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Is the Gold Correction Over Already?
Gold in NZ dollars has bounced back a little this week. NZD gold may well have bottomed out around the $1875 mark already.
If it heads any lower there should be strong support at the 200 day moving average (MA) at $1850. But we wouldn’t bank on this happening.
If looking to buy then consider taking an initial position here and buy again on any further pullback.
But gold is looking pretty strong. The correction (if it’s over) has actually been fairly minor after a such a strong run higher since November.
And the Silver Pullback Too?
NZD silver also looks to have bottomed out at the $22 mark. Bouncing back to the 200 day MA today, the silver correction has also been fairly shallow to date.
It looks like we are in a decent buy zone at these levels. The fact that hardly anyone is actually buying supports this argument!
Meanwhile groundhog day continues for the New Zealand dollar. The Kiwi remains locked in the sideways trading range it has been in since November.
It might take some more significant news to push it out of this zone. Your guess is as good as ours as to what that might be though.
Don’t Forecast the Price of Gold – Instead Ask What is The Price of Gold Forecasting for Other Markets?
Jim Rickards made a good point about why people spend so much time worrying about where the price of gold is going. Instead he argues to look at what the price of gold is telling us:
“I am frequently asked where gold prices are going next and for my analysis of the price of gold.
My answer is that investors should spend less time forecasting the price of gold and more time discerning what the price of gold is forecasting for other markets.
Many factors go into the price of gold (real rates, dollar strength, safe haven investing, central bank purchases, etc).
But the gold price itself is a powerful leading indicator about other markets.
Gold’s recent rise says that central banks will keep interest rates on hold or even lower them later this year.
It says that inflation is not on the horizon, stocks will move sideways and economic growth will slow down.
In that kind of sluggish, low-rate environment, the opportunity cost of owning gold goes down and therefore the price of gold goes up.
The price of gold can be considered to be in a ‘bear rally’ (due to low growth) rather than a ‘bull rally’ (due to inflation), but a rally is a rally.”
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How Aussie (and Kiwi) Gold Investors Can Benefit from This Double Whammy
Selva Freigedo made a good point about a potential “double whammy” for Aussie gold investors this week.
As we read it we realised that the very same scenario could play out for Kiwi gold investors too. See if you agree…
“For Aussie gold investors, there are two factors affecting the gold price. One is the price of gold itself, which can go up or down. And, as we mentioned, this is priced in US dollars.
The other is the exchange rate between the US dollar and the Aussie dollar, which can also go up or down.
When the price of gold falls, Aussie gold investors will lose money if the exchange rate stays the same. They’ll suffer even bigger losses if the Aussie dollar moves up against the US dollar at the same time.
If the Aussie dollar moves down at the same time as the gold price goes up, then they will recoup money from the exchange rate.
On the other hand, Aussie gold investors will profit from higher gold prices as long as the exchange rate stays the same. If, at the same time, the Aussie dollar goes up against the US dollar, then they will make some money from the price movement but lose some money on the exchange rate.
The best scenario is for the gold price to rise and the Aussie dollar to fall at the same time. Then gold investors can benefit from both, higher gold price AND the falling exchange rate.
Which brings us to the point of our article today…
Global growth is slowing and fear is seeping into the markets.
When the future looks bleak, investors start jumping into safer assets, like gold. Gold is a safe haven and a wealth protector. And, this could push gold prices up.
At the same time, here in Australia, we are seeing deteriorating property prices, weaker consumer spending and GDP figures. An interest rate cut is looking increasingly more likely.
All this could take a toll on the Australian dollar.
The increasing likelihood of higher gold prices and a lower Australian dollar makes it an ideal scenario for Australian investors to profit from both the price of gold and the exchange rate.
That’s why you should be buying gold.”
Australia looks to be a little further down the road than New Zealand (as is often the case). But “deteriorating property prices, weaker consumer spending and GDP figures” also look to be on the horizon for New Zealand.
In which case the Kiwi dollar could weaken further. And New Zealand gold investors could also enjoy this “double whammy”.
Get positioned for it today.
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