Tuesday, September 13, 2011

Gold setting New Highs in Euros; Down in NZD

Gold set a new record high in euros of €1,375 per oz last night on fears surrounding a Greek default.

In New Zealand dollars, we dropped to about $50 from an all time high. Why is this?

New Zealand is part of the smallish group of currencies seen as a relative safe-haven. The large amounts of capital sloshing around the world, looking for a home to maintain value, is piling into currencies like the NZD. This capital is even in flight to the US dollar as a safe-haven. With figures coming out of the US recently, the only reason for this play is because they are the best of a bad bunch.

But New Zealand has it's huge issues. We probably have considerable exposure to the Eurozone banks that are in trouble. The world's banking system is a complex web of counter-party risk. New Zealand relies on a healthy Australian banking system and Australia relies on it's parent banks in Europe. The Euro crisis is not called a contagion for nothing. If Europe catches cold we will all feel unwell. Paper promises could go 'poof' overnight.

Where would this leave New Zealand? Probably as part of a larger call on capital to be repaid from banks around the world. We may need to fire-sale assets to honour our contractual obligations. This would be politically damaging. Where, for example, would this leave the plans for a devastated Christchurch?

Massive flows are yet to hit the gold and silver prices. Gold has taken a necessay breather from it's 'too high, too fast' phase recently. A healthy market needs to stop and back fill a bit. Gold is doing this, marking it as a market still in steady incline. The longer term picture of gold increasing on money printing and banking turmoil remains in place

Gold in New Zealand dollars: $2222.18 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.37 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001

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