Sept. 25, 2013
Not much change from last week with the local gold price today at $1600, up just $6 an ounce from 7 days ago. We have seen it as high as $1650 during that time.
While silver in NZ dollars is down just 22c per ounce from last week at $26.25.
So a bit of a holding pattern since the Fed announcement.
In US dollar terms the $1300 level has held so far after gold gave back all of its $60+ gains following the non-taper announcement.
Both the USD and NZD gold charts are showing what could be a reverse head and shoulders pattern (although the USD gold chart is a bit “nicer” looking). See the 2 “shoulders” at around $1600 and the “head” at around $1550 on the NZD chart below. Were this often bullish pattern to play out we would see prices back up in the $1900 zone. But of course it is just a pattern and if we head lower from here we could still be in for new lows.
The Big Picture is What Remains Most Important
Regardless of these smaller machinations, perhaps a few more people have had their eyes opened to the fact that Central Bankers are not omnipotent in the past week or so. The big picture to realise now is that the Fed is painted into a corner from which they can but feint and fake but in the end will be able to do very little other than cross their fingers and hope while carrying on the path they are on. Knowing full well that pulling out will bring on a decent old fashioned crash.
We’ve seen evidence of this already. Just since the non-taper announcement the Fed is still trying to make everyone think it is only a matter of time. Bullard, the St. Louis Fed president says Fed policymakers could vote to start tapering bond purchases at their next meeting in October if they see stronger economic data by then.
And if you think the favourite to take over from “The Bernank”, Janet Yellen, is likely to be any better check out some of her quotes at this link. Just like her chum Ben she didn’t see the last crisis arriving so likely won’t see the next one:
Marc Faber also had some choice words on Yellen recently too.
“Fearing that Janet Yellen “would make Bernanke look like a hawk,” Faber explains that he is not entirely surprised by today’s no-taper news since he believes we are now in QE-unlimited and the people at the Fed “never worked a single-day in the business of ordinary people,” adding that “they don’t understand that if you print money, it benefits basically a handful of people.” Following today’s action, Faber is waiting to seeing if there is any follow-through but notes that “Feds have already lost control of the bond market. The question is when will it lose control of the stock market.” The Fed, he warns, has boxed themselves in and “the endgame is a total collapse, but from a higher diving board.”
See Chris Powell of GATA Live in Auckland for Free
The date for this presentation by Chris Powell of the Gold Anti Trust Action Committee has changed since we mentioned it last week. It is now on Sunday 13th October at 3.30pm. The venue only holds 80 and last we heard yesterday there were already 40 spots filled.
So if you missed our email on Monday or just haven’t gotten around to getting your complimentary ticket yet then get on click the link below to read about how to get your ticket now before you miss out…
This weeks other articles/videos
This half hour video from Mike Maloney was definitely worth viewing. He spends a good deal of the time answering a readers question on why Real Estate in the US is not better value now than gold. The post also contains links to previous articles of ours on NZ housing valued in Gold and silver. i.e. the Housing to gold ratio and housing to silver ratio.
While we need to update our charts for these we quickly calculated what the latest NZ ratios are. So check out the link below to see why if Mike is right this is probably just a shorter term bounce higher in housing versus precious metals.
Up next, his article looks at the recent Goldman Sachs prediction for $1050 gold and how there may in fact be more important factors to take heed of than the too big too fail bank predictions which have been notoriously inaccurate in the past…
Finally, solving too much debt with more debt still seems like the plan and this next article shows how we look to be repeating the not very distant past when it comes to debt growth.
This “still cheap and getting looser” credit theme fits in with what the only mainstream economist who warned about the last crisis has had to say recently…
“This looks like to me like 2007 all over again, but even worse,” said William White, the BIS’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.
“All the previous imbalances are still there. Total public and private debt levels are 30pc higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle,” said Mr White…
…Mr White said the five years since Lehman have largely been wasted, leaving a global system that is even more unbalanced, and may be running out of lifelines. “The ultimate driver for the whole world is the US interest rate and as this goes up there will be fall-out for everybody. The trigger could be Fed tapering but there are a lot of things that can go wrong. I very am worried that Abenomics could go awry in Japan, and Europe remains exceedingly vulnerable to outside shocks.”
Mr White said the world has become addicted to easy money, with rates falling ever lower with each cycle and each crisis. There is little ammunition left if the system buckles again. “I don’t know what they will do: Abenomics for the world I suppose, but this is the last refuge of the scoundrel,” he said.”
While we do wonder what it means when the BIS (the Central Bank of Central Banks) is giving the warnings, the fact this guy called it in 2007 means we should take some heed of what he says.
Another Warning on Interest Rates and the NZ Dollar
The conventional opinion is that interest rates are heading higher. We could make a good number of arguments for this ourselves. The consensus here in NZ is that it’s a case of when exactly next year they will rise, not if. This is predicated on the Fed having to taper eventually causing rates to rise slightly.
However we think there could be another side to this story to consider. Take the following argument from Vern Gowdie of Daily Reckoning Australia on why Aussie interest rates are likely heading lower. [Emphasis added is ours.]
“How Global Forces Will Impact Australia
The following chart, …from The Economist, shows that all major economies have flat lining interest rates and the forecast is for them to remain this way.
The reason for this is none of these countries can afford an increase in interest rates. The interest payments on their existing (and growing) public debt are consuming more and more of their tax revenues – and this is with interest rates at historically low levels.
Even a modest 1% rise in interest rates would add tens and even hundreds of billions of dollars to their interest servicing costs. Governments are already running massive budget deficits (with the lowest rates in history), so what hope would they have if interest rates rose? The term ‘buckleys and none’ comes to mind.
There has been some conjecture that Australian interest rates may have finished falling and the next move (according to some) will be for rates to rise.
The prospect of Australia raising interest rates against a global backdrop of ultra low rates is pretty slim. The other reason I suspect rates will go even lower in Australia is the comparative strength of our dollar. The recent fall from $1.05 to the low 90-cent range is not enough to restore our international competitiveness.
The recent news about a softening jobs market and a contributing cause being the high dollar is likely to bring a lot of political pressure on the Reserve Bank to wade into the forex market and force the Aussie lower.
The Reserve Bank will have a battle on its hands. The currency war Japan has escalated means the major economies will actively try to debase their currencies in order to protect their export industries.
In my opinion the Aussie is destined to be swept aside when the unintended consequences of the global currency war, QE to infinity or one of the other central bank fixes causes markets to panic.
The rush of money to buy US Treasuries (for perceived safety) will greatly strengthen the US dollar. The Aussie in the 50-cent range within the next 2-3 years is a distinct possibility.
Not that the US is any great safe haven – it’s just that in times of panic it is the best looking horse in the glue factory.”
A bold statement and counter to what most think when they assume the “death of the (US) dollar”.
We think this same argument could well be made for New Zealand. When everyone thinks things can only go one way it’s possible they go the other. If “markets panic” then the kiwi dollar will likely follow the Aussie dollar lower just as it did recently on the back of the taper fears. This fits in with how Ronni Stoeferle replied in the Q&A after his presentation in Auckland 2 weeks ago in to the question, “Will the US lose its reserve currency role?”
“He didn’t think so. Mainly because the US is so dominant militarily. In fact he thought the US dollar will likely be the last fiat to fail. [A view we have noted in the past more than once which is shared by Sandeep Jaitly and one that NZ dollar based buyers of gold should take heed of. As if the US dollar is the last to fall, at some point in the future the kiwi dollar may be very weak against the US dollar. Something virtually no one expects now, and gold would be the hedge against this.]”
The fact that the New Zealand dollar remains the 10th most traded currency on the world’s foreign exchange markets, according to a triennial survey by the Bank for International Settlements, also shows just why these forex moves can happen so quickly even to a seemingly insignificant currency as ours.
The Australian head of PIMCO (the world’s largest bond fund) thinks the Fed’s latest move will also force the Aussie Reserve Bank to lower rates further.
“Fed threatens Aust economy: Pimco
The US Federal Reserve’s decision to maintain its stimulus spending program and keep US interest rates at record lows threatens to artificially lift the Australian dollar and inflate local housing prices, senior executives at Pimco told The Australian Financial Review.
Pimco, the world’s largest bond fund, has warned that global stimulus measures could direct international investors to Australia, resulting in an elevated dollar and potentially leaving the Reserve Bank of Australia with little option but to lower rates further.”
Maybe we could just swap the Australia for New Zealand in this piece too? We don’t have a crystal ball, but we just don’t think things will play out as simply as most would have us believe.
These apparently “rosey” times are usually the best (and probably cheapest) times to get yourself some financial insurance. You know where to find us if you want some:
1. Email: firstname.lastname@example.org
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:
|Gut Reaction on Gold and Silver|
LIVE SPOT PRICES/CHARTS Gold Survival Gold Article Updates September 18, 2013 This Week: More Shenanigans in Gold Summary of last weekends Auckland, NZ, Presentation by Ronald Stoeferle Chris Powell of GATA in Auckland, NZ on Monday 14 October Gut Reaction on Gold and Silver More Shenanigans in Gold Well the price fell over the […]
|See Chris Powell of GATA Live in Auckland for Free|
Following on from the recent “In Gold We Trust” presentation in Auckland by Ronald-Peter Stoeferle in Auckland (summary of that presentation is here in case you missed it), next up is Chris Powell of GATA (The Gold Anti Trust Action Committee). Our Friend Louis Boulanger has organised for Chris Powell to come to New Zealand […]
|Debt: Still Cheap, and Getting Looser|
Doug French, who also features regularly in Laissez Faire Club, takes a look at the comeback of debt. (Actually did it ever really go away?) In this piece he looks at sovereign debt, corporate debt and even the return of subprime mortgage debt. Scarily, across the globe we look to be repeating, to some degree […]
|Gold and Silver Vs Stocks and Real Estate – Where Are We in the Cycle?|
An information packed video here from Mike Maloney looking at indicators such as the gold to housing and silver to housing ratios, plus the Dow (US stock market) to gold ratio. He answers questions posed by readers such as whether with house prices currently rising and gold and silver falling have we seen the top in both […]
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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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