to vote for anyone who proposes to give them less. With no financial education in the government controlled school system, and higher than ever costs of living especially through expensive debt fueled housing, can we realistically expect anyone not to keep voting for more?
So the modern system of debt controlled democracy is slowly but surely destroying itself.
In the words of Metallica’s James Hetfield “Sad but true”.
So, what to do?
We’d repeat what we said back in 2011 when we shared the numbers in Just Who Pays Tax?
“…there is little impact your vote will have (sorry, as hopeless as it may sound). With the vast majority of the population getting more than they pay in tax, we can count on this majority to keep voting to get more and more. This is the trend in the western world and indeed the riots and protests in Europe are demonstrating this.
So instead we reckon focus on what you can have a direct effect on. Namely securing what wealth you have and prepare for troubled times ahead. And do what you can to increase any income coming in.”
Also, it’s hard to argue with the ideas of Chris Duane (Dont-tread-on.me) which is to remove yourself from their system as much as possible. Learn skills that are of real help to others. Get to know your community. And not surprisingly, forget about voting.
Oh and if you’ve got kids make sure you’re educating them on everything they miss out on at school. Like: Good debt, bad debt, what money is, profits, tax. Robert Kiyosaki seems to be focusing more on educating kids of late, so look into his stuff. More on this at a later date.
John Butler in Auckland: “Remonetisation of gold is inevitable”
We mentioned last week the excellent presentation by John Butler in Auckland recently. We’ve written up our notes on that which includes the interesting Q&A session that took place at the end of his talk. So we’re sure you’ll find this weeks feature article of interest.
Other articles this week include just why you shouldn’t pay too much attention to Nobel prize winning economists.
And finally some thoughts from a former Federal Reserve economist on just what the Fed is doing wrong and what the near term outlook could be a s a result.
Tax and Inflation
The numbers on who pays tax we mentioned also remind us of another of the evil side effects of inflation. It’s not just that the cost of living goes up. These numbers show that people pay more tax too as a result of inflation. How so?
Looking at the numbers above, where in households earning over $150,000 a year – the top 12 per cent of households by income – will pay 76% of the net income tax. Whereas looking back to what we reported in 2011, those households earning over $150,000 only made up 10% and paid 71% of the net income tax.
So, say your income goes up due to a pay rise in line with inflation. Great. But your household has moved up into the above $150,000 bracket. Great you have a pay rise. But now there will be more of it in the top tax bracket too. So you’ll give up a good chunk more to the government as well. And of course they don’t adjust the tax thresholds every year in line with inflation do they?
Buckminster Fuller explains in his “Grunch of Giants” (available for free download here) how it is the government and corporations that do well from inflation. Under a progressive taxation system, Governments gain more tax revenue as inflation raises workers before tax pay and pushes them into higher tax brackets so they actually get less. Corporations (who control governments) also benefit through the ability to raise prices to keep up with (or exceed) inflation.
But there does seem to be a rising view that we are not seeing enough price inflation. This New York Times piece entitled “In Fed and Out, Many Now Think Inflation Helps” comments that:
“Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.”
Rising stock markets and house prices globally may show that they have had a degree of success in reflating things already. But it may be a case of “you ain’t seen nothing yet”, as this NY Times piece is not the first we have read pointing to the “need” for more inflation lately.
More on PAMP and Chinese Gold Imports
An important article to read this week is by Michael Kosares, which is a follow on to an article we mentioned last week also. Discussing the demand this year from China and the fact that much of this demand seems to have been filled via Switzerland [emphasis added is ours]…
In the initial Reuters report on the London-Zurich-Hong Kong-Shanghai gold pipeline, Macquarie gold analyst Matthew Turner suggested that the 1016 metric tonne United Kingdom export (up from 85 tonnes the previous year) might have been shipped to Switzerland for refining into “smaller bars more attractive to Asian consumers or to be vaulted there instead.” Though vaulting cannot be ruled out, the recasting explanation makes considerably more sense given the times and the extraordinary amount of gold being imported by China – over 1500 tonnes so far this year according to research published by the Koos Jansen website. It is difficult to imagine a scenario in which China would be interested in vaulting gold in the West – particularly at a time when the West is experiencing difficult financial and economic circumstances.
On the other hand, we know that four of the world’s top gold refineries are located in Switzerland – Valcambi, Pamp, Argor-Heraeus and Metalor. Roughly 70% of the world’s annual gold production is refined in Switzerland and it is considered the center of the world’s gold refinery business. Its bars are trusted on the world’s gold exchanges by the top banks, bullion dealers, jewelry manufacturers, and nation states alike. If Turner is right about recasting the bars into Asia-friendly units, and I think he is, Switzerland would be the place to do it, particularly in light of the volume reportedly being re-refined. In my view, China intends for this gold to be transported to and remain in the East otherwise it would not have gone to the trouble to have it recast into Asia friendly bars.”
Well judging by what the Head of Sales for Swiss refiner PAMP had to say about demand from China while we were in Sydney two weeks ago, this would appear to be very much confirmed. You can go back and read the section of our email from last week headed Gold Market Prognostications from PAMP’s Head of Sales.
In short, from a Q&A answer he gave at the Gold Symposium Mr Panizzutti noted “just how tremendous the demand for kilo gold bars has been from China and the Far East this year. In fact he said MKS/PAMP were at one stage having trouble sourcing 400oz good delivery bars to melt down into kilo bars to keep up with the demand. The ETF liquidations gave some initial supply but then the market “dried up”. They struggled to get these large bars out of Zurich, London, Comex,…”
So there doesn’t seem to be any doubt about the fact that Switzerland has been supplying China with 1 kilo bars given that kilobars are “the smallest transaction unit of bullion” according to the Shanghai Gold Exchange Website.
(By the way, here’s a great article if you want a run down on the Chinese gold market: China Gold Rush)
Why is all this gold going to China?
In the words of Grant Williams taken from his latest TTMYGH letter:
“In short, Asians like their gold to be heavy, shiny, and made of … well, gold. “
Williams proved this point by showing the difference in average daily volume traded in the gold ETF, GLD, on the exchanges of New York, Tokyo, Singapore and Hong Kong.
The difference between East and West is quite visually obvious…
“The volume on the NYSE is approximately 700x that of both Tokyo and Hong Kong and a mere 350x that of Singapore.”
While the west buys and sells ETFs, the east just buys real gold.
Williams finishes up with the following couple of paragraphs to ram home the significance of all this gold flowing to China…
“Because there hasn’t been any kind of gold standard for the past 42 years, most people assume that it will never happen again; but this chart (which I originally put together a couple of years ago) demonstrates that over the last 200 years the dollar has been on a gold standard of some sort for longer than it has relied on the power of fiat” it just hasn’t been that way lately:
But, like the infatuation America had with the Monkees in 1967, this fascination with the fiat dollar will prove to be nothing more than a passing fad; and one day – perhaps soon – the citizens of the West will, like their cousins in Asia and the Indian subcontinent, realize that there really is no alternative to sound money.
The only problem is, when the realization finally dawns, where will all the gold be?”
So, before it all disappears East, have you got your financial insurance yet?
1. Email: email@example.com
2. Phone: 0800 888 GOLD ( 0800 888 465 ) (or +64 9 2813898)
3. or Online order form with indicative pricing
Have a golden week!
Glenn (and David)
Ph: 0800 888 465
From outside NZ: +64 9 281 3898
This Weeks Articles:
|Gold Market Prognostications from PAMP’s Head of Sales|
Gold Survival Gold Article Updates Oct. 24, 2013 This Week: Rick Rule at the Sydney Gold Symposium 2013 John Butler: Game Theory, China and the end game Gold Market Prognostications from PAMP’s Head of Sales Gold and silver both jumped higher on Tuesday night supposedly due to weak US jobs numbers – who knows why […]
|Federal Reserve Policy Failures Are Mounting|
Hear directly from an ex-Federal Reserve economist just what the problems are with current Fed policies and what the near term outlook is as a result of these… Federal Reserve Policy Failures Are Mounting By Lacy H. Hunt, Ph.D., Economist The Fed’s capabilities to engineer changes in economic growth and inflation are asymmetric. It has […]
|Nobel Prize Winner: Bubbles Don’t Exist|
Here’s what the latest “worthy” winner of the Nobel Prize in economics has to say on the topic of bubbles. Crazy stuff. Just shows, be careful who you listen to… Nobel Prize Winner: Bubbles Don’t Exist By Doug French No wonder investors don’t take economists seriously. Or if they do, they shouldn’t. Since Richard Nixon interrupted […]
|John Butler in Auckland: “Remonetisation of gold is inevitable”|
John Butler gave a great presentation in Auckland last week, it was only a shame more people weren’t there to see him. Particularly from the institutional investment community, as his message is very accessible and not full of hyperbole or grand assumptions. As he said right at the start, his aim is to use theory […]
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We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.
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