Update 31 May 2010

$USD Gold: Gold spot is sitting at around USD$1217, which is slightly up on the USD$1215 we saw Friday morning last week.

US gold futures closed higher on Friday as news that Fitch had downgraded Spain’s credit ratings triggered a rash of safe-haven buying.

"Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA-rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+," Brian Coulton, head of EMEA sovereign ratings at Fitch, said in a statement.

"Everything seemed to be settling down ahead of the long weekend and then the debt crisis in Europe surfaced again with the downgrade to Spain. It had never really gone away, just put on the backburner, and as we saw, it quickly went from a simmer to a boil," said a trader in New York.

"As long as people are nervous, gold prices will rise," he added.

"Prices could get up to $1,225 when the market reopens on Tuesday after a three-day weekend, or they could suffer a quick correction and fall to around $1,200 if investors get rid of long positions to make up for losses in other markets," he said.

"It could go either way. On the one hand, you have people buying gold because they see it as a safe investment. On the other, with prices still relatively high, the temptation to take profits is there," he said.

Deutsche Bank recently upgraded its forecasts for gold prices to $1,450 per ounce in 2011 and $1,600 per ounce in 2012, but expected merely modest strength from gold in the near term as the market grapples with deflationary fears over the next quarter.

"After that, investors could again begin to worry about future inflation," Deutsche Bank said.

"Massive turnover has once more been seen on the PM gold fix on Friday, with traders suggesting one or more funds may be closing out its position - possibly option-related - as May draws to a close."

"Turnover stood at 695 bars per side, or around 278,000 ounces, with traders in London and Switzerland noting extremely heavy volumes this week. Gold fixed at $1,207.50 per ounce today."

"Often, central banks do business on the PM fix to get official prices - but traders said it was more likely related to funds - and options - today. Comex options expired on Tuesday and over-the-counter business on Wednesday."

NZD$: Expect moves in the NZD to be determined initially by those of the EUR which should move lower to start the week. Topside for the NZD will again be limited to resistance around 0.6850 in the short-term with current NZD/USD rates sitting at 0.6740.

NZD gold: The price of NZD gold has remained reasonably unchanged over the weekend, with the Memorial Day long weekend in the US delaying any reaction to recent news.

Looking forward we can expect some concerns over the failure of 5 banks in the US http://www.nytimes.com/2010/05/29/business/economy/29bank.html, and three US cities on the brink of bankruptcy http://money.cnn.com/2010/05/28/news/economy/american_cities_broke.fortune/

Update 28 May 2010

Gold started the climb back up from its dip earlier in the week, breaking through USD$1210 to peg at around USD$1215 this morning. Physical demand is the main catalyst behind the resurgence, with investor demand for bullion starting to drive the price further up.

Demand for gold in physical form has increased dramatically (similar to what we saw in 2008 at the beginning of the financial crisis) as investors move away from risk based investments and into wealth based and safe haven products (gold being the most popular of this category). This is most apparent with the increase we are seeing in US and European based buyers of gold here in NZ.

In currency, the NZD$ has dropped against the US throughout the week, only to pickup over a cent on trading last night. This is due to the Chinese reiterating their level in investments in Europe will not change, so fueling risk based appetite in the Asian markets. With the NZD/USD at around 0.68, gold is still lower in NZD than it was much of this week, despite a higher USD gold price with current spot rate around NZD$1920.

New Zealand Mint has had a busy May with total buy and sell dollar volumes more than double that of any other month this year.

Update 27 May 2010

In a month that has seen a significant jump in the gold price, New Zealand Mint has seen this translate to the trading desk.

With all of the turmoil in international markets, an NZX market correction and a 5 cent devaluation of the New Zealand Dollar, gold is certainly the performer in May, outshining the rest of the market.

Indeed trading volumes have increased significantly for the Mint, May has seen trading at 225% of January-March figures and the month hasn’t even finished! Just this week alone has seen a significant jump, with only 3 days worth of trading figures, the Mint is already 213% above the weekly average in January-March.

Even with gold hitting record prices this month, just shy of $1250, buyers are clearly seeing value in making a long term investment in gold.

Update 26 May 2010

Sorry for the delay in proving this update, we have been very busy, with Monday and today the busiest days this year!

And it is not just us, Bloomberg reports “Since the last week of April, exchange-traded products have been adding bullion at a pace not seen since the first quarter of 2009, in the wake of the collapse of Lehman Brothers Holdings Inc. Buying rose as European policymakers agreed on an almost $1 trillion emergency loan package to prevent sovereign defaults.”

Jitters around Europe have continued to cause volatility in markets, with gold prices going as low as US$1170 in the past week and the New Zealand dollar going as low as USD$0.66.

Afternoon trading on Monday (New Zealand time) saw gold prices start to rise again, with gold at intraday highs over USD$1190. The last 24 hours has seen gold once again break through USD$1200, and the NZ dollar down to 0.6640 pushing the NZ gold price to $1820 and higher.

"Uncertainty remains and fears over eurozone debt troubles prevail for the moment," broker VTB Capital noted. "We still maintain that the downside in gold will remain limited and especially if flight for safety returns."
Gold has been rising despite a rise in the USD$, again indicating that Gold is now being viewed more as an independent currency, rather than an alternate to the USD$ (historically gold has performed inversely to the USD$)
Liquidity is the key word globally. With a Bloomberg report stating “Companies have issued $47 billion of debt in May, down from $183 billion in April and the least since December 1999, data compiled by Bloomberg show.” The report goes on “Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits. The rate banks say they charge each other for three-month loans in dollars has almost doubled since February.”
This uncertainty has meant that while the response to the budget has been largely positive, the NZD$ has been under pressure as buyers pull out of the currency markets. This trend follows the move away from the AUD$ as investors shy away from risk based products. The implication for $NZD gold is that while we are not seeing the highs of late last year, when kiwi currency was low against the greenback, $NZD rated gold is close to last week’s highs, despite the lower USD$ price.

Update 19 May 2010

Gold dropped below $1,190 an ounce on Wednesday, as extreme volatility of the euro and losses in global equity markets prompted profit taking after rallies to record highs last week. The announcement that Germany will ban naked short selling of Government bonds and equities and naked CDS in government bonds sending the market in to a spin. There remains a significant chance that the measures could garner support/implementation from the larger euro area states. Indeed, according EU Financial Services Commissioner Michelbach, extending the short-selling ban BEYOND Germany was discussed in Brussels yesterday: “Of course, it’s all about sending symbolic headlines to markets right now to flank the rescue package. We’re in touch with European Union partners but we need to get the UK on board. This has to be EU-wide to be effective.”

For USD$ gold: "When we hit all-time highs, everybody thought gold was going to shoot straight up to the moon. Now, a lot of people decide to take their profits, and the big banks just put in sell orders that hit the market," said COMEX gold floor trader Dominick Cognata."I don't think the selling is over yet, I think we still have another $20 on the downside."

The NZD dropped 2 cents last night ( bottom of 0.666) which means in NZD$ terms the price of gold has actually increased slightly ( ~ .3% ) with the currency drop, primarily as investors pulled out of risk based investments ( including Gold ) due to the German Ban.

Here is what the picture looks like in $USD

Here is what the picture looks like in $NZD

Update 19 May 2010

The gold price dropped from its highs on Monday, trading as low as USD$1215 before pulling back up to USD$1225 at close of the US markets.

"Gold fell... in Europe due to profit-taking, but it is likely to remain supported due to continued concerns about sovereign debt contagion and currency risk," broker GoldCore said. "Many retail investors remain wary of bubbles and we have seen some retail buyers taking profits in recent days," it added. "Sentiment remains mildly bullish but there is no sense of a frenzy, mania or panic buying."

The NZD/USD has continued to drop, from 0.71 0.72 last week to around 0.68 0.69 at present. This drop was primarily due to risk aversion in the currencies markets (again attributable to the Eurozone crisis). This means NZD$ rated gold has increased from NZD$1880 for a gold Kiwi on Friday, to currently around NZD$1930.

Interesting articles: 

• Banks dump Greek debt on the ECB as eurozone flashes credit warnings – Evan Andrews Pritchard at the Telegraph talks about sales of Sovereign debt and how it may affect the ECB - Telegraph
• An interesting article from an Argentinean economist relating the Greek crisis to the Argentinean crash of 2001 Voltairenet
• Is Japan the next one to watch in the sovereign risk race? Seeking Alpha

Interesting videos:

• Global gold rush as currencies weaken TV3
• Ron Paul: why gold and silver YouTube

Update 14 May 2010

Spot gold prices pulled back a little overnight primarily due to profit taking, but the bullish sentiment for gold remains, with concerns over the success of the austerity measures in Europe not being effective.

"It is a whole different ball game. People are concerned that such a sacrosanct institution like the ECB can say one thing and do the opposite thing two days later," analyst Robin Bhar of Credit Agricole.

The European Central Bank said it had decided to purchase government bonds as a means to shore up the euro and prevent the spread of contagion from Greece to other southern European nations on Monday in an about-face that broke its prior stance. It also broke trust in the institution said Bhar, heating sentiment towards gold and spurring physical trade.

Overall sentiment is still positive for gold with any dips in the price being a good opportunity for buying, and global trade is still very brisk especially in Europe.

New Zealand Mint has been in the Media a bit this week:

NZI Business Gold still an attractive investment:

http://tvnz.co.nz/business-news/nzi-business-may-14-gold-still-attractive-investment-3-01-video-3541410#

Interest Double Shot Interview: Mike O’Kane from NZ Mint on the pros and cons of Gold:

http://www.interest.co.nz/ratesblog/index.php/2010/05/13/double-shot-interview-mike-okane-from-nz-mint-on-the-pros-and-cons-of-gold/

Radio New Zealand News Further rise in gold price tipped:
http://www.radionz.co.nz/news/stories/2010/05/10/124803c3fd04

Newstalk ZB Greece leaves investors going for gold:
http://www.newstalkzb.co.nz/newsdetail1.asp?storyID=175465

3News Emirates Hotel gets Midas touch as gold prices soar - see NZ Mint's Mike O'Kane on gold demand
http://www.3news.co.nz/Emirates-Hotel-gets-Midas-touch-as-gold-prices-soar/tabid/369/articleID/155629/Default.aspx

Update 12 May

Flight to gold sees financial markets struggle
By NZ Mint head bullion dealer Mike O’Kane.

Turmoil is good for the price of gold and again financial markets are struggling against a tide of opinion that the Euro bailout package may not succeed.

At USD$1,233 overnight, gold hit its highest price ever and some analysts are predicting USD$1,250 by the weekend. The previous record price of USD$1,227 was when the NZD / USD was around 0.54.
So for Kiwi gold buyers, the relatively high NZD$ rate is helping to offset these record gold prices making it cheaper to buy here than in most countries. As an aside, gold has also hit record highs in Yen, Euro, USD$ and GBP.

Analysis
Overall financial markets globally are struggling as investors move to safe haven investments. This can be seen by the fall in US government bond yields, and the surge in the gold price.

Sovereign risk concerns are still at the forefront of most markets’ concerns, especially in Europe, so instead of moving to the normal safety of government issued bonds or the Euro, investors are moving to gold.

Volatility in the gold price is expected as we break through to new levels, but given the bullish attitude towards gold as a long term investment, the overall trend is expected to be up.

Update 11 May

The gold price has held around the USD$1200 mark after news of a European bailout package caused the international stock markets to recover some lost ground overnight.

"Gold held up well around the $1,200 area after the soaring stock market and ensuing euro bailout was evaluated by the markets," said George Gero at RBC Global Futures.

The ECB, IMF and EU put together a $1 trillion rescue package over the weekend and allayed fears that Greece’s debt crisis would contaminate other countries. The ECB even agreed to buy government bonds directly from EU member nations, a move previously ruled out because of fears of inflation. The overall consensus is that with a bailout of this level, money printing is about to go into overdrive in the Euro zone, a year after a similar move was introduced in the USA. Gold, historically anti-inflationary, is expected to trade within ranges over the short term, until the inflationary repercussions start to bed in – then the gold price should start to pick up sharply again.

"Gold outperformed the dollar last month, though both posted solid gains," said investment manager Andrew Karsh at Credit Suisse. "As a result, we are seeing the asset class continue to gain favour among investors in the current environment”

Stock markets around the world were positive after the announcement – the DJI was back up around 400 points

In NZD$, the focus remains overseas with the Euro, with commentators anticipating a small dip, but nothing too large or untoward.

The NZD$ gold spot price remains reasonably steady after Friday's spike.

Update 10 May 2010

Gold consolidated its gains on Friday trading - closing over 4% higher over the week, with the equities markets (DJI and Nasdaq in particular) wiping off all their gains from this year, as concerns over the spread of the Greek crisis continue. Hitting USD$1213 before pulling back at close of trade, the Gold Spot is currently USD$1208.

Standard Bank recently said in it's monthly report on precious metals "The escalating concerns over the risks of contagion of the Greek financial problems have cast a heavy cloud over the euro and even raised some issues about its relevance as a reserve currency."

The report went on to say "When added to reservations about the size of the US budget deficit, as voiced by Federal Reserve chairman Ben Bernanke, this has laid the foundation for gold’s rejuvenation as an asset of last resort."

Darran Grabham, an Analyst for Standard Bank added "Gold will find support at $1,150 and then $1,120, but over the long run, gold could reach $1,325 per ounce, with the next step at $1,240"

Hussein Allidina from Morgan Stanley wrote in an e-mailed report yesterday. "We like owning gold and expect further upside as sovereign risks intensify and real rates remain anchored."

"Increasing sovereign risk is lifting appetite for gold."

Commentators appear to see prices lifting, at least in the short term.

A recent Bloomberg update stated "Gold may target its previous record as concern that financial turmoil will spread from Greece across Europe prompts investors to seek refuge in the metal"

"While contagion fears persist, gold should remain well supported and we expect gold to test its December 2009 high above $1,200 an ounce," analysts including New York-based Hussein Allidina wrote in a note to clients yesterday.

Another Bloomberg source stated "H3 Global Advisors, a Sydney-based commodities and hedge-fund manager, is banking on gold’s advance to $1,500 an ounce in the next year and reducing its exposure to industrial metals such as nickel."

One trader in New York said Greece’s debt problems were not entirely responsible for gold’s recent rise, adding that liquidity has dried up around the world. "It is now clear that there is no money of any sort available at the sovereign level."

Locally, the Kiwi dollar climbed slightly against the USD, with the agricultural commodities sector providing a good backdrop for future strength, but still very range bound between 0.71 and 0.72. This has tempered NZD$ priced gold, with the spot rate dropping its high of NZD$1700 to NZD$1680.

Update 7 April

The gold price passed though USD$1200 an ounce as investors sought safe havens from the financial unrest in Europe and significant drops in the DJI and Nasdaq overnight.

The primary question at the moment, is whether this price increase will continue, or trigger a round of profit taking at the end of week trading tonight.

The Dow Jones dropped by 400 points on overnight trading, and then due to what has been described as “fat finger technical issues” dropped another 600 points in 25 minutes, before paring the overall loss to 450 points.

Concerns over the debt positions of more Euro countries (Spain, Portugal and Italy are being looked at closely) and the reaction to the Greek Austerity cuts are pushing investors away from the Euro and into safe haven and lower risk investments like the USD$, or Gold. This has a twofold effect for the Gold in NZD$, with the NZD/USD potentially dropping further on a strengthening USD$ and the Gold price pushing to new highs.

Silver did not move particularly much overnight trading within a USD$0.40 range.

All of this leads to what can only be described as an exciting rollercoaster ride for Gold, Currencies and equities for the short term.

Update 6 April

Gold traded in a broad range yesterday, topping out over USD$1190 and reaching a low of USD$1160 overnight before returning to the USD$1175+ range for the start of trading today.

Silver followed the trend, dropping from a high of around USD$18.80 to a low of USD$17.10 before climbing back to the mid $17 range.

Prices for gold in NZD improved overnight, primarily due to the NZD/USD dropping. Currently spot is trading around NZD$1620.

Most of the movement is due to continuing Euro zone issues, with the fear of contagion now becoming the prevalent driver in most markets. The EUR€ suffered against most currencies, with NZD/EUR being the only increase in the NZD exchange stable overnight. The NZX suffered its biggest drop this year, with most markets taking large drops – fear of continuing instability moving investors away from riskier investments.

Update 5 May

Gold broke through USD$1190 on Tuesday night after confirmation that Greece would receive a bailout. High USD$ prices against the EUR€ saw gold pull back to USD$1170 on overnight trading, due to profit taking and to make up for losses on the stock markets.

Silver has followed gold – breaking up to USD$19 and dropping to below USD$18 overnight.

Risk aversion is expected to continue due to skepticism over the Greek bailout succeeding, coupled with rumors that Spain now require a bailout from the IMF which has been strenuously denied by Prime Minister Zapatero. Short term this may impact on the Gold futures price. Medium term, it should help bolster the spot price, as investment pulls out of the Euro and Sovereign and moves to safe haven investments such as gold.

In currencies – the NZD$ moved over 0.73 on Tuesday, pulling back by over a cent Wednesday as the USD$ strengthened due to the EUR issues. Over the ditch the AUD$ took a knock after the RBA raised their rate by .25 to 4.5 and announced it will hold at this rate for a while.

NZ currency fluctuations meant the USD$ spot price drop was covered with the exchange rate drop, again tempering any overall movement in NZD$ gold price, similar to the movements we’ve seen this year. Gold peaked just after midnight New Zealand time at around NZD$1620, with afternoon trading seeing the price down to around NZD$1600.

Looking forward we expect more volatility in currency and metal prices due to the Euro zone woes. Gold has broken through to new records in currencies in this zone (EUR, CHF and GBP ) as they drop against the USD$ and the gold spot price remains volatile.