Monday, December 12, 2011

Buying Gold: A Financial Transaction

A report from stuff.co.nz on the weekend stated that some NZ$64 million worth of gold had been imported into New Zealand. This was only reported as it was an a large amount and therefore an unusual discrepancy on the normal gold flows into NZ.

There are a number of take-away issues stemming from this report.

Firstly, the reported way in which our Statistics Department treats gold. If gold, in any form; bars or coins, is 99.9% pure then it is classed as a financial transaction. In other words, our government officially defines gold at this purity as money. Now I already knew this and have stated it previously, but to hear the official line in a major newspaper is heartening for those of us trying to get the message across that gold is defined this way and is the ulitmate monetary asset.

Secondly, the report states that New Zealand is a safe place to park gold bullion because of its stable government. While, relatively speaking, it is safer then say, Libya, there is still risk. The rule of thumb with bullion is to try and diversify physical holdings in a number of jurisdictions to reduce risk of theft and confiscation.  As an aside, also remember that storing gold in bank vault is not wise as banks have counter-party risk attached to any holdings in a their vaults. Try storing it in private vaults.

Thirdly, there is mention of the Reserve Bank of New Zealand. It states, "The Reserve Bank says it did not import gold". Now that doesn't mean that our Reserve Bank doesn't buy gold, it just doesn't import it. However, they don't actually buy it either. Even though it would be prudent to diversify our foreign reserves out of paper assets and derivatives thereof. Perhaps the Reserve Bank could take a leaf out of the books of Central Banks like Russia, South Korea, Thailand etc who are scrambling to get their hands on as much gold bullion as possible to protect their wealth in light of the coming monetary event out of Europe.

Some individual or organisation in NZ is seeing a need to import this large amount of gold (nearly 29,000 ounces). Their reasons for doing so I can only guess at. But I think I know why...

And briefly, on the topic of Europe. Last week we were told by "Merkozy" that the leadership of Europe needed to have a plan in place to solve the debt crisis by Saturday. Well, the plan arrived, the solution didn't. The '26' have three months to decide on a second tier pact which includes giving away National fiscal controls to Eurocrats in order to stem the debt problems going forward. Will local constituents agree to give away sovereignty to what amounts as a German dominated Europe with France as its mistress?

Also, the money promised to fix the banking solvency issues are not enough. Already, quantitative easing (money printing) is happening to bail out large French banks (note the three Central Banks intervening ten days ago with swap lines). This will continue exponentially, because that is how maths works. The only options are still debt forgiveness or QE to hyperinflation. Period.


Gold in New Zealand dollars: $2207.56 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $41.58 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)
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