With another year over it’s time to look back at how gold and silver performed in New Zealand dollars during 2013. And to see how we did with our predictions. Then we’ll offer the opportunity for more egg on our face by hazarding a guess as to what might lay ahead for 2014. And of course, a guess is all it will be as we unfortunately have no direct connection with any higher power, so as always take from it what you will but – make up your own mind.
Firstly if you’ve followed gold and silver even in passing over the last year you’ll know that they didn’t have a stellar year versus the dollar.
Confidence in paper assets and fiat money was (unjustly?) higher last year and so the safe havens didn’t fare well.
For the first time in many years gold actually had a year where it lost value. Or rather for the first time in many years the dollar gained value versus gold.
So just how much did the NZ dollar gain against gold in 2013?
During the calendar year gold in NZ dollars fell 27%. More than the more commonly quoted US dollar gold price due to the kiwi dollar also strengthening versus the US dollar.
This fall also put a dent in golds overall performance against the dollar since 2000. However it is still up 169% even after its worst year during this 13 year period.
But still, it’s an understatement to say not a great year compared to those in the recent past.
Silver took it on the chin even harder than gold, dropping 34% when measured against the NZ dollar.
Since 2000 it is still up 131% though.
So thats the percentage changes in price for the past year.
Well lets look at what we said last year and see how much egg we have to wipe off this year? In January 2013 we wrote:
[B]oth gold and silver are sitting close to what have been strong levels of support over the past year. So will these hold?
To be honest we wouldn’t be surprised to see them fall further yet. With the likes of Jim Rogers and Marc Faber both thinking gold may have further to fall yet it would be remiss of us to disagree with them. As we’ve mentioned many times in the past gold did fall 50% in the middle of the 1970’s bull market. Something that has not happened so far in the bull run from 2000. But would this happen from last year’s high of around US$1900 or could it happen from much higher levels of say $3000 or $5000? Who knows? But we are mentally prepared for it if it does…
…So our guess (and of course that is all it is) is we won’t see a 50% fall right at this stage. However in the first half of 2013 maybe there is a chance of prices falling further than they have to date though. But with the US debt ceiling to again be in the headlines in the next couple of months any dip could be very temporary.
New Highs for Late 2013?
The kiwi dollar may well continue to rise and therefore dampen the rise of NZD gold and silver compared to the commonly quoted US dollar price, as it has done for most of this bull market. However we think new highs could be on the way later in 2013 for both USD and NZD priced gold.
Because that would make it a 2 year correction or consolidation for gold and an almost 2 and a half year correction for silver. We’d imagine that should be long enough to shake out all the latecomers and when the weak hands are gone is usually when the bull markets run strongest.
So we can see how our guesses last January played out during the year.
So we were 50/50 with our calls.
We were right that prices did fall further in the first half of last year. However the bounce back did not come as quickly as we might have guessed. The year ended pretty close to the lows and so there was no lasting recovery in the second half as we had guessed. Although we could argue for slightly more than 50/50, given that the first half of the year was where most of the falls in gold and silver came. So if you sat out that period you will have done a fair bit better.
Also we were right about the NZ dollar remaining strong. But there was no rise in the USD gold price in the second half so the stronger kiwi instead sent gold and silver to new lows in the latter part of the year in NZ dollar terms.
As it happens it’s taken longer than we thought to shake out all the weak hands. But we wonder if we are getting close to that point now – if in fact it hasn’t been reached already. Sales volumes of precious metals here in NZ have been very low for the past couple of months, unlike in April when the price first dropped and prompted many to buy.
So this lack of interest is probably a pretty good contrarian sign, that we are at or pretty close to a bottom in prices.
Just before the New Year holidays in US dollar terms gold dipped briefly down to the US$1180 level again, before bouncing sharply higher and has risen almost $50 in the few trading days since. This $1180 level is key as it was the USD low reached in June.
So given it has bounced off this level we could well be looking at a double bottom playing out in USD gold. This would put us in good stead for a more solid year ahead for both metals.
Our guess is that 2014 should be a return to gold and silver finishing above where they started the year. Though given the length of this correction it could be a while before we get back to new highs (see more on this below). The level of confidence in the recovery throughout the mainstream is pretty high so this could remain a headwind for the precious metals for little bit yet.
Also while other sectors head higher this will also likely have a dampening effect on gold and silver. Odds are we will see shares and property continue to bubble higher. But a bubble isn’t fully formed while many people are talking about a bubble. And that is the case with stocks in the US and with property here. While we continue to see articles in the mainstream discussing NZ property being in a bubble, it probably means it hasn’t really been fully inflated yet. Likewise prices around the rest of New Zealand other than Auckland and Christchurch are yet to rise much. Until these follow we probably haven’t reached bubble level yet either.
As we noted in this article from January 2012, back in 2009 when gold in NZD dropped 30% it took 106 weeks to reach a new high and 128 weeks to stay above the new high. Here’s the chart from the 2012 article looking at the 2009 correction…
The 15% correction in the chart as of the start of 2012, has since then extended further of course. If the low reached last month in December of NZ$1460 is in fact the ultimate low for this correction, then that is a fall of almost 37% from the closing high on 16 November 2011 of NZ$2311. Plus this correction, at over 2 years, has taken much longer than the 2009 one, which took less than a year to reach a bottom.
So a bigger fall (37% versus 30%), plus a longer lasting fall (2 years versus less than a year), likely means longer to get back to new highs than the last major correction of 2009 (which took 106 weeks as per above chart). It’s now been 112 weeks since the November 2011 high, but as just mentioned this correction has been greater and longer lasting, so it could be a while yet before new highs are reached given the length of this correction.
Barring another major financial crisis or some “grey swan” like a collapse of the ruling Chinese communist party (maybe more likely than many think), the NZD is likely to remain strong given our focus on agriculture. So we could be looking at a period like the early 2000’s where the NZD gold price under performs USD gold.
However given none of the imbalances and structural problems from 2008 have been addressed we still reckon the odds of another shock are pretty much a certainty. Its just that no one knows from which quarter it will come or when.
As there would probably be – at least initially – a flood of money returning to the expected (relative) safety of the US dollar.
It is this weaker kiwi dollar that gold will protect you against. Property while being a tangible asset and a good hedge against the ongoing decline of paper money, won’t protect you to the same degree that gold will in this case of a sudden drop in the NZ dollar.
This after all is the point in buying physical gold and silver. To remove some of your wealth from the system as financial insurance in case of the unforeseen (and while maybe not unexpected, at least the unknown as well).
That financial insurance is now as cheap as it has been for over 4 years for New Zealanders. If you want to follow the Chinese and Indian lead and buy on weakness, now may well be an opportune time to at least buy a tranche with prices low and negativity so high. As we always say keep some “powder dry” just in case, as picking the exact low is nigh on impossible.
See our order page for products and pricing…
If you’re newer to the world of precious metals and need to further your understanding, here’s 2 previous articles that look at the reasons to buy precious metals. You’ll see they remain valid today:
What do you think 2014 has in store for gold and silver in NZ dollars? Will it be a better year than last? Show us you’re alive and leave a comment below.