Gold heading for worst return since 1968

The Opening Bell: Where currencies start for Friday, June 28, 2013

Currencies

The Opening Bell: Where currencies start for Friday, June 28, 2013

28th Jun 13, 9:24am by Dan Bell

The NZDUSD opens at 0.7795 this morning, having traded in a 70 point range overnight.

The NZDUSD was nudging up towards the 0.7850 level before the release of much better than expected US Pending Home Sales (+6.7% versus +1.1% forecast).

The NZDUSD dropped sharply to 0.7780, as the USD strengthened in response to the data.

The Gold price plunged 2% overnight, and sank below USD$1200 per ounce for the first time since August 2010.

Gold has now lost 28% for the year, and is heading for its worst quarterly performance since at least 1968. The spectre of US interest rate raises is weighing heavily on gold prices, due to increases in holding costs and diminished relative attractiveness.

US Fed officials downplayed expectations on when the US central bank will begin to taper its bond-buying and stimulus program.

Global equity market all made solid gains on the day, with the USD indices climbing circa 0.75%, while Japan’s Nikkei index surged almost 3% higher.

The NZD opens at 0.7795 USD, 0.8400 AUD, 0.5975 EUR, 0.5110GBP, & 76.65 JPY.

NZ Building Consents will be released at 10:45am today.

Chicago PMI (purchasing managers index) & US Consumer Sentiment are the most significant data to be released tonight.

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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »

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6 Comments

by Stephen L | 28th Jun 13, 7:07pm 1372403234

Gold is a commodity on which I don't care either way; nor in which I claim particular expertise (and apart from my wife's enthusiasm for jewellery, not something I'm invested in).

I do wonder though whether in 20,50,100 years people won't look back and wonder at why their predecessors had a fascination with, and valued so highly, such a useless metal; in the same way we look back at tulip mania and wonder how on earth people could have got so carried away with tulip bulbs.

Maybe this price drop is all about inflation expectations; but I do wonder at a very fundamental level, whether the GFC has proved once and for all that the world isn't returning to a gold standard in any form. When the current burst of QE finally washes itself through the world system, and if that hasn't resulted in significant inflation (and possibly even if it has), gold may be outed as having no real use as an alternative store of value. Just maybe the current bear market is an increasing number of people believing that to be the case, and just maybe, the real price will never come back up.

Hard to know right now.

by steven | 28th Jun 13, 8:12pm 1372407125

Well watching the gold mines struggle i dont wonder if give or take a bit what we have already dug up is it.......the only reason they are still open is the gold bugs who have lost what? 30%?

Man and woman have valued godl for thousands of years, I cant see that stopping myself.

Really, yes this was a tulip mania, $3000 even $5000 an ounce was "probable". Followed by Obama/(insert person here) was hiding the true inflation and fooling ppl. This latest peak was down to greed on some if not many ppls part, (Glenn Beck must be well loved by his rght wing followers right now) thinking they could make a lot of $s for no work....and fear for others thinking their money was going to be taken away....it is, indeed.

Some ppl I can feel very sorry for (the hardship the first time buyers will see I think) ....not the gold bugs however....

regards

by Grant A | 28th Jun 13, 10:41pm 1372416079

Stephen - I seriously doubt the comparison - the tuip mania was a bubble for a small handful of years, gold has been hugely sort after for 5,000 years. If we look at what people now wonder about soon after as to why they got so carried away with it, you'd probably count just about every fiat currencies that existed over the last several hundred years of which ALL collapsed at some point of time - they cost nothing to produce, and all proved worthless including the US Dollar - "I don't give a continential".

by steven | 29th Jun 13, 8:28am 1372451322

If you look at the long run gold price it looks like $500US (inflation adusted) If you look at the last gold bubble in 79, its inflation adjusted price went to $2100 and fell back to around $800. Now I wasnt buying gold in 79 (except food and beer ;] ) so I dont recall if there was any mania like eve seen in the last 5 years....because the hype on it has been extreme....just like what I read on the tulip mania.

Now afterwards tulips still had a value and Im sure gold will still have a value....but $800~900 looks more of a fair price/long run price.

At that rate how many gold mines are profitable btw? I'd suggest not many, hence if you have gold mine shares I suspect the blood letting there will be just as bad as gold has been and that probably isnt finished yet....

Shows how bad the austrian view of inflation was going to happen and be significant was wrong....

regards

by Grant A | 29th Jun 13, 11:20am 1372461630

Steven - yes you maybe strictly correct, but I run with the longer-term version - an ounce bought a suit of clothes in Roman times, did at the turn of the century, and still does now - not alot of "cash" investments have done that - admittedly not in itself that useful for an investor that typically only as an investment horizon of 40 years if theyre lucky. But cash is the way I view gold, and when I hold cash looking for a more productive investment, I keep it in gold. As with any asset it will fluctuate wildy at times depending upon how much money has been put into the system (inflation) and with the amount thats been put in by central banks over the last decade in particular (and as has never been done on this scale by all the biggest CBs at once in the history of mankind), no way are assets going to be running at their long term inflationary trend.

The future of gold, and a multitude of other assets will depend hugely on how the CBs handle the "tapering" and eventual stopping of QE - Gold is my insurance against them cocking it up, which unfortunately I'm confident, based upon past histroy, they will do. Gold won't be $800 then.

by steven | 28th Jun 13, 7:59pm 1372406371

Whats the historic long term average for gold btw?

Looks like 500 ish, I wonder how far its can go down...