Prices and Charts
NZD Gold Once Gain at the Support Line
Gold in New Zealand dollars fell sharply overnight. Taking the price once again back down to the support line at $2850. This left the price barely changed from a week ago.
Odds may still favour a further fall back to the next support level. Or maybe even down to the 200 day moving average – which is getting closer anyway as it continues to rise. Currently the 200 day MA is at $2731. Percentage wise that is not a huge move lower from where it sits currently.
Silver up 3% This Week Despite Sharp Overnight Fall
Silver also fell sharply overnight. But even after this the NZ dollar price is still up 3% from a week ago.
Silver is somewhat in no-man’s-land here. So it’s difficult to make a guess as to where to from here. We could yet see a further fall and there are multiple support lines to watch out for if that happens.
So our mantra remains, if you have yet to buy, consider taking an initial position and then average down if there are further falls – or average up if there aren’t.
NZ Dollar Up 1%
The New Zealand Dollar is up 1% on last week. But it is still tracking just along the downtrend line. So it continues to look like the break out was (for now anyway) a fake out.
Need Help Understanding the Charts?
Check out this post if any of the terms we use when discussing the gold, silver and NZ Dollar charts are unknown to you:
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How to Buy a Median House in NZ for $47,188
A couple of weeks ago we shared our NZ Housing to Gold Ratio article. In that we showed how undervalued gold remains compared to real estate.
This week we have the latest numbers for the housing to silver ratio. You’ll see that silver remains even more undervalued than gold. That is despite the housing to silver ratio showing that when priced in silver, New Zealand median house prices have fallen almost 33% since 2003.
You’ll also see how history shows you could potentially buy a median priced house in New Zealand for only $47,188…
NZ Government Bonds Go Negative – A Taste of What’s to Come
Back in early September the yield on the 2023 New Zealand Government bond dipped briefly below zero. Giving us a taste of what is surely to come, as the Reserve Bank cuts the Official cash rate below zero. Perhaps as soon as early 2021?
A Stuff article commented:
“That meant that investors who bought the bonds were doing so in the knowledge they would get less than they paid for them in interest payments and the final redemption payment.
That is assuming they held on to the bonds until their maturity in three years’ time.
Buyers could still profit by selling out to investors ahead of maturity if the yield fell further.”
That is likely exactly what these bond buyers are expecting to do. This has been the experience overseas. Where investors “front run” the central banks and buy the bonds solely on the expectation of lower rates (and therefore higher bond prices).
Overseas experience also shows (as we’ve pointed out previously), that negative interest rates do not do what they are intended to do. That is, to encourage banks to lend and people to borrow. A wise person instead realises that low and falling interest rates are a serious indicator that all is not well in the markets. So they elect to actually save more!
Massey University banking expert David Tripe commented that so far low interest rates don’t appear to have caused a surge in borrowing:
“So far there was not much sign low interest rates are encouraging anyone – other perhaps than the Government – to “get out and borrow”, Tripe said.
“My impression is that the banks’ perspective is that they don’t see demand for borrowing being substantial,” Tripe said.
Borrowing was falling not because banks were short of funds to lend, but because there weren’t credit-worthy borrowers who wished to borrow in the current environment, he said.
Mortgage lending has increased over recent months and $6.6 billion was lent in home loans in July compared to $5.4b in June. Home loan and consumer lending is increasing at a rate of 5.4 per cent per annum, according to the Reserve Bank. But business lending is slower – up just 0.1 per cent. Lending to agriculture is down 1.3 per cent.”
Instead it’s likely that existing borrowers will benefit from these moves and so will sharp bond investors. The distortions in the housing market are likely to continue and even get worse in the years to come. Nominal house prices could well increase further. Of course you must be able to continue to repay the loan to benefit from this.
Also remember that as our feature article this week shows, when priced in gold or silver house prices are more likely to fall in the coming years.
Your Questions Wanted
Remember, if you’ve got a specific question, be sure to send it in to be in the running for a 1oz silver coin.
Kiwi Bond Interest Rate Cut for the Third Time This Year, Taking Them Down to Almost 0%
“The interest rate offered by Treasury for their Kiwi Bond product has been cut sharply today (Monday). This is the third cut so far this year, effectively reducing the rates for these bonds by -80% or more in that period.”
The highest rate is now 0.20% for the 2 and 4 year bonds. And just 0.10% for the 6 month and 1 year Kiwi bonds.
“These offers are also well below the current rate of inflation.
But they are higher than what wholesale investors bid in Treasury tenders for bonds of an equivalent duration. But as there is no effective secondary market, there is no easy way to sell these bonds and take the capital gain as yields fall. Holding them to maturity or “redeeming” early are the only options.
Kiwi Bonds are the main product available to individual investors from the Government. Kiwi Bonds are offered directly to the New Zealand public, but anyone who is not a New Zealand resident, even if they hold New Zealand citizenship, cannot invest in Kiwi Bonds.
…Kiwi Bonds are a simple form of investment, similar to a term deposit in that they offer a fixed rate of interest for a given term. Kiwi Bonds are denominated in New Zealand dollars with a fixed interest rate paid quarterly in arrears.
The minimum amount that can be invested is $1,000 with a maximum of $500,000 in any one issue. The maximum limit is probably there to discourage wholesale investors loading up on this retail offer because it pays more than the tender market.”
Further Early Proof That Negative Interest Rates Won’t Work
The chart below would also appear to back up the theory that lower rates actually encourage more saving. The red line shows a sharp increase in investment in Kiwi Bonds by NZ resident retail investors.
You would think an investment that guarantees a loss after inflation would mean less demand?
But it seems retail investors are more worried about a return of investment, rather than a return on investment.
Because clearly there has been a sharp increase in demand, even while bond yields have plummeted to almost 0%.
This is likely because these retail investors see these government bonds as the safest form of investment in what they perceive to be a very troubled New Zealand and global economy.
“The interest rates offered [on Kiwi Bonds] are generally lower than those offered by banks, reflecting the greater level of security associated with a government investment.”
Of course you being a reader of ours should know that there is an investment that is safer than a Kiwi Bond. It’s called “Kiwi Gold”! And you can get it from us.
Unlike a bond “Kiwi Gold” has no counter-party risk. Also unlike a bond gold doesn’t guarantee you an after inflation loss of purchasing power. In fact if history is any guide, gold offers the chance of an increase in purchasing power relative to other assets.
If you have any questions about the process of buying gold and silver please get in touch…
- Email: [email protected]
- Phone: 0800 888 GOLD ( 0800 888 465 ) (or +64 9 2813898)
- or Shop Online with indicative pricing
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