Tuesday, August 9, 2011

Gold and Your Economic Decisions


Gold in New Zealand dollars continues to make new highs this week. Currently it is at NZ$2094 per ounce. Just over a week ago it was around NZ$1820. Why the volatility in price?

The debt downgrade of the US dollar by Standard and Poors was the latest trigger for a 'devaluation' of the US dollar. As much as the US Government tried to 'shoot the Messenger', the downgrade from AAA to AA+ was completely justified. The debt mountain is too big and the market sees clearly that a US dollar devaluation through money printing is coming. Remember, the dollar has lost around 25% of it's purchasing power over the last ten years. No amount of putting ones money in a deposit account could have accounted for that loss over that time period.

But this isn't over for the dollar. When you feel it in every day purchases, that's when you will begin to ask questions about what to do.

When you go to the store and notice prices rising day by day, and notice you are earning the same amount, a light may go on. You may come to realise that what you could buy last week with one dollar isn't the same this week.

Yo are being robbed of your purchasing power.

Panic may even set in. The decisions may even seem too large to make. Decisions that may sound like: Should I sell the house and get out of debt and protect my wealth now? How much of my savings should I put into gold? If my income remains static, or I lose my job, how will I fend for my family?

The NZ dollar may be correcting back to the level it needs to be which is below 80 cents. With the gold price, if you take out market volatility, it is difficult to know what the true 'price' of gold in any currency. What we do know, is that over the past ten years (and more so in the last week) it is showing how it preserves purchasing power.

Here's a prediction. Gold will be US$2000 an ounce sooner than you think. The gold market still has a tiny participation when measured against the huge money volumes in markets today. Gold accounts for lower than 2% of all investment portfolios. An increase of a few percentage points will take it higher and very quickly. US$2000 could be conservative.

Is it too late to buy gold? To preserve some of what you have? The market is only beginning to adjust to the new normal of massive amounts of debt that need to be squared away. When the game of financial repression (low interest rates, high inflation) is sprung, gold (and silver) as a safe haven will see impressive buying. There are many other reasons to buy gold right now but the main one; to maintain purchasing power. (Note, gold has even increased purchasing power over the last ten years).

Do you think that those who own gold are wealthy? That gold is out of your reach financially? Maybe buying small amounts each month with your savings is the best option. You don't need to buy an ounce at a time. Dollar cost averaging is a good way to accumulate. Note, this is not a sales pitch for any company. In fact, there are many gold savings schemes out there. Just be careful.

The world is creaking at the seams. Time may be running out on the financial system as we know it. Gold has survived 5000 years of currencies coming and going. It still buys the same amount of things as it did in Roman times? Sound sensible?


Gold in New Zealand dollars: $2093.59 per oz
Previous all time high: $2094.14 per oz

Silver in New Zealand dollars: $47.56 per oz
Previous all time high: $59.19
per oz
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The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
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