May 15, 2012
We received the following question from a reader during the week and thought our answer might be worth sharing for people who didn’t hold any gold during the 2008 market turmoil…
“Just wanted to get your view on why the gold price is falling. I
thought it was regarded as a safe haven in turbulent times? Given all
the uncertainty now I would have thought the price might be going up -
any thoughts? Also given gold isn’t that easy to buy and sell (given
the spread on buy and sell prices), how would you normally protect it
from falling in value?”
A couple of possibilities immediately spring to mind. Firstly most people still (surprisingly) see the USD as the main safe haven so at times like these just about everything gets sold in exchange for USD. Which is why shares are falling, along with commodities, the NZD and other currencies and even gold. Of course because the NZD is falling, the gold price in NZD hasn’t actually fallen that much this week – only about $40 or so.
Another theory would be that the powers that be don’t want the masses to be in gold, and so they don’t want the gold price rising too rapidly, therefore central banks and their agents assumed to be the likes of JP Morgan sell paper gold at times like these to keep it down.
Odds are that the Chinese are buying at the moment we’d say and they’ll keep buying if it falls further, which will likely offer some support to the price.
We can’t know the real answer of course – it’s just a guess as to what happens. But our guess is that at some time in the future the masses will wake to to the fact that the USD isn’t actually safe and gold will be sought by more and more.
Our theory on protection from it falling is to either buy regularly to get a good average price, and/or to hold some cash to buy more when the price falls significantly to also get a better overall purchase price. There are options to hedge with futures etc but that isn’t for us.
Look at the big picture and gold in NZD dollar terms is only down about 12% from its closing high of $2306.
So it’s not a major move in the big picture. For us it’s a case of be right and sit tight.