Gold breaks out

Gold Survival Gold Article Updates

Mar 12, 2014

This Week:

• RBNZ raises rates
• Gold breaks out
• Capital Gains Tax on Precious Metals in New Zealand – Is There Any?
• Clamping down on cash transactions

This week our feature article is on the topic of tax on capital gains on precious metals in NZ.  See further down for that and other articles on the site. But first a look at what’s happening with the NZ dollar and gold and silver prices…

RBNZ raises rates

This morning the NZ Reserve Bank did as just about everyone expected and raised interest rates 0.25%. The governor didn’t say anything too earth shattering. Here’s the press release if you must. He tried to talk the high NZ dollar down a bit, but otherwise it was about how NZ and our trading partners are on the improve, risks of higher inflation and how the “speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures.”

The lengthy RBNZ monetary policy statement that is released quarterly also doesn’t offer too much – other than a cure for insomnia. This NZ Herald article outlines how they expect the kiwi dollar to remain high for longer. Only weakening slightly through to 2017.

Quite how they can even hazard a guess that far out is beyond us? Odds are they will be wrong about that. As we said last week, we still think it makes sense to be concerned about a decent shock causing the NZ dollar to take a nasty fall at some point.

On a side note and in contrast to all the good news about NZ’s “Rockstar” economy there was a report this week that the government tax take continues to fall short, pushing the government finances to higher deficit. The deficit for the 7 months ending January was $1.06 billion more than twice the size of the $426 million deficit predicted three months ago.

The budget surplus in 2015 might be looking a little less certain now.

So how did the dollar react to the RBNZ statement?

You can see in this live streaming 5 minute chart on investing.com which we took a screen grab of, the kiwi dollar heading higher at 9am with the announcement.

It rose about half a cent in the first 30 minutes and then has plateaued at about 0.8520. 

So the big question here is whether most of this good news story has now been priced into the kiwi dollar as we’ve mentioned a couple of times in recent weeks?

Will the NZ dollar top out around these levels or head higher as most of the analysis we’ve read lately says it will?

It is getting very close to the top of the wedge formation you can see in the chart below which we drew last week. 

Gold breaks out

Meanwhile overnight offshore gold rose very strongly and has now broken though the significant US$1350 level. You can see in the lower half of the chart below (which shows the US dollar gold price) that $1350 was where the large fall in June last year began from. Now that it’s through this level it’s likely to attract more buying and so head higher from here we reckon. The fact that it has been a nice steady rise over the past two and a half months compared to the sharp rises of last year is also a good sign we reckon.

The stronger kiwi dollar dented the gains in gold for NZ holders of the metal. Although it is still up $15.37 or 0.97% to NZ$1606.37 from a week ago. Now that the US price of gold has gotten through $1350 odds favour further rises and so the NZD gold price will likely be pulled higher too, even if it might be at a slower pace should the NZ dollar continue to strengthen against the US dollar

Silver also rose strongly overnight. In US dollar terms it is again above US$21 and has stayed above the 3 month trading range it broke out of in February.

In NZ dollar terms it is not much changed from a week ago. Sitting at $25.06 today compared to $25.20 last week.

Unlike gold, silver is not breaking out to 4 month highs though. As we discussed on February 5th in Why is Silver Lagging Gold?, silver may well be lagging due to deflationary fears. You can see in the gold/silver ratio chart below that the ratio falls (i.e. silver rises faster than gold) during periods of significant monetary inflation. Take 2003 when Greenspan started to reflate post the dotcom bust and in 2009 when Bernanke did the same post the Lehman crash (see the red arrows on the chart).

Currently we perhaps have fears of deflation – rightly so we’d say. Perhaps in response to this we will see an inflationary reaction by central planners. This Reuters report says that the ECB “is ready to use non-standard tools to deliver stable prices.” Central banker speak for money printing. 

So silver could well get a boost later in the year from this.

This Weeks Articles: 

Privacy: Are purchases of gold and silver in NZ reported?