Where to for gold in a euro collapse

NZ Mint's Mike O'Kane reviews gold's languishing price in recent months and looks at what might happen if the euro collapses. Your view?

2nd Dec 11, 9:38pm by Bernard Hickey

Bernard Hickey talks above in a Double Shot interview with NZ Mint's Head of Bullion Mike O'Kane about gold's relative weakness in recent months as stressed leveraged investors bailed out. He also looks at its prospects if the Euro zone were to collapse.

"Should the euro zone collapse we may see the gold price drop initially as everyone gets out of euros and into US dollars, but the US is still inherently unstable, so we may see the gold price surge after that," he said.

But he pointed to physical demand and supply trends supporting the gold price, including demand from central banks.

"It's going to depend on how it (the euro) collapses. If it's a controlled collapse we may not see it so great for gold, but if it's an uncontrolled collapse, we might see a run on the gold market."

Money printing by the European Central Bank may actually coincide with deflation in Europe in the short term, which would be restrain gold prices, but may be positive in the long run as inflation is generated, O'Kane said.

Investment demand for bars and coins throughout Asia remained strong, with demand in China up 24% from a year ago and up 78% in Vietnam, where real term deposit rates are negative while inflation is surging.

New supplies of gold were taking some time to come to the market, with lags of up to a decade between investment decisions and gold pours, particularly as gold becomes exponentially more expensive to extract the deeper miners get.

"They've pretty much exhausted the easy gold and are now getting to the expensive areas, much like oil," O'Kane said.

However, he doesn't think gold supply has hit peak levels yet.

------------------

We now have detailed gold, silver and other precious metals data updated daily on this service. Here are the direct links to this new daily data ...
gold coins,
gold bars,
gold scrap, and
international precious metals prices.

Precious metals

Select chart tabs

Source: Kitco

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.

16 Comments

by Ghost Dog | 2nd Dec 11, 10:30pm 1322818200

Gold has been languishing? Can't say that I've noticed...

According to www.goldprice.org gold has improved by 3.62% over the last month, 20.19% over a year in NZD.

Safer than houses!

by tristanb | 2nd Dec 11, 11:22pm 1322821330

I can't conceivably think of a situation where gold could ever go down in value. I am sure this boom will go on forever.

by chrissy | 3rd Dec 11, 10:27am 1322861240

I know.

Based in $NZ the price of gold is just not sustainable. With the strong currency policy of NZ and strong economy we have here, there is no way that NZ would have to rely on the increase of the money supply to cover our small and insignificant leaky housing problems, the earthquake damage and recapitalizing our banks because of the European crises. /sarc

Actually I don't know how these costs can be assimilated into the nz economy. I just very much doubt that it is as rosy as we are being told.

Maybe we should increase our holding of the strongest currencies in the world, such as the American dollar, Swiss franc and the likes. that was also touched on in this interview.

by splineman | 3rd Dec 11, 7:42am 1322851320

Quite simply gold is money with no counterparty risk. I feel that eventually gold will need to play a part in the world's monetary make up. Perhaps a new "super" currency with gold as a percentage as well as various fiat currencies, who knows.

As it stands now gold has been an incredible protector of savings over the last 12years or so.

It doesn't pay interest but interest is only partly covering the purchasing power loss of NZD anyway.

A few years ago you needed about 380/400 oz's gold for the av kiwi house....now it's about 230oz's. That is not about the price of gold but relative values and the printing of fiat currencies. I'll stick to gold for now and see what happens. Property will come later.

Cheers.

by Grant A | 3rd Dec 11, 10:43am 1322862215

If anyone is happy with the world and the outlook, then they should stay in paper fiat currency (the stuff that cost 1c to print or nothing with the press of a button, something that in the short-term politicans can use to bail themselves out of bad policy). The other 2% of us will feel hugely uncomfortable with that and will expect history to repeat itself as it has throughout history - I so amire the confidence of the lemmings.

by BigDaddy | 4th Dec 11, 11:34am 1322951641

All this was set out by Olly Newland months ago.

You might as well read his column if you want to keep up rather than a warmed up repeat

of the bleeding obvious:

http://www.ollynewland.co.nz/gold-hits-new-highs-inflation-threatens/628/

btw- gold as gone up again and the NZ dollar has gone down . Go figure.

by skudiv | 4th Dec 11, 1:12pm 1322957543

Gold has an infinite ability to absorbe fiat currency, in fact the more it absorbes the more efficient it gets.

by robby217 | 4th Dec 11, 5:42pm 1322973730

The gold price in the short term is still vulnerable to people holding it on leverage.

I suspect this means it can still be volatile even if it is likely to find significant support.

by skudiv | 4th Dec 11, 7:37pm 1322980669

So is FX, what you gain in a drop in gold prices you lose in the NZD drop. Also depends on your timeframe, the old buy and hold stratagey works very well for gold, and the physical limitation on supply has not been fully priced in JMO.

by Wolly | 5th Dec 11, 8:51am 1323028272

Gold is perhaps not as rewarding as good land and good property in this economy where govt and RB act together to pork values and save the banker's bubbles. BH is right to suggest the property rort is king of the shoddy castle economy.

by steven | 5th Dec 11, 10:03am 1323032605

But the gains on property is now past.....so if you want to own something physical gold seems less likely to take a huge drop than bricks and mortar...

Take Marlborough (looking forward to trundling through there next month) , I assume the land prices are only worth it when grapes are there.....hello global depression, bye bye wine industry and bye bye land and house prices....

regards

by skudiv | 5th Dec 11, 12:51pm 1323042669

Get both. Which is better who knows, you can't print food, land, or gold. These are things that have real value.

by jimmy squirrell | 5th Dec 11, 1:11pm 1323043916

they all have real value, but they are all subject to debt based speculation. A collapse or major contraction of the debt based system would see most home owners lose ALL their money.

by chrissy | 5th Dec 11, 1:17pm 1323044262

Are you saying that people would value the government currency after such a catastrophic loss of perceived wealth?

I would offer the other scenario is that currency would also crash in value and nobody would be accepting currency for the exchange of their labour or products.

by steven | 5th Dec 11, 9:45am 1323031509

Peak gold - http://europe.theoildrum.com/node/5989

Try looking at real information....again most economists seem unable to comprehend that there is an upper cost limit ppl can afford but more importantly our global economy.

regards

by scarfie | 5th Dec 11, 10:23am 1323033808

It would be interesting to see if anyone has studied the link between production and use to underpin currency. The second half of the 20thC saw peak supply, which may have undermined its use as a reserve. Perhaps its increasing scarcity will see its position strengthened in that regard.