Gold price soars above $US1800/oz
UPDATED THURSDAY: Gold has hit another milestone, shattering the $US1800/oz barrier, rising more than $US60 in less than a day's trading.
The spot price of gold is trading at about $US1811/oz after being under $US1750/oz less than a day ago.
New Zealand Mint head bullion trader Mike O'Kane says the recent rise in the price of gold has caused a surge of interest from Kiwis, with a large increase in the number of new buyers.
The price of gold has hit a new record, shattering the $US1700/ounce milestone and showing no signs of slowing down as global investors look for a safe haven.
The spot price of gold reached $US1750/ounce this afternoon and for New Zealand investors the gain is being magnified by the fall in the New Zealand dollar.
Mohendra Moodley, a director of Australian fund manager Taurus Funds Management, says New Zealand gold buyers are benefiting twice, due to gold being denominated in US dollars.
This is because the gold price in US dollars is rising while the New Zealand dollar falls against the greenback, raising the value of gold holdings in New Zealand dollar terms.
Although gold price rises are sometimes “diluted” by rises in the dollar, he says during times when markets are “stressed”, such as in 2008, the New Zealand dollar tends to go down while gold goes up.
"Gold has gone up 11-13% per year in New Zealand and Australian dollar terms in the last 10 years, compared to 19% per year in the US, so returns have been diluted but not by much."
Mr Moodley says inflation and interest rates play key roles in the demand for gold, with American investors who get near-zero interest rates from banks finding it particularly attractive.
“The opportunity cost is always the level of interest rates in any country,” he says. “Gold trades inversely to real interest rates – the lower the real interest rates the better the gold price.
“In markets where interest rates [such as New Zealand and Australia] are higher the opportunity cost is higher.
“Having said that, it also depends on the level of inflation – for instance, Chinese investors have high interest rates but also high inflation, meaning the real interest rate is low.”
Even though New Zealanders get better interest rates on savings than in many other countries, Mr Moodley says gold is still an attractive prospect given its recent performance.
“If you’re getting 3-4%, the question is, would you rather be earning 15-20%? I’d take that.”
Mr Moodley says gold run of success has resulted in increased interest in Australia and New Zealand.
“There is some interest coming out of this neck of the woods but most of the global demand is being driven by Asia, particularly India and China, Europe and of course the US.”
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Comments and questions29
I heard one story (I don't know how apocryphal it is) of someone, during the hyper-inflation in Germany in the 1920s, with a one ounce gold coin staying at the hotel and buying the hotel with the one coin.
remember bunker hunt - the silver guy. went from hero to zero
is there any one really buying it or just futures contracts heading north. what goes up must come down - surely global demand for items must be decreasing as expensive watches etc .
The old saying goes "When the barbers start saying it is time to buy, it may actually be the opposite"
whos the barber?
Yeah, I've heard of taxi drivers picking up tips from "in the know" passengers and passing the information on. But I haven't heard of barbers doing the same thing???
after the GFC it became clear barbers were more qualified than taxi drivers in assessing opportunities (and S&P in assessing risk)
“The opportunity cost is always the level of interest rates in any country,”
What is fairly obvious to traders is unfortunately not so obvious for interest theorists. If gold is money, the interest rate on gold is the opportunity cost of holding gold rather than interest bearing assets. Somehow, interest rate theorists miss the connection between the market interest rate and the stock of gold. The greater the gold stock, other things being equal, the lower the market interest rate.
Gold does well when "real" interest rate is negative, and if we look at that real rate we could say approximately
Real I = Bank rate - Inflation rate
- 7 = zero - 7
Whatever they say in the US about the inflation rate being low, its a fabricated cpi rate to try and hide the real rate of inflation.
Until that negative rate starts heading to zero gold is heading up, with some sharp pull backs on the way.
When is the bubble going to burst?
The debt bubble?
People buying items with no intrinsic value (i.e. no rent, dividends or interest) rely on the 'Bigger Fool Theory' which states the only way you'll make a return is convince someone else (or they convince themselves) that they should pay more than you did for the item.
When a herd runs in a stampede - i.e. like folk running toward gold, speculation and hysteria apply... just like tulips, South Sea Company shares and Telecom phonecards.
Gold has an inherent value for industrial and jewellery markets but when the hysteria ends then some folk are going to get burnt.
"folks are going to get burnt"
you mean like those who invested in rental properties, investments in Hanover finance, Strategic finance, invested with ING, shares in dot com companies, greek bonds, shares in Pike River Coal.
Perhaps we could compare what number of oz of gold purchased a suit, or a house, or the DOW, or a car over time. Gold can be used as a means to trade from an asset to goods over time. Who cares if there is no interest over ten years if you can swap $ for gold then gold for a mansion in less than a decade.
1000 oz in 2000 @ $us250 ( $nz0.5M) for
1000 oz in 2011 @ $us1800 ( $nz2.25M)
hmmm tough choice.
Anyone can pick a particular result in hindsight... I could suggest if you bought Charlies shares at the IPO you'd make a good return now.
You're suggesting that buying gold now is relatively risk free compared to those other investments you mention... it isn't. Anyone who doesn't understand what risk actually is... will eventually discover the hard way - that's what I mean about getting burned.
If you were financially savvy then it's unlikely you'd have ploughed a significant proportion of your investments into one asset let alone speculative ones like Hanover/Blue Chip or ING.
A broker friend was recently heard to say that people are so crazy for gold he could sell them sheep-droppings wrapped in gold paper.
Gold has blown up to its biggest bubble ever - all because one discredited debt agency made the political decision to tweak the US debt rating slightly lower.
When markets enter fantasy-land they always have a rude awakening. Gold is about to crash big time.
When the world sees America is serious about cutting its deficit, gold will plunge to under 400 an ounce.
This mindless rally is about to fall apart.
Gold is only good for Teeth, Jewellery, Electroplating, Lightning rods and churches...
Anything else your told is just good old hype. Has anyone ever walked into Harvey Normans and said ill swap this ring for that TV ? pff what ever... Cant wait for someone to tell me beer tops are the new currency as im sure its only a matter of time..
America's notes are not even worth the paper their printed on... unless its toilet paper... Maybe someone should make paper toilet rolls of American money with dates of the down grade on it??
Id wipe my ass with their money any day :)
At least the US$ is 3-ply.
The world faces a massive Dollar debt, so I wonder if holding US$ cash (not bonds) could be a winner when the debts have to be paid? Or will the US just print money like Zimbabwe, not $100 notes, but $1, 10, 100 Million notes?
Loving this bearishness on gold ... means it has a long way to run yet.
You guys will be wrong the whole way up and desperately buying at the top as your failed digital-fiat virtual monetary system dissolves as the mirage it always was ...
Gold needs the wrongness epic fails on the other side ... keep at it. :)
Well said, I need the bears (the more the better right now) on the other side of my commitment to precious metals and their producers.
This has years to go, we will have many Precious Metal Investment funds, gold parties, and TV One news will be sponsored by Gold Corp fronted by some well loved individual. We have not even seen the big push to trade in you fillings and old jewelery.
At some stage the commentators will be saying this is the new paradigm, gold precious metal and the associated stocks will take up to 20% of all investments world wide, and at that time we will be heading towards a bubble.
Buy foreign currencies such the yen, 17 year high to the dollar.....seldom goes wrong in crisis like this.
Should be YUAN, not Yen...sorry.
Gold is the only currency there is....everything else is just paper. If I had a dollar for every time someone told me Gold was in a bubble and it is going down I would retire. Price gold in 1980's dollars and it is worth $2,500 per oz easily.
And I love how the price of gold is measured in U.S dollars which is a fiat currency!
The emperor truly has no clothes!
And I love how the price of gold is measured in U.S dollars which is a fiat currency!
The emperor truly has no clothes!
Which metal is the best investment going forward?
Copper
8%
Gold
51%
Silver
28%
Palladium
5%
Platinum
8%
http://www.cnbc.com/id/43975903/
http://www.cnbc.com/id/43975903/
oopsy - hard to stand in front of the bus - bling bling
JP Morgan bank in the States has started accepting gold as a financial trade, The Texas Education Pension fund swapped a billion dollars worth of investments for straight gold bullion when it was around $1400 an oz..figure that profit already..and so it goes on.
don't look at the application for gold , look at it as the only game in town as a safe haven.
to an amazonian indian a blowgun tip may be worth more than ten cows as tips are hard to find...currently in the world according the CEO of Kinross Gold one of the worlds largest miners, there's only enough physical gold available above ground to fill TWO Olympics swimming pools...lack of supply, huge demand...go figure !
Gold will bust by end October 2011. Down at least 20%.
Why the big move towards Gold?
Watch Money As Debt and you'll know more in one hour than you've learned in your lifetime about Paper Money, Debt & Gold.
http://video.google.com/videoplay?docid=-2550156453790090544