NZ Bank Failure Planning, BASEL III and Will Banks Buy Gold?

This Week:

  • Gold and Silver Charts Look Pretty

  • What’s Wrong With the RBNZ’s Bank Failure Plans?

  • Will NZ Banks Buy Gold?

  • Heads They Print, Tales They Print Too

Gold and Silver Charts Look Pretty

We couldn’t come up with a better term than “pretty” sorry but both gold and silver in NZ dollars do look good technically speaking after the recent correction.

In the gold chart below you can see we dipped down below the 200 day moving average but only briefly. Also we bounced off the previous downtrend line and remain above the longer term uptrend line from early 2011. The RSI bounced off the oversold area of 30 and the MACD has also turned up. The price looks to have made a “higher low” at $2050 which is also positive.

Currently the 50 day moving average is the resistance at around $2150.

NZD Gold Chart

Silver is pretty much a replica of the gold chart. Again dipping below the 200 day MA, and then also touching the previous downtrend line which now looks to have become support. RSI and MACD doing the same as gold  and we have a higher low also it seems.

NZD Silver Chart

So everything appears set up positively for the future rises in both metals. Of course we could still see both gold and silver try to bore anyone who has joined the party recently into packing up and leaving. It’s getting close to a year of grinding sideways in gold and 18 months of down and then sideways action in silver, so if this carried on for a while it could lead many to give up. Which is just what the markets seem to aim for, having as few on board as possible for the moves upwards.

What’s Wrong With the RBNZ’s Bank Failure Plans?

As we mentioned last week the Reserve Bank of New Zealand (RBNZ) at the start of November quietly released it’s Open Bank Resolution (OBR) regulatory impact assessment. 

We removed any risk of suffering from insomnia over the weekend by reading the 21 page report and have this weeks feature article to show for it:

What’s Wrong With the RBNZ’s Bank Failure Plans?

In this article we cover just what exactly OBR is and how it’s meant to work. What other options the RBNZ looked at and when OBR will take effect. And importantly, what it means for your savings and what’s wrong with the failure plans.

Of course the very fact that the Reserve Bank needs to come up with plans for bank failures should be enough of a warning sign. But we’d hazard a guess that not even 1% of the population  would even be aware of them. It’s probably the way the Reserve Bank and the banks would prefer it too.  Better not to have a spotlight cast on the planning for bank failures when the financial system relies upon confidence to stay afloat!

Will NZ Banks Buy Gold?

In the article on the RBNZ’s OBR, we also touched on how the new BASEL III banking rules will impact NZ banks. Namely that the“minimum for total capital is 8% of risk-weighted assets (RWA) comprising: common equity tier 1 at 4.5%; total tier 1 of 6% and total capital at 8%. “  

The important point here is that total tier 1 capital must be 6%.  This is a rise from the current 4% requirement. Tier 1 assets currently include cash and certain government bonds. But you may have also heard that gold will also be moved from the tier 3 to the tier 1 list when the new rules come into force. This means gold can be valued at 100% of it’s market value not the current 50%. We first mentioned this in June of last year “Instead of negative could it be positive news that sends gold on its next leg up”.

As Frank Holmes indicated in that original article, this re-rating of gold in his opinion could lead to much more buying of gold and gold shares. 

The RBNZ intends to implement BASEL III, so this got us wondering yet again, “Will NZ banks or the reserve bank buy gold to bolster their balance sheets?” We still have serious doubts, especially given responses from the RBNZ in the past that “Gold is not liquid enough for them”.

So we’d say it’s highly unlikely that the RBNZ will be adding to it’s current gold holdings of zero ounces. What about NZ banks? According to the RBNZ, NZ banks already meet the capital requirements of BASEL III so it seems unlikely they’ll be adding the yellow metal to their balance sheets either we’d say.

Greg Canavan in the Daily Reckoning Australia this week outlined why he doesn’t think the Tier 1 re-rating of gold will mean banks buy gold:

“–One area of the Basel III banking reforms picked up with enthusiasm by the gold community was the change to gold’s classification as a risk free asset. It was only a footnote in a Bank for International Settlements update, but it caused some excitement. Here’s the footnote:

‘…at national discretion, gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%. In addition, cash items in the process of collection can be risk-weighted at 20%.’

–The thinking goes that because banks won’t need to set aside regulatory capital for gold holdings, it would increase the demand for it. 

–We’re not so sure. 

–Firstly, we’re not a fan of physical gold being anywhere near the banking system. It’s just allows bankers to lend it out and create multiple claims on a single ounce.

–And banks aren’t going to go out and buy gold to take advantage of the ‘risk-free’ definition. Banks make money from their assets generating a better return than their liabilities. Gold doesn’t generate a yield in the way other financial assets do. That’s because it’s actually riskless…hence no need for compensation in the form of an interest payment.

–Our point is that banks make money based on a positive net interest margin. Buying gold with, say, depositors funds (a liability of the bank) would hurt the net interest margin. Yes gold has gone up in price, but it’s not actual cash flow, which is important for the banks. 

–As far as we understand it (which is not much…the more we look into the gold market, the less we know) gold doesn’t have a natural home in the commercial banking system. It’s not ‘money’ in the way that paper money is. It’s more at home in central bank vaults, being a store of wealth for nations rather than a plaything for banks. It also doesn’t hurt for individuals to store some of their wealth, OUTSIDE THE SYSTEM, in the ancient metal either. 

–So don’t rejoice just because gold appears to be gaining some credibility. It’s far more powerful ‘outside the system’. “

If you want a thorough run down of both sides of the argument on the impacts of BASEL III then check out this other article we read on the subject this week. Basel III And Gold 

Darryl Schoon has been busy again this week with 2 articles. We always enjoy Darryl’s writings as he often pulls out obscure bits of history.  

Cold War & GoldIn the first article he outlines the role the Wests central banking system played in the cold war and how the West wants to maintain the current system while today the east is on a different path…


Bankers LostNext up he explains why the current borrowing-based government spending, to make up for the loss of private demand, will not avert a debt induced crisis. Then he looks at whether the endgame will be a deflationary depression, a hyperinflationary crisis or will it be something else?


Heads They Print, Tales They Print Too

We’re as sick of hearing about the “fiscal cliff” as we were of Europe a few months ago. But whatever the outcome one thing seems certain – more currency printing. If they somehow agree on big spending cuts then more printing will be required to prop up the US economy. And if no cuts occur then they’ll need to print to fund the US Federal budget deficit.

And a few days ago it was as good as confirmed that the Fed will most likely increase the printing from $40 billion to $85 billion. As when Operation Twist ends in December (buying long term bonds while supposedly cancelling these out by selling short term bonds), they will most likely continue to still buy more bonds, but just without selling any (as they won’t have any short term bonds left to sell anyway).  So quite likely more debt money will be created than now even. Source.

So QE infinity will probably double in size next year. It will have to, in order to battle the deflationary forces that have been rearing their heads again recently. It will be a question of whether they print enough to avert a global collapse in demand.

Jim Rogers seems to think so with his warning post election to buy gold to protect yourself now, a change in tack from his previous message to wait for lower prices which haven’t quite eventuated thus far.

If you believe now is a good time to heed that advice then get in touch…

1. Email:

2. Phone: 0800 888 GOLD ( 0800 888 465 ) (or +64 9 2813898)

3. or Online order form with indicative pricing  Have a golden week! Glenn (and David) Ph: 0800 888 465 From outside NZ: +64 9 281 3898 email: 

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Darryl Schoon explains why the current borrowing-based government spending to make up for the loss of private demand, will not avert a debt induced crisis. Then he looks at whether the end game be a deflationary depression, a hyper inflationary crisis or will it be a combination?… 2012: THE TIPPING POINT THE RESULTS ARE IN THE BANKERS […]read more…

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.To learn about what happens to your money if a bank fails in New Zealand see:Bank Failures | Could they happen in NZ | The Reserve Bank thinks so

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