How Will Rising Bond Rates Affect New Zealand?


This Week:

  • Trump – Trojan Horse, Great Disruptor, or Something Else?
  • The 35-Year Bull Market in Bonds Comes to an End
  • How Will Rising Bond Rates Affect New Zealand?
  • Mainstream Consensus Now Inflation Ahead – Problem?

Prices and Charts

Spot Price Today / oz Weekly Change ($) Weekly Change (%)
NZD Gold $1736.93 – $14.17 – 0.81%
USD Gold $1225.75 – $51.85 – 4.05%
NZD Silver $24.08 – $1.23 – 4.85%
USD Silver $16.99 – $1.48 – 8.01%
NZD/USD 0.7057 – 0.0239 – 3.27%
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Buying Back 1oz NZ Gold 9999 Purity $1666
Buying Back 1kg NZ Silver 999 Purity $732

The New Zealand dollar tumbled this week. Down sharply from a week ago.

NZ Dollar Chart

This in turn took the edge off the fall in the NZD gold price. It was down only 0.81% versus the US price falling over 4%. Now the question is will it go any lower? As we said last week, NZD gold could fall right back to $1650 and still be in an uptrend. But we’re wondering if maybe this latest fall might be enough to have shaken out the weaker hands that bought later into this year’s rally?

NZ Dollar Gold Chart

Even the weaker Kiwi dollar couldn’t make up for the massive plunge in silver. But it might now be trying to form a triple bottom around the $24 level.

NZ Dollar Silver Chart

The NZ Dollar has held up fairly well. Despite all the predictions of how Trump presidency would be so bad for us down here, the Kiwi is not far off its September highs today.

Trump – Trojan Horse, Great Disruptor, or Something Else?

You have likely heard or read a fair bit about what Trump will or won’t do this past week. We’ve read plenty on the topic too.

Yesterday we posted a good interview with Darryl Schoon, whose articles we regularly share on the website. Darryl was asked the question, will Trump do what he said he was going to or is he a trojan horse, a plant for the elite just like most other politicians? His answer was sort of neither…

Trump Trojan Horse? – Darryl Schoon

Trump Trojan Horse

Today Darryl just released his latest article on this same topic so that is also on the website too. His view is don’t expect Trump to solve everything.

Trump And The Markets The Next Four Years

Trump and the Markets

Since Trump’s election we’ve now read an awful lot about how his policies will be inflationary. But will he make any real difference to the US? Is he really going to “drain the swamp”?

When you look at who some of his policy advisors are it’s difficult to believe he will make the sweeping changes necessary. It’s also difficult to believe he will be “allowed” to make significant changes.

Below Bill Bonner makes a good case for why it might just end up being business as usual in Washington and Wall Street. He also looks at the inflation argument and why he thinks the Bond Bull Market is over. i.e. interest rates have stopped falling…

The 35-Year Bull Market in Bonds Comes to an End

Bond Bull Market Ends

Bill also made the point in a separate article that:

“In the long run, an easier fiscal policy [more government spending] will be catastrophic. The world economy now depends on ultra-low bond yields. And that depends on ultra-low inflation rates. You can get ultra-low inflation with easy monetary policies but not with easy fiscal policies.
The Treasury market is already anticipating rising inflation. Bond prices are falling; yields are rising… exactly what you’d expect if investors were no longer worried about deflation.
When consumer price inflation starts to spike in earnest… bonds will fall hard… and all Hell will break loose.
What will the feds do?
What could they do? The responsible thing would be to raise interest rates to head off the inflation. But that would bring on the correction that they’ve worked so hard to avoid. Instead, they will do what all irresponsible governments do.
More spending… more stimulus… more inflation. Buenos Aires, here we come! Or maybe even Harare.
Inflation could become hyperinflation.
But that is still in the future… perhaps long in the future…”

Continues below


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How Will Rising Bond Rates Affect New Zealand?

Back here others are catching on to the rising yields in global bond markets too:

Mark Lister: Trump’s plan a risk for Kiwi borrowers
“…if Trump really gets moving on his fiscal spending plans, we will almost certainly see interest rates move higher, and this could have implications for many New Zealanders.
Mortgage rates are not just about the OCR, which remains at a record low. Banks get their funding from other places, both domestically and offshore. With those funding costs going up, mortgage rates will have to follow.
A lot of people have paid some fairly big prices for houses in recent years and worked out their repayment schedules based on the lowest borrowing costs we’ve seen in decades. Hopefully they have left a buffer in their household budgets to allow for a 1 to 2 per cent rise in mortgage rates, in case that occurs.”

Hopefully but we doubt it.

Mainstream Consensus Now Inflation Ahead – Problem?

Mish Shedlock this week brought up a point that has had us a bit worried too.

“A near-universal consensus has formed that Donald Trump is the “inflation president”.
The Wall Street Journal, Bloomberg, New York Times, Financial Times, Money, and Fortune all say so. I cannot find a mainstream or even a minorstream publication that begs to differ.
…Is Trump the “Inflation President”?
No one can say for sure, certainly not me. But I do know that history suggests that universal agreement on economic matters is nearly always wrong.
The last time The Wall Street Journal, Bloomberg, New York Times, Financial Times, Money, and Fortune all agreed on something was four days ago.
They all thought Hillary would win. They all thought stocks would sink. Now they all tell us inflation is a sure thing!
People are sucking in that news like orange slurpies on a 102 degree day. Go figure.”

We have to admit to getting concerned when the mainstream consensus comes to our way of thinking too.

However what we’ve read in the mainstream about inflation has also said this will be positive for sharemarkets. Government spending will give everything a boost and so sharemarkets will continue to rise.

However recent studies have shown the government spending “multiplier” is actually negative. That is even while they pile on more debt this actually doesn’t boost the overall economy. But these studies show that worse than that government spending actually has a negative effect in the end. So this is where we end up with stagflation. Low growth in the economy but rising prices. Not a good mix.

So if markets are adjusting to the idea of higher inflation ahead (and rising bond yields certainly say they are), then before long gold and silver and their respective mining shares will also join in and begin rising again.

(If you’re unsure how gold can rise while interest rates rise then check out this other article on the website this week. It shows how gold has in the past actually risen in tandem with interest rates.

Three Reasons Why You Shouldn’t Sell Your Gold)

But perhaps where the mainstream argument falls down is that sharemarkets can continue to boom? Rapidly rising bond yields do not mesh with stock markets at record highs.

These few paragraphs from Hebba Investments sum this idea up well.

“It all comes down to an investors’ view on whether or not increasing US budgets will be feasible in the currently over-leveraged and overly indebted that we live in today. If you believe that bond markets will accept trillions of dollars of additional debt and higher inflation without spiking, then you want to be a buyer of stocks and commodities.”
“But if you are of the view that the next crisis in going to be in the bond markets, then there will be probably be significant road-blocks to any major government spending program and that will provide headwinds for US stocks and the US Dollar. As an alternative reserve currency without the ability of governments to dilute it via massive spending, gold provides investors with an excellent hedge in this environment – and that is the environment we believe we are heading for.”
“Thus, we think this is an excellent opportunity for investors that heeded our advice and lightened up positions prior to the elections to beat the mainstream investment herd by accumulating physical gold … In fact, we have begun accumulating precious metals miners again after being uninterested for many months, as the valuations have come down significantly from a few months ago and there is now value in owning them again.”
“It is time for investors to a step ahead of the crowd and understand that if massive government spending is undertaken we will see even more chaos in bond markets – and that is very gold positive.”

If you agree that a Trump presidency doesn’t mean everything will be all wishes and rainbows, then you might want some financial insurance.

Get in touch if you have any questions about the buying process. David is only too happy to answer them.

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This Weeks Articles:

Trump And The Markets The Next Four Years

Thu, 17 Nov 2016 10:28 AM NZST

Trump And The Markets The Next Four YearsYesterday we posted an interview with Darryl Schoon where he gave his thoughts on what a Trump presidency may mean. He’s just released an article on the same topic where he has some warnings for anyone expecting Trump to “Make America Great Again”. Darryl delves into who is likely to be on Trump’s staff and […]
Read More…

Trump Trojan Horse? – Darryl Schoon

Wed, 16 Nov 2016 4:48 PM NZST

Trump Trojan Horse?Now that Donald Trump is the President-Elect of the United States, the world wonders: Will he actually do the things he said he will do? Darryl Robert Schoon returns to SGT report to examine the Trump presidency and answer the question; Is Trump for real – or is he merely a Trojan Horse for some […]
Read More…

Three Reasons Why You Shouldn’t Sell Your Gold

Wed, 16 Nov 2016 1:26 PM NZST

Three Reasons Why You Shouldn’t Sell Your GoldIt seems that gold and silver have been falling lately on the expectation that interest rates are now going to rise much faster than most people had previously thought they would. However the idea that rising interest rates are a negative to gold in the long run is not backed up by what has happened previosuly. […]
Read More…

The 35-Year Bull Market in Bonds Comes to an End

Mon, 14 Nov 2016 1:17 PM NZST

THE 35-YEAR BULL MARKET IN BONDS COMES TO AN ENDLast week before the US election we wrote the following article. This was before Trump was elected but in it we outlined how regardless of who won it seemed there was evidence pointing to inflation starting to appear: Is Inflation Going to Surprise Us? Since Trump’s election we’ve now read an awful lot about how […]
Read More…

What Does a Trump Win Mean? + RBNZ Cuts, NZ Govt Bond Rates Rise. Huh?

Thu, 10 Nov 2016 5:55 PM NZST

What Does a Trump Win MeanThis Week: What Does a Trump Win Mean? Is Inflation Going to Surprise Us? RBNZ Cuts Interest Rates – NZ Government Bond Rates Rise. Huh? Prices and Charts Spot Price Today / oz Weekly Change ($) Weekly Change (%) NZD Gold $1751.10 – $32.72 – 1.83% USD Gold $1277.60 – $20.49 – 1.57% NZD Silver […]
Read More…
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