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The recent retreat in prices for both gold and silver has analysts divided over the future direction for precious metals

The recent retreat in prices for both gold and silver has analysts divided over the future direction for precious metals

Gold has ended the week sharply lower.

It rebounded on Friday in New York after Thursday's sell-off, but it was virtually flat for the year to date and posted a weekly drop of 3.8% in US dollar terms (and a drop of 4.1% in NZ$ terms) on deflation worries and what the market believed was a timid US Federal Reserve stimulus announcement.

Reuters reported that fears of inflation helped fuel several years of strong gains for gold, but investors are starting to worry about deflation after reports this week showed signs of slowing economic activity around the world (although New Zealand obviously missed that memo).

"There is zero inflation out there. With gold being well received as a risk asset, the price is deflated because of the rising [US] dollar," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien.

The outlook may not be a gloomy one, however.

The lower price may encourage some investors to rebuild positions, and the huge rush into US Treasuries will reach saturation point at some stage. Further, India's demand is unlikley to stay subdued, and some long term pension investors consider themselves light on their gold holdings.

"We believe the slide in gold prices may create an attractive entry point for emerging markets buyers and long-term investors such as the official sector and pension funds, who may be looking to diversify away from the U.S. dollars and into a quality hard asset such as bullion," HSBC said in a note.

Royal Bank of Scotland expects gold to climb again, averaging US$1,800 by the fourth quarter, according to Bloomberg News. But it will then begin to sink, its analysts say.

"From there, we reiterate our view that this move will be a 'last hurrah' for gold," the bank said. "We continue to see a downtrend commence from that point, which should see gold gradually fade to average US$1,200 an ounce by 2015."

That US$1,200 level is the point at which big gold miners see an impact on exploration and other spending.

Meanwhile, silver took a substantial tumble, hitting a 2012 low in both US$ and NZ$ terms. It was down about 7% over the week. One analyst warned there is liquidation risk for silver where investors quit their holdings on fear of future falls. "We believe a break of US$26.00 has the ability to trigger liquidation of silver with it looking for US$18.00," says the latest technical analysis note from bullion bank Scotia Mocatta.

Comparative pricing

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 »

Italian flight

The economic crisis in Italy is seeing some people shifting their wealth out of the country, especially to Switzerland.

In the latest case to come to light, Italian police have arrested a man and his daughter trying to smuggle 50 kgs of gold across the Swiss border. That is a horde worth some NZ$3.5 million, and was hidden in a secret compartment in his car.

He undoubtedly wasn't the first to do this, and surely won't be the last.

Tax avoidance is a very big problem for the Italian authorities. Italians have billions of euros in undeclared wealth stashed in Switzerland - funds that Italy is trying to have the Swiss authorities tax retroactively. Switzerland's banks hold NZ$2.5 trillion worth of non-resident funds. Gold is a convenient way to relocate funds anonymously even if that method is illegal.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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David, I think your relationship to gold is a little bit like to these people in that video to Joe Spagetti.

"For me the question mark is over inflation. Will central banks around the world print money to get out of this debt hole? If they do, that will mean inflation, which is very bad news for bond holders."

Inflation spike aware!
"The Bundesbank yesterday condemned a decision by the European Central Bank (ECB) to loosen its collateral rules in a sign of rising tension over the conduct of European liquidity operations.
The ECB released a statement announcing that it would accept a broader range of assets in return for short-term liquidity lending to banks, in a move designed to ease the funding pressure on the continent's fragile financial sector. But the powerful German central bank immediately voiced its disapproval of the loosening.
Some German policymakers have argued that the ECB is taking too much credit risk on to its balance sheet.
The ECB will now accept assets rated as low as BBB, including residential mortgage-backed securities and paper backed by loans to small businesses. These will be subject to a 26 per cent haircut. The ECB will also accept commercial, mortgage-backed securities, which will be subject to a 32 per cent haircut".
Pretty soon the farce will see the ECB accepting 'short term liquidity' provided by the ECB as security over new ECB short term liquidity....doh
Already the ECB is accepting as security 'residential mortgages' on property that have fallen 60% in do you print money and lend it out using as security a bag full of shite?.....this is the ongoing farce in the EU.
What idiot would buy Euro would have to be utterly thick...the same is true of the Greenback....these currencies are being debased as the rate of printing speeds up...Bernanke will follow the ECB and do QE3 to save Obama's skin and keep his job...

I could go on and on with other examples, but let’s just get to the point: one cannot operate a capitalist system if the state can borrow at a negative cost. Years of irresponsibly loose monetary policy in the US has led to cheap funding for the US (and other) governments, but difficult credit conditions for the  private sector all around the world. As I underlined in How The World Works, negative real rates leads to misallocation of capital which ends in asset deflation, while simultaneously limiting the capacity for recovery by driving out the private sector.

Fortunately for NZers, or not depending on which side of lending/borrowing divide one finds one self, the government is increasingly hampered in it's attempt to crowd out the private sector as nominal annual GDP growth is falling towards longer term sovereign borrowing rates.
Raising taxes for pet projects is the road to unelectability - hence all the untenable bullshit sprayed around by Key and English about getting out of deficit, hoping we won't notice while the entitled gorge on the carcass (PPPs etc.) 
Time's up if we lurch below 3% GDP growth, unless the new RBNZ Governor is chosen to  institute less than real zirp, to present new short term opportunities for the inner circle.
Thereafter, it's game over.

The Chinese are telling lies....evidence they have learned much from western governments!

"German property has become a safe haven for both German and international investors looking for a secure place to store their money."
Serious inflation stench starting to drift thru the money moving fast to 'cement gold'
This is why some Auckland property prices are shooting higher..Bollard fails to see the trend...who bothers to invest in bonds or equities in NZ when the pollies are into property!!!...use your grey quality property NOW before you wake up to inflation eating up most of your savings.

The guys over at UK Money Morning have a theory that German ( & USA ) property is due for a bounce ..... hot money roaring in from the knarlier economies of the Eurozone .....
...... they also run a fascinating story that UK property is on the cusp of a 30 % crash .......
They reckon that house prices are still on a 4.4 times multiple to wages , and it should fall back to the historical trend line of 3.0 times ..... lots of no deposit 100 % finance loans about to be foreclosed on ...... only a matter of time before the banks can't prop up the market any more ......
...... bad luck for the Poms . But of course , those things don't apply here in NZ & Australia . This time , we are different !

You're right there Gummy, NZ has had the advantage of decades of high quality govt....we stand apart from the rest with vast reserves of wealth and expertise....explains why the Kiwi$ is so highly valued....

Yup , we're on a rip & a tear : Dairy is booming , house prices are bubbling along nicely ....... the Aussie Big Banks are stoking the boilers with more fuel .... Wild Bill & the Treasury are charting our course......
.....  what could possibly go wrong .......

What's it say what's it say?
"The future workforce will need advanced qualifications and technical skills, yet one in five school-leavers doesn't make the grade.
Hopes of an economic boom driven by a highly-skilled Kiwi workforce could be dashed by the number of illiterate and innumerate adults.
One in five students is leaving school without qualifications. Some struggle so badly they cannot fill out the unemployment benefit form."
No worries...Shearer and the pinky green Normans will save their day...more pork for the failures
Good news for the parasites...easy meat and a fat market for drug sales...
The future of the socialist party memberships, whether red or pinky green, is safe.

..... if we had 100 % literacy , who'd be left to flip the burgers at McDonalds ?
Besides , the illiterate 20 % could always take up blogging full time . steven is an excellent example of how it's done successfully .

100% literacy....the banks would not like that prospect Gummy....think of the damage it would do to their drug sales programmes....jeez, too many peasants understanding the great scam would cause untold losses.
Bad news also for the socialist lot as their supply of mindless membership fodder would dry up.

Now now GBH..........funny thing but I earn a decent enough living.....and have an Engineering degree, not that I use it directly these days in my present job...IT pays at least 50% more...engineers are under-valued..
You have what by the way? what did you do at fairfax? clean printing machines on night shift or something? hardly a rocket scientist type are we.

In terms of energy converison human beings are about the most efficient machine, I think the nexty is oxen.. Hence I suppose DNA has determined that the best way for the species to survive is to have an army of cheap labour....however DNA has been tripped by 250 years of cheap energy....
So the carrot pullers will be needed en mass again.

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Days to the General Election: 37
See Party Policies here. Party Lists here.