Not much to report in terms of changes in the local prices of gold and silver this week from the last couple. We continue to see them both trade in the narrow ranges they have been in of late. The main thing of note over the past few days has been the strong buying that has occurred after the sharp spikes down in price intraday during the US market open.
In November last year (Bank failures: Could they happen in NZ – The Reserve Bank thinks so) and again in March this year (More on planning for bank failures in NZ) we discussed the RBNZ’s Open Bank Resolution (OBR).
This little talked about policy would mean that in the event of a bank failure in NZ the shareholders would take the first loss but a portion of depositors funds would be frozen by the RBNZ to cover any outstanding losses. The bank would be reopened fast but depositors would only have access to a portion of their funds – they would effectively be given a “haircut” on their deposits. If you’re unaware of this go back and read the 2 articles linked above and also the link to the RBNZ website that explains it relatively clearly.
The OBR is now scheduled to be in place by 30 June 2013 (orginally was end of 2012). So remember there is currently no government bank guarantee in place and until the middle of next year there is no process in place to deal with a bank failure in NZ.
After we wrote this a couple of readers asked our opinions on which of the local banks were “safer”. We’re not financial advisors so it’s not really our position to recommend exactly where you put your money (although by now you might have realised that we personally think everyone with some money in the bank should have some physical gold and silver in their possession as they are the only financial assets that is not someone else’s liability at the same time!)
Anyhow, while we are not financial advisors we did recently come across a useful source to share with you – this list of the World’s Top 50 Safest Banks.
It doesn’t mention NZ banks directly but as they are all owned by Aussie banks (bar the Government owned Kiwibank), we can probably take the ratings of the Aussie banks as a decent indicator for the local versions. Also currently the 4 NZ banks, ANZ NZ, ASB, BNZ and Westpac, have the same credit rating from S&P as their parents AA-. Which is also the same as Kiwibank. Although bear in mind S&P just like the other ratings agencies was well and truely asleep at the wheel prior to the onset of the 2008 crisis!
(Here’s a handy article which also covers the ratings of TSB and the new kid on the block Heartland.)
The top 50 report is put together via “an evaluation of long-term credit ratings—from Moody’s, Standard & Poor’s and Fitch Ratings—and total assets of the 500 largest banks worldwide. Global Finance’s ranking of the World’s 50 Safest Banks is a recognized and trusted standard of creditworthiness for the entire financial world. “Counterparty creditworthiness has seldom been of more concern to companies and investors worldwide,” says Global Finance publisher Joseph D. Giarraputo. “Knowing how their counterparties are faring in the face of global economic uncertainty is key. This ranking helps companies and investors to get a view on the relative strength of their counterparties—and global financial institutions.”
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Anyway here’s where the Aussie banks are ranked:
Tie* 12. National Australia Bank [Parent of BNZ]
Tie* 12. Commonwealth Bank of Australia [Parent of ASB]
13. Westpac Banking Corporation
21. Australia and New Zealand Banking Group (ANZ) [ANZ and National Bank here in NZ]
So not too bad for all 4 to be in the top 21 in the world. So while NZ banks aren’t mentioned in the top 50, their parents are. And as stated above, given the Kiwi versions have the same credit ratings as their parent companies, this report is probably not a bad proxy to go by.
So that might be helpful in picking your bank although there is not too much difference between the 4 of them only being 10 positions apart in the top 50.
We’ve actually heard other people consider bonus bonds as the safest place for your cash!
“When you purchase Bonus Bonds, your money is collected together with the money from all other bondholders and held in Trust, independent of any other schemes or deposits. Called the Bonus Bonds Trust, the Trust is supervised by Trustee Executors Limited, an independent corporate trustee.”
We haven’t read the trust document but we’ve heard it argued that perhaps the bonus bonds are not subject to the OBR. But of course you’d still need to look closely at just how the funds are held. As the above webpage states “Bonus Bonds Trust funds are primarily invested in low-risk debt securities specifically from issuers that are rated ‘A’ or better for credit default risk by Standard & Poor’s – issuers such as the Government, selected local authorities, New Zealand registered banks and selected corporates”.
So perhaps it could be lower risk than a standard bank savings account, but the funds are still invested in “low risk debt securities” so unlike with physical bullion in your possession there is still definitely a counter-party risk.
Last week we mentioned Jim Sinclair’s recent call that gold will reach maximum valuation within 1-3 years and exceed $3500.
Well it seems a few other precious metals commentators/investors are calling for big rises in the next year. Eric Sprott of Sprott Asset Management sees a new record by year end…
“The metal “should go to new highs before yearend, that would be my guess,” said Sprott, 67. “Gold has blown away every financial market in the world since 2000, let’s not forget that.”
…”Sprott declined to make a specific price prediction. Future highs are “indefinable” because they will depend on decisions by policy makers, he said.
Sprott has previously made predictions that were accurate, or largely so. He said in May 2011 that gold might rise to $2,000 that year. In March 2008 he said banking stocks would collapse. Bear Stearns Cos. was sold to JPMorgan Chase & Co. later that month and Lehman Brothers Holdings Inc. filed for bankruptcy in September.”
Also this past week we had Erste Group’s Ronald Stoeferle comment is his just released 2012 report of In Gold We Trust that they see $2000US in the next 12 months:
“The foundation for new all-time-highs is in place. As far as sentiment is concerned, we definitely see no euphoria with respect to gold. Skepticism, fear, and panic are never the final stop of a bull market. In the short run, seasonality seems to argue in favor of a continued sideways movement, but from August onwards gold should enter its seasonally best phase. USD 2,000 is our next 12M price target.”
And to join the chorus, Egon Von Greyerz of Matterhorn Asset Management seems to agree with what Jim Sinclair was calling for last week…
“I see gold reaching $3,500 to $5,000 in the next 12 to 18 months. Within 3 years, I see the gold price reaching at least $10,000.”
So some big moves ahead in the not too distant future according to these guys.
It may seem counterintuitive that a metal such as gold exhibits seasonality when it is mined and not grown. But history shows that demand factors do show a trend in terms of the gold price. Currently we are in the time of the year when more often than not the lows are hit. Look at a long term gold chart in most currencies and this is the case. Take the chart below in NZD, lows have often been hit around the June to August period.
As Adam Hamilton (whose newsletter we have subscribed to in the past) says in this recent report of his published newsletter, we are currently in the (Northern Hemisphere) summer doldrums…
“The bottom line is the summer doldrums almost always trap the precious metals in a listless, demoralizing drift. After over a decade of June, July, and August grinding, traders really ought to expect nothing more during this seasonal ebb. While upside breakouts from the usual drifts can happen occasionally, even they are short-lived. Without major gold-demand spikes, summer simply has no sizable buying catalysts.
For speculators and investors aware of this tendency, all it takes is a little patience to weather precious-metals summers. But sadly the majority of traders refuse to study the markets and advance their knowledge, so every summer their depression returns anew and they foolishly sell low. Thankfully we can take advantage of this mistake, and buy low to load up our books ahead of the big autumn rallies.”
So if you’re a holder of gold and silver who’s frustrated by the action of late take heed – it’s normal!
But if you don’t have any yet consider what Adam Hamilton says above and load up for the Autumn (NZ Spring) rallies. Prices in NZD remain very cheap at the moment. You can currently buy gold for the same as it was in early 2011, and silver for the same price it was in late 2010. Our guess remains at some point in the not too distant future there will be a surprise and the precious metals will resume their upward trajectory (or fiat currencies their downward fall), most likely with some speed. But you need to be onboard to participate.
We’re happy to help first time buyers. If you’ve got any questions about the process drop us an email or give us a call.
1. Email: firstname.lastname@example.org
2. Phone: 0800 888 GOLD ( 0800 888 465 )
3. or new and improved Online order form with indicative pricing
Have a golden week!
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The Legal stuff – Disclaimer:
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.