Gold not liquid enough for the RBNZ

This week:

• Massive one day jump in gold
• Should I buy local bullion or PAMP Suisse bullion?
• How the Bankers could be brewing up a game changer for the gold market
• Central Banks buying gold big time
• Gold not liquid enough for the RBNZ

Massive one day jump in gold

Well, we were proven wrong in a hurry after last week saying we thought prices may continue to meander for a while yet, with both gold and silver moving sharply higher overnight Friday in the US. As you can see in the charts below gold jumped higher in NZD and has held around the same level, still up $100 an ounce on a week ago. While silver did jump higher it has dropped back slightly since but up again today compared to yesterday. As we mentioned briefly in our daily price alert Tuesday there were a few interesting points to note about this move:

1. Precious metals were up, while global stockmarkets were down significantly. This is contrary to the prevailing “risk on/risk off” trend that had been in play for a while.

2. Precious metals shares were also up contrary to global sharemarket trends.

3. Silver rose even in the face of poor economic data, indicating that its monetary characteristics were being focussed on more than its industrial characteristics.

Looking at the one year chart of Gold in NZD a couple of things stand out after the big move over the weekend.
1. NZD Gold is again above its 200 day moving average (the red line) for the first time since March.
2. It also touched its highest price for 2012 and yesterday did trade around $2160 briefly.

NZD Silver on the other hand is only just touching on the 50 day moving average. (For a basic primer on some of these technical terms check out this video or this article on NZ Dollar Gold and Silver A Beginners Guide to Technical Analysis we put together a while ago)

We can’t know for sure but it’s possible we could be in one of those periods where gold moves higher in USD terms and the kiwi continues to weaken against the US, which adds up to big gains in NZD gold (and silver).  The long term NZD/USD crossrate shows there is room for the kiwi to weaken further yet with the next support levels at .74, .72, and then .65.

Thanks to the weaker kiwi, gold is certainly looking stronger in NZD terms than in USD.  In USD terms we are only just touching on the 50 day moving average line.

Of course things can change fast if another round of money printing was launched.

Should I buy local bullion or PAMP Suisse bullion?

This week’s lead article is in response to a common question we get with regards to what type of product to buy once you’ve decided to purchase some physical gold or silver bullion.  Specifically, deciding between local bullion and PAMP Suisse bullion.  We cover the pros and cons of each and what to consider in making your decision on which to buy: PAMP Suisse Gold/Silver vs Local NZ Gold/Silver: Which should I buy?

Other articles

Next we have the Myths and Realities of Returning to a Gold Standard.

And finally, Gold’s “Contrarian Moment”, looking at amongst other things 4 reasons why gold and it’s accompanying shares are still a good contrarian play.

How the Bankers could be brewing up a game changer for the gold market

Probably the most important article we read elsewhere during the week was this run down on the significance of how the Basel Committee for Bank Supervision, who create the rules that govern banks, are looking at turning gold into a ‘Tier One’ asset.

“Banking capital adequacy ratios, once the domain of banking specialists are set to become centre stage for the gold market as well as the wider economy. In response to the global banking crisis the rules are to be tightened in terms of the assets that banks must hold and this is potentially going to very much favour gold. The Basel Committee for Bank Supervision (or BCBS) as part of the BIS are arguably the highest authority in banking supervision and it is their role to define capital requirements through the forthcoming Basel III rules. 

 

In short, they are meeting to consider making gold a Tier 1 asset for commercial banks with 100% weighting rather than a Tier 3 asset with just a 50% risk weighting as it does today. At the same time they are set to increase the amount of capital banks must set aside as well. A double win potentially. 

 

Hitherto banks have been much dis-incentivised to hold gold while being encouraged to hold arguably riskier assets such as equity capital, currencies and debt instruments, none of which have fared too well in the crisis. With this potential change in capital adequacy requirements. bank purchases of gold would drive up its value relative to other high quality qualifying assets, increasing its desirability for regulatory purposes further. This should result in gold being re-priced to bring it on a par with all other high quality assets.”

Source.

The article goes on to outline just how big an impact this change could have on the price of gold.  You already know our views that gold is money but this would in effect mean the banks agreeing with the likes of us, as this change means instead of banks only being able to value gold they hold at 50% of its market value they can now value it at 100%.  It could be a significant step in the return of gold to the monetary system (although we’d rather not have the bankers deciding on this as anything they come up with is sure to still be advantageous to them).

Central Banks buying gold big time

Interestingly many of the nations who are on the BCBS are the very nations who have been buying gold of late such as Turkey, Mexico, Russia, and China.  So it would be in their interests to raise the importance of gold.

Specifically the latest reported figures for Central Bank purchases in March and April include:

Phillipines  32 tonnes

Sri Lanka 2.177 tonnes

Turkey 29.7 tonnes

Mexico 2.92 tonnes

Kazakhstan 2.02 tonnes

Ukraine 1.4 tonnes

China doesn’t report its holdings to the IMF very often but just reported 2 days ago was that in April 101,758 kgs of gold were shipped to mainland China from Hong Kong.

So the odds are a fair chunk of this may have ended up in Central Bank coffers.  This was “up 62% on the previous month and marking the second-highest monthly exports.”

This will help to make up for the fact that India is importing less and likely to be significantly less for the year overall.

Gold not liquid enough for the RBNZ

It seems our Reserve Bank of New Zealand doesn’t agree with the Bank of International Settlements or these other central banks on gold though.

We’ve written previously how the RBNZ doesn’t hold any gold and how they might want to consider exchanging some of their foreign currency reserves for gold.

Reader Jake was kind enough to forward us on an email just received from the RBNZ in response to his question on whether they had or intended to buy any gold.

As Jake put it, “here is their response just for your entertainment:”

“Dear Jake

 

Thank you for your question and apologies for the delay in responding.

 

The Reserve Bank of New Zealand has not held any gold reserves since 1991.

 

Our reserves management responsibilities are set out in the Reserve Bank Act of 1989 and our foreign reserve targets are specified by the Minister of Finance. The Reserve Bank is not, at this stage, planning to include gold in our foreign reserve portfolio. The Reserve Bank’s position is that gold does not meet our liquidity requirements.

 

Kind regards

 

Raewyn Peters

Knowledge Adviser | Reserve Bank of New Zealand

2 The Terrace, Wellington 6011 | P O Box 2498, Wellington 6140

T. +64 4 472 2029 | F. +64 4 471 3722

www.rbnz.govt.nz“

 

So the RBNZ thinks gold is not liquid enough.  This is probably an appropriate piece of phraseology as the forex reserves the RBNZ holds will probably be liquid enough to go down the drain just like every other fiat currency in history has.  They may find they wished they’d held something solid and with no corresponding debt obligation or counterparty risk.

If you disagree with the RBNZ and would prefer to be your own central bank, then get in touch with David for a quote.

1. Email: orders@goldsurvivalguide.co.nz

2. Phone: 0800 888 GOLD ( 0800 888 465 )

3. or new and improved Online order form with indicative pricing

Have a golden week!

 

Glenn (and David)

goldsurvivalguide.co.nz
Ph: 0800 888 465
From outside NZ: +64 9 281 3898
email: orders@goldsurvivalguide.co.nz

 

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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.