Gold market looking tarnished

The lustre is off the gold price as central bank actions and weak Indian jewellery demand both work against the precious metal

21st Jun 12, 8:12am by David Chaston

This a roundup for New Zealand readers of news about gold, silver, and other precious metals. We will be covering both the local and the global influences on prices, and supply and demand in this new series.

The gold price in US$ has weakened markedly over the past few days, principally because markets don't see the latest US Fed gesture to extend their stimulus programs as game-changing. Commodities generally weakened on the news - oil prices fell noticeably and expectations that global demand will stay weak - and gold and silver fell in price along with that trend.

Hopes for a sustained rally in the yellow metal pretty much begin and end with the US Federal Reserve. Gold is viewed as a classic inflation hedge and any further stimulus from the Fed during the next few months would likely be viewed as bad for the US dollar and good for gold.

The higher NZ dollar takes the shine off for kiwi investors, as the chart below clearly shows. Since the beginning of the year, in NZ dollar terms, gold has hovered in a pretty stable zone just above NZ$2,000 / oz. Silver has been more volatile, but is now clearly on a downward trend. The latest central bank moves and currency market reactions are unlikely to change that in the immediate future.

New Zealand's gold exports fell to only NZ$127 million in the first quarter of 2012, their lowest level since the second quarter of 2010. Lower mining outputs are the reason. That is down from a record high of $172 million in the last three months of 2011. This chart shows the annualised export value totals.

Another reason the international price of gold is not performing particularly strongly at present relates to the state of the Indian economy.

Indian jewellery demand is a significant influence in this market, and observers of that market note the Indian economy is suffering, the rupee is sliding and Indian gold demand has dried up. The country’s economy registered its slowest quarterly growth in nine years in the first three months of this year. This is from the FT:

Dealers say that gold sales to India – traditionally the largest consumer of the shiny metal, although it looks likely to be overtaken by China this year – are down 50-60 per cent year-on-year since March. The consensus view is that Indian demand is likely to fall 20-30 per cent over the full year.

“Indian demand is appalling,” says one senior trader.

World-wide jewellery demand represents more than half of all demand according to the March quarter data from the World Gold Council - and they easily dwarf even what central banks trade among themselves. Without strong jewellery markets, it will be hard to see strong price increases.

You can find our independent comparative pricing for bullion, coins, and used 'scrap' in both US dollars and New Zealand dollars which are updated on a daily basis here »

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Source: Kitco

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56 Comments

by Banksterbasher | 21st Jun 12, 9:55am 1340229358

Have precious metals actually dropped? They look like they are trapped in a channel to me.

by Andy Rodgers | 21st Jun 12, 9:56am 1340229375

So interest.co.nz has joined the MSM in trying to talk down the price of gold.

by Gummy Bear Hero | 21st Jun 12, 10:11am 1340230292

..... the article appears to be well balanced , factual , and most importantly , not too long ... ... I think that DC covered the subject very well .....

If you're a " Gold Bull " , then now is the time to buy more , is it not ? ..... and " gold deniers " are working in your favour , pushing the price down in the short term , allowing you to profit in the long term ....

..... unless , of course , the greenback slumps in value against the $Kiwi & the $Kangaroo ..... no chance of that though , is there ..... stable , very well run economy they have in America ..... ahem !

by scarfie | 21st Jun 12, 10:37am 1340231844

Lol quite true Gummy. Technically there is still a case to be made for Gold. There is a bullish divergence showing on RSI on a daily chart with the 30th of April and 18th of June highs. The monthly bullish flag is also still in place and it needs to break out of that channel either way to confirm the direction of the long term trend. But I might be more inclinded to look to fundamentals before technicals in the current money go round.

by Gummy Bear Hero | 21st Jun 12, 11:11am 1340233918

..... ummm , I missed the " bullish flag " on gold ; it appears that mind tiny brain diverged when the 200 day moving average intersected my double bottom and formed a convergence pattern on a candlestick chart somewhere near my head & shoulders formation ... I need to break out of the channel before the technicals impact upon my fundamentals ....

by Gummy Bear Hero | 21st Jun 12, 1:07pm 1340240864

...... bugger it all , Mr snippy .... I put the word " phisical " into my search-engine , and it came up with images of Olivia Neutron-Bomb ...... you knew that would happen , didn't you , your fiendishly cunning mind !

by Christov | 21st Jun 12, 1:14pm 1340241270

GBH your going to be responsible for the death of a perfectly good keyboard...over at , you know who's place.....knuckle typing is not conducive to keyboard health and safety.

by scarfie | 21st Jun 12, 10:27am 1340231265

Vested interest in fiat money perhaps?

by Christov | 21st Jun 12, 11:49am 1340236189

Now that wouldn't worry you none would it Andy R....I mean lets be real here gold is enjoying the fruits of the Gold Markets inability to talk it up rather than it being talked down...it's gone all kind of alternative and underground (pardon the pun).

And lets be honest about this if Interest.co. had any influence to the broader markets we'd be buying condo's in Auckland City for 80K....Bolly would have resigned .....Nicole Foss would now be a Dame....and treasury advisor to boot......

deary me.

by Christov | 21st Jun 12, 11:38am 1340235505

I think you were a tad light on the ...if....there snippy.....such a small word deserving of big font.

by Rob of the North | 21st Jun 12, 10:51am 1340232674

QE3 will happen before the end of the year and crisis after crisis will happen in the Eurozone...gold will bounce up and down accordingly but it's " flight to safety" asset class is no longer one where all the fish swim to in panic as there is so much daily VIX fear around that i suspect goldbugs see gold as always going to a good bet but not in any particular hurry to purchase...i own zilch but have plenty of gold stocks..but they're not performing in synch either...who cares...life's good !

by Christov | 21st Jun 12, 10:59am 1340233160

No QE3 before years end Robo.....take that to the bank.....it does ..not ...work....

by economist | 21st Jun 12, 12:22pm 1340238146

But it does hide the fact that real US treasury buyers are disappearing and it does keep interest rates at least lower than they would have otherwise have been in the shorter term...

The Fed isn't doing QE at present because it doesn't need the above at present as the Euro crisis is doing its work for it... much like a rising NZD does the RBNZ job of keeping inflation down for it... I mean they can complain and complain about it but do they use tools to change it? Not if they don't need to...

by Christov | 21st Jun 12, 12:35pm 1340238921

All good with that too...economist

by Christov | 21st Jun 12, 12:06pm 1340237170

Ouch..! hurt my eye there snippy....I don't recall maligning the man (Ron Paul) , and apologise if my No QE3 before years end offended you in some way....but I'll stay with it.

luck to you.

by Gummy Bear Hero | 21st Jun 12, 12:35pm 1340238927

Are you a Ron Paul denier , Count ? ........

.... personally , I reckon the guy is barking mad........ great entertainment , but .

I think the American public has reached peak Ron Paul ........ onto November and let the moron try to topple Barry Obama ....... or was that meant to be " mormon " ....... same difference , really ......

by Christov | 21st Jun 12, 12:51pm 1340239865

No GBH...it's more a case of I'm ambivalent in regard to Ron Paul, I was just taken a little by surprise at Snippy shouting at me, you know how sooky I can be about those things.

I mean K rist...I only said No QE3 this year...ooops! ,I did it again, ah well it's been a funny day anyhoo.

Hey I see Mitt the Mutt Hater has got all hip all of a sudden, in an effort to rival Barry's cool he's taken the name Roof Doggy Dog.

by Gummy Bear Hero | 21st Jun 12, 1:04pm 1340240680

..... life has never been the same around here , Count , since the grumpster ( Bernie Hickey ) banned Mr sore_loser's CAPS-LOCK FINGER from freely expressing itself ......

I guess it pays to be shortsighted ( as I am ) , then when bloggers are shouting at you , you can read at last without your $ 10 Warehouse spectacles ...

by Christov | 21st Jun 12, 4:33pm 1340253182

no worries snippy.....have a good one.

by economist | 21st Jun 12, 12:15pm 1340237704

Of course in the end they will have to print trillions... Its all a smoke, mirrors and bluffing game by played by central banks. Multi-trillion derivative interest rate swaps and bond monetarisation by the Fed and friends go hand in hand to hide their real activity.

The bond insurance (CDS) and interest rate swaps are what will really blow the system. I mean why would you want 250 people to hold a fire insurance policy on your house?

There is going to be another big meeting within a few years - like the Smithsonian meetings in the 70s, the Plaza accord in 1985, the Louvre accord in 1987, etc... and they will revalue all currencies against gold. Paper is just debt obligations, they can create as much as they like and they know it.

Gold remains the best defense against what is coming down the pipeline.

by Christov | 21st Jun 12, 12:33pm 1340238837

A lot of merit in that observation economist........ yep I think in the long haul revaluation is where it's going.

My observation is No QE3 (this year )and much for the same reason you have noted in the E.U..........The Americans are not adverse to a multilateral ground zero.....levels up the playing field somewhat.

by economist | 21st Jun 12, 2:15pm 1340244943

...and also for the reason of the trillion dollar currency swap the Fed did with the ECB just prior to Christmas which seemed to go under the radar... that should give them enough to play with until at least the end of 2012 or second quarter 2013.... Im expecting another round middle of next year or so...

by Kunst | 21st Jun 12, 12:24pm 1340238267

gold vs. currency = currency is the loser - again and again.

http://www.youtube.com/watch?v=EzsER-T-QPU

by Christov | 21st Jun 12, 12:43pm 1340239394

Walter ...is it me ...or is there a bit of frustration out there on the part of the Gold Hoarders, it hasn't gone well for some time and that must be adding some burden , particularly for those now in negative territory....but as economist points out ...in the long haul......the long haul....if you wanna play in a gold spot rate market be prepared to get burned just tlike you would in a Forex market.....

Snippy ....I did not say I don't have some physical gold,...I do...but if I was looking for El Dorado , me n my Ass better be prepared to wait n walk some more. .....till somethings pan out bit better.

by Andy Rodgers | 21st Jun 12, 1:37pm 1340242679

Having bought gold at an average price of $900 per oz. I am very happy at its current price of $1600 per oz., However I have noticed that David Chaston regularly slips in a comment in 90 at 9.00 or an article, like this one, every time the gold price declines but never ever mentions it when the price goes up, So much for balanced journalism.

by Christov | 21st Jun 12, 1:55pm 1340243710

If I was precious about the subject AndyR I could see why you'd interpret it that way...but I think David Chaston has just been observational at different moments in time rather than Goldbug spiteful.

I'm glad your doing so well with it ...may I ask what the long term intention is, as to your portfolio.....have you balanced out your investments to minimise exposure and or prevent being over-precious about non promotional comment.

Because that's what happens Andy when impatience turns to frustration, were you in the $5000 an oz before 2012's end camp, like a number that still post here.

I wish you well with your investment, I would like to add only that promoters of Gold please do encourage others to balance out their investments and avoid the "too many eggs in one basket syndrome"

by scarfie | 21st Jun 12, 3:35pm 1340249703

Yes the $5000...... $8000..... $20,000..... Guns....ammo.....baked bean thing is a bit tiresome. If catastrophe happens it will be the relationships you forge with those around you that save you not how much gold you have.

Where I like the thought of the metal is not participating in the banking system, a reverse lever is you like. Withdrawing cash does of course achieve the same thing.

by economist | 21st Jun 12, 3:50pm 1340250656

Scarfie, the previous high for gold was actualy around USD8000 in todays terms if you adjust for wage growth (nominal purchasing power), and people weren't stacking baked bean cans then. Then again things are much worse than in 1980/81 nowadays...

Yes its the relationships that are more important for survival - absolutely agree. But want if you are wanting to do more than just survive? What if you wanted asset/wealth protection? The best protection against inflation or deflation or currency collapse or .... is actually gold.

I have some old 50 cent and 20 cent coins - are you saying you will exchange them at par or give me gold in exchange for them? (fiat and gold aren't quite the same thing). The thing about gold is that its a highly portable universal liquid financial asset (unlike land, etc) and yes, its outside the banking system. We both like that about it.

by scarfie | 21st Jun 12, 4:01pm 1340251271

I don't doubt you on the store of wealth, just look here for a story on the Ukraine Holocaust where gold did actually mean life or death. But the trumpeting of price tends to appeal more to the speculator methinks. Onces per Acre would seem a better measure to me, with productive land being vulnerable because of debt loads.

I think the time frame is also the issue. My little diversion into creating my own economic theory shows that there could be 3 or 4 years left in this can kicking business. Money supply or debt to GDP need to be looking parabolic before the show comes to an end IMO.

by economist | 21st Jun 12, 4:19pm 1340252354

I think we have longer than 3 or 4 years... but as they say - two economists - three opinions. It could come less than that of course if they let the derivative death star go, so it all just comes down to an opinion on what central banks will do, which is how analysis works these days (so much for fundamentals). The Euro could split into two currencies which could give them a few more years...

The system will eventually crash and re-boot on some form of gold standard. Until that time they have trillions more 'fiat to print' (ie create more debt obligations) yet which will kick the can a few years into the future...

by Andy Rodgers | 21st Jun 12, 5:08pm 1340255287

Christov - Gold is a core part of my portfolio and I am overweight in it. Currently I have no intention of selling it in the medium term, however I would review this decision if the situation changes.

With regard to David Chaston I cannot understand how he can make nothing but continual negative comments on an asset class that has increased in value for 11 consecutive years, if that's not talking it down then I don't know what is. However I should probably use his negative comments as as a contrarian signal to buy more.

I will freely admit that I have no idea what the future price of gold will be and don't try to forecast it, but negative commentators do irk me when the facts are the exact opposite.

by Kunst | 21st Jun 12, 5:25pm 1340256315

Gold explained:

http://www.youtube.com/watch?v=4o68ZFbN4T0

In the current worldwide environment I still believe the content of this video could be a great way for our nation to make sure the NZ$ remains it's value.

http://www.youtube.com/watch?v=GXC44l942bE

by economist | 21st Jun 12, 2:23pm 1340245397

Christov, I wouldn't say playing in the spot market with gold derivatives is a good idea at all, if the price rockets up the exchange could easily default (GLD, SLV etc ) - they don't have the gold they say they do... they don't even have enough to cover 5% of outstanding contracts if they took delivery... thats the thing with DS articles - they ignore that most gold investment is just paper contracts with no physical backing...and the turnover is in the trillions, if it blows up those who invested in such will be left with nothing, even though the actual price of physical gold climbs to the moon...

In the long term - if you can think of a better hedge for inflation or deflation (both of which I believe are coming) let me know...

by Christov | 21st Jun 12, 2:47pm 1340246859

Not sure where you got the idea I thought it was a good idea...economist...if you do let me know.

In fact I can't see the argument here at all, unless you think my having a crack about selling short frustration was out of line........i concured long haul and never suggested any different.

please re read my post......

bemused.

by economist | 21st Jun 12, 3:36pm 1340249815

Must have been my error then Christov, read too quickly while being on the phone at the same time... my point was really if you are going to buy gold it has to be in your hand so to speak (don't play the spot market), or at least actual mining shares (not MF Global derivatives of the shares etc) which have it in the ground... thats about it.

That said it may have a flat year (no worries here) as would many investments after a 11 year straight bull run... and still it is a vastly underowned and underappreciated asset.... Over the next several years gold will probably outstrip the vast majority of investments, (as it has for the past several years).... I would put the likely hood of that at pretty high... If you can think of anything else with low risk (infact no counterparty risk) and high double digit returns over the next several years - let me know... - id be cautiously interested... until then the aurophobia I guess will continue ...

by Christov | 21st Jun 12, 4:03pm 1340251423

The only gold I have economist is physical....so I find little to object to in the way of your comment.

My point on diversification is as much for the mental health of those sweating on it to become $5ooo. an oz...., because I see it as a longer term insurance policy, don' t be looking at it all the time .....don't get hung up on the ups n downs of it ...or it will do their head in.

As to other potfolios economist there are some that do well, but like anything they come with risk....I try to avoid inviting people into risks I take...if they find their own way , that's fine.

by economist | 21st Jun 12, 4:28pm 1340252919

All sweet. I agree with you.

Yes there are other investments that do well, but they are all more complex and require more work and generally knowledge of the market than does gold. Gold, like money, is more a store of wealth than an actual investment (unless you are talking about the mining shares). In that sense its a buy and just forget for a while. The commentaters all say whenever gold pulls back in price that thats the end of the run and everytime they are wrong (none of the underlying problems have been addresses - just the can gets kicked down the road). It will not be over for a while yet I think (several years at least), I mean normally when fiat fails it fails numberous times before the loss of confidence is so great it just can't start back again and they need to back it with gold... we are probably still years away from that point...

by scarfie | 22nd Jun 12, 4:39pm 1340339944

Something I have pondered on today is the ability to discern what is a good investment, or in this instance the inability of the majority. Evidence of course by bubbles that occur in any investment class, real estate being the current example. Even my own education in this field is very recent and will take considerable more time to get a handle on it yet. Despite having the odd dig occasionally, I do thank Bernard and David for providing the forum as it has been a great start point. However I think I am in a small percentage Count and you in an even more exclusive group again, where you have the experience, intelligence, wisdom, discernment and temperament, to be able to make sound decisions. I would suggest that for the average person there isn't much apart from physical metals that can make up for the shortfall in those qualities I have listed. Even more so when they come to the realisation that their prized real estate isn't quite the prize they anticipated.

I also think it is worth the time to consider the attitude to gold, and how it is valued. It seems to me that over the last decade or so it has been seen as a trade, rather than a means of trade. Putting a dollar value on it is like assigning a unit of account to something that is the unit. What is one dollar worth?

by Christov | 22nd Jun 12, 6:57pm 1340348255

Thank you for your kind thoughts there scarfie......but to be honest the wisdom comes with the experience of errors that tuned my patience , in turn that made me realize I knew Jack S*%t sometimes and had not done the dilligence to make decisions I would have to ride out good or bad ...........

I wish you the best .....remember to be resigned to it if you chose it.

On the what's a dollar worth ....in itself nothing , as a promise of a fed and sheltered security (at the moment) it is a necessity......as they are the rules under which we operate.

Stay well.

by economist | 21st Jun 12, 2:30pm 1340245841

In the long term Kunst, I think gold will crucify fiat currency once again (yawn)...(as it has indeed been doing) even over the last 10 years few assets even come close to its gold's gain.... and the game is just getting started... 99% of people are still no where to be seen in this market... at the last bull run 15% of Americans had exposure to gold... this time I can't see many alternatives and there is a lot of currency sloshing around out there... loney looking for a home... a place to rest from the turmoil... where are they going to go? Sovereign debt at interest rates below inflation? - yeh right.... thats a disaster waiting to happen...

by Muppet King | 21st Jun 12, 2:02pm 1340244139

I own $10K of gold and silver. I know its just sitting there doing nothing, and costing me $200 per year to store, but I would rather have it tucked away than have nothing if it came to the crunch. I don't really think its an investment, pure speculation IMO, but its just there for peace of mind.

by Christov | 21st Jun 12, 2:08pm 1340244485

But it's clear Muppet King...that you have a perspective on it , and not sweating on it to fullfill your fortunes....and that's a good thing.

by pinkorchid | 21st Jun 12, 11:44pm 1340279040

Central Banks are piling into physical gold especially Russian and Chinese central banks. Enough said, surely?

by scarfie | 22nd Jun 12, 10:25am 1340317545

Wall Street Journal:Big changes are afoot in the gold market. The short take: The new environment will favor long-term investors who buy and hold for years over speculators who try to trade day-to-day gyrations. Bloomberg News For one thing, central bankers are back buying gold. Think it’s no big deal? The last time we saw the so-called official sector as such a consistent and major buyer was in 1965. Central banks increased their gold hoards by 400 metric tons — each equal to almost 2,205 pounds — in the 12 months through March 31, up from 156 tons during the prior year, according to recent World Gold Council data. Three Signs Gold is Returning to the Monetary System: 60% of the respective country's GDP -- should be aggregated into a Eurobond, to be managed by Europe. Moreover, the country rolling its debt off into Eurobonds would be required to put up 20% collateral of the amount it is writing off to Eurobonds

by Christov | 22nd Jun 12, 10:47am 1340318825

Could be that snippy....but do not let this get to you..! provided you have sufficent capital to ride it out.....do other things and take your eyes off it...or as I said it ...will...do your head in.

From experience.

by ngakonui gold | 22nd Jun 12, 10:49am 1340318968

if gold had kept up with inflation over the last 30 years it would be worth $2400 .

It ain't .

by Christov | 22nd Jun 12, 11:06am 1340319982

Be careful not to over commit snippy.....as peak gold is a bit like peak anything..drinkable water may one day superceed it as desireable stock.

by scarfie | 22nd Jun 12, 11:34am 1340321670

Perhaps it is a good thing that irrigation scheme got canned, water might become too valuable to grow grass with.

Good to have your level head around here Count.

by steven | 22nd Jun 12, 12:23pm 1340324599

Yes I listened to a guy who said peak water was more of an issue than peak oil....an interesting take.....

Its going to be interesting to say the least.

When yu look at the mid west USA they have an ancient glacier made aquifier that is not replenished by rain and they are sucking it down.....here is one of the World's bread bowls tahts set to decline.....and of course they use more and more for ethanol.....

Same in China, they are now pumping water from so far down its not economic to do so, and they are switching back to traditioanl dry farming technques bye bye a major rice bowl....

Russia had a 1 in 1000 year heat wave and look what that did to a second wheat bowl.....no idea on their water source(s)

So in NZ's terms we are going to have to have some bio-fuel production....which means irrigation.....has to.....and AGW is bringing out more un-stable weather so more frequent droughts and floods.....all making production harder....

One of the concerns of the Hubbard curve is he made no allowance for a counries growing internal fuel use, so the "real life" curve looks to be asymmetrical. Lets consider that this could well apply to NZ's farm output as we divert some crops / land to bio-fuels. I wonder how much of an exporter we will be in say 20 years....maybe 0.

regards

by scarfie | 22nd Jun 12, 12:27pm 1340324864

Hubbard curve, does that relate to peak corn flakes? :-P

by Gummy Bear Hero | 22nd Jun 12, 12:30pm 1340325059

...... no , the other Hubbard ...... " peak bail out the bondholders " .....

by iconoclast | 22nd Jun 12, 11:23am 1340321011

A word of advice snippy. If you wish to be a successful marathoner you need to train yourself by learning how to run one kilometre first, then repeat 42 times. By the time you have achieved that you will know where the wall is. Mind you, you could change your nickname to the long-distance-runner.

by Vera Fayed | 22nd Jun 12, 11:52am 1340322771

"It was there less than a year ago ! I am not worried......."

Sorry to pour some cold hard facts over your daydreams Snippy, but the highest price gold reached in the last 12 months was NZD2252 , and that was for 1 hour. It's been pretty much down hill since then. 15% in fact. Factor in cost of buying, cost of selling and holding cost (insurance and/or storage) and you are down about 22%. Gold is not an investment. Its just stuff.

by steven | 22nd Jun 12, 12:29pm 1340324998

There is a saying I like, (paraphrase) you make the most by switching asset classes at the right time. Now that is hard I will admit...but when you look at the amount of ppl running to US Treasurys instead of gold....well you should be wondering if gold is for you (anyone) right now....

For myslef I think we will see a depression and huge drops in all assets and gold will suffer I think. After that the Govn will be looking to get tax income or "real money" anyway it can and then gold will be king....if you can keep it. Lots of variables of course and how humans think is one....gold may yet not prove too bad.....it may lose say only 25% while property loses 75%....in which case its not too bad.....

regards

by Vera Fayed | 22nd Jun 12, 12:17pm 1340324278

OK so we both agree it never reached $2400. Cool.

by Vera Fayed | 22nd Jun 12, 1:12pm 1340327563

So for that 22 hour window your few ounces were worth up to $58 more than I calculated. So what did you do, buy yourself a new hat? I loved your comment about buying a house with 500ozs of silver. At the end of the '70's some friends and associates were going to get rich with silver. They had a flash dinner party and actually had the physical silver as the centre piece for the table. Even had security guards. Nek minute, silver crashes over 90%. Oooops. Speculating on commodities may be fun, even necessary if your business uses said commodities, but it is not investing.