Gold Bullion in New Zealand dollars today is well over the $2000 per ounce level for the first time ever. The local New Zealand dollar gold bullion price is a function of the gold price in US dollars and the US dollar to NZ dollar exchange rate. For the past few days both have been heading higher, resulting in a huge rise in the NZ dollar gold bullion price. As you can see in the chart below gold bullion in NZ dollars has been in a sideways trading range for the past 6 months. Or at least it was until a week ago. In that short time the price has risen over $200 per ounce!
The New Zealand dollar gold price is also now well above the highs of February 2009 (around $1950) when the NZ dollar was plumbing new lows at close to 50c to the US dollar. (Granted if you bought at that time it’s been a long time coming to get back to break even.) But even though the NZ dollar is “stronger” versus the US dollar than 2009, it’s actually weaker when measured against gold.
Back at the end of last November last year we pontificated that gold bullion priced in New Zealand dollars was potentially looking to break significantly higher. In hindsight we were quite a few months early as the price actually fell back before rising strongly and then entering the sideways trend it’s been in for the past 6 months that we mentioned above. But boy is it making up for it now!
What’s driving the big rise in gold bullion prices?
Strangely not that much has really changed in the scheme of things since the end of last year. It merely seems to be a greater awareness of the global debt problems. Following the US debt ceiling being raised last week, the European central bank announced it was starting a bond buying campaign including Italian and Spanish debt and then ratings agency S&P down graded the USA. All in one week! Nothing had fundamentally changed but these 3 events in one week seem to have focused a lot more attention on an already existing problem – too much debt. And unlike the huge rise in silver prices earlier in the year it’s probably more fear than greed driving people to buy gold bullion right now.
Volatility is the word
Anyway back to NZ dollar price of gold bullion. Today volatility is the operative word. The foreign exchange markets in technical terms are “all over the place”. I have just checked 3 different websites for the NZ dollar price for gold bullion and the price varied from $2094 to $2160! You see these sites will take their pricing from various places and they use a USD/NZD exchange rate to calculate the local gold bullion price. And the NZ dollar has dropped over 3c today! At the same time in Asian trading the gold markets are also rising sharply so somewhat of a perfect storm exists for the New Zealand dollar gold bullion price.
Record gold prices in nearly every currency
While checking this pricing I also had a look at the 5 year gold price charts for 16 other currencies including the Japanese Yen, the Canadian and Australian Dollars, the Euro and the Pound. And for the first time in a while all of them –with the exception of the Swiss Franc, which is seen as a safe haven too – were today hitting record high prices at the same time.
Is it time to buy gold bullion in NZ or time to sell?
To answer this question we’d like to quote Chris Weber again as we did at the start of the year. In a nut shell he says it depends on how much you have. Mr Weber’s opinion is that these times are fraught with danger and the unexpected – or perhaps rather than unexpected, the unpredictable (as the week is showing us). So if you have none put a stake in the ground and get some. If gold bullion already makes up a large potion of your wealth then record highs are not the best time to be buying. But even he, a veteran of the 70’s bull market says he’s given up on trying to time this gold market.
Jim Sinclair is another we pay attention to and he recently quoted US$1764 as a key price point to watch as there could be a big battle around there. Remarkably, as I write this we are less than $20US away from this level having only broken through $1700US overnight! So from a technical point of view that will be a price to watch for possibly a correction and it could get here much faster than we’d have thought! (Update: as I finished writing gold hit $1770 and is now down below $1760 again, so Mr Gold – Jim Sinclair may have been on to something).
The thing with gold bullion and particularly with it priced in New Zealand dollars is that even during a bull market there can be long periods of going sideways or even down, but often when the rises come, they come fast – just as they are currently. Looking back further if you bought a stack of gold bullion in 2002 in NZ dollar terms it went nowhere for the next 4 years. The NZ dollar had been rising strongly during this time from 0.40 to 0.75, thereby nullifying any corresponding rise in the US dollar gold bullion price – much like we’ve experienced recently as it happens. See NZD/USD chart below:
But the local gold price then jumped from around NZ$600 to over NZ$1000 between late 2005 and mid 2006. Now, we’re not predicting a rise of $400NZ now – although hang on, in this past week we have seen a gain of over $200. So maybe we are!
Seriously nothing goes up in a straight line so it’s quite likely we’ll see a correction soon in the US dollar gold price – but the question is what will the NZD/USD exchange rate do then? Is the kiwi still heading to parity? Funny how this weeks big NZ dollar drop came on the heels of all the mainstream media discussion of the high kiwi. The carry trade – which involves buying high yielding currencies like ours – seems to be unwinding as we type.
However a worry is today’s Wall Street Journal headline “Morgan analyst sees gold at $2,500 by year-end”. It worries us when the bankers are making bold predictions on bullion like that! The conspiracy theorist in us asks could they be looking to suck plenty of people in before a big sell off to scare them out of the gold market?
However the point is these are just short term guesses – the question to ask is what is the long term outlook? Are governments doing the right thing and reducing expenditure or will they continue to borrow and print? Here in New Zealand, the annoying discussions of Labour’s capital gains tax versus National’s asset sales totally miss the point. They both want to keep spending and they both expect significant “growth” in the next few years. We have our doubts (sorry to get political on you!)
It seems unlikely that the public (just about everywhere in the world) will take the hard medicine they need to so we reckon the odds favour more spending and more devaluation of currencies. And gold (and to a lesser extent silver) is the ultimate form of insurance.
As always we’re happy to say that these are just our opinions, take from them what you will and we’re the first to admit we are biased toward the yellow metal (we do make some money from it after all). But gold bullion has been around for millennia and so far it’s seen us right this millennium.