By Damien Smith Kiwis may be looking on in awe at the rise and fall of the Kiwi dollar and the global stock market re-bound, but spare a little time for the rise of Gold. Gold as hit a record above US$1,095/oz. It's back centre stage, re-monetising as the balance of economic power in the global financial system shifts to the East. Gold has de-coupled from the US dollar and is appreciating against all paper based currencies. The person on the street in New Zealand would probably never look at having Gold (the "hard asset") in their portfolio for security to add to cash, shares and property. But we are now in an era whereby individuals in the 21st century should be acting as if they are their own Federal Reserve.
The latter half of 2009 has been an exceptional time for those wanting to hedge against the US dollar using Gold. The NZ Mint website has this chart showing the large role the US dollar has "“ affecting the gold price and the NZ dollar. (The lower line in the chart shows the NZ dollar value of gold, while the upper line in the US$ value of gold).
A real benefit to New Zealanders as they hedge and gain uplift in buying the "hard asset". Gold is now poised to target the psychological $1,100 an ounce. Today, across the Eastern world and elsewhere; people are buying gold as their own "reserve asset" to preserve wealth as part of their asset portfolio and to fight inflationary forces. Gold futures have made a new high. Simply, Gold holds and preserves wealth as nations globally have enacted strategies to devalue their currencies to remain competitive as producing nations. So as we head into 2010; it looks as if Gold is on a march. India has payed US$6.8 billion for 200 tonnes of IMF gold; a long planned sale by the IMF. The Indians have made their choice/ India's central bank is now owns 557 tonnes of gold. That gives it the tenth largest gold holdings among central banks. India & China could double (and then double again) its gold reserves and gold would still make up less than 10% of its total forex reserves. So lots of potential buying still to go. Michael Lewis, Head of Commodities Research at Deutsche Bank states "India has (prompted) new speculation of pent "“ up demand for gold diversification for central banks. He goes on; "There is a long list of central banks which have very low gold ratios, and in aggregate central banks should be net buyers of gold over the next year for the first time in 20 years. It's hard to know what's going on at the IMF and the Euro central banks; they have a mandate to sell down gold reserves and give the money out as loans to governments. Experts at the Daily Reckoning in Australia predicted earlier this year, the European central banks would rather hoard their gold than sell it in a rising market. They maintain there may be a price at which they do have to sell it, in order to pay down sovereign debts. As we enter a period of further stimulus and quantitative easing activities, the spectre of probable sovereign debt crises scenarios will see the definite uplift in the re-monetisation of gold. Have a look at the asset class and consider it in your asset allocation strategy. Right asset Right timing, perhaps? Be careful about buying Gold at top of the market as crowds and nations purchase at a central bank and household level. A correction in the Gold price is when to acquire the precious metal. * Damien Smith is a Company Director & Merchant Banker and heads the House of Smith. He is a gold fan and believes in its role as a wealth preserver.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.