Bernard Hickey talks in a Double Shot interview with NZ Mint's Head of Bullion Mike O'Kane about precious metals in their regular monthly roundup on precious metals. See last month's roundup here.
O'Kane talks about why gold is hitting fresh record highs and its connection to the oil price.
He talks about how the flight to safety in financial markets as the North African unrest and European financial turmoil drives investors towards harder assets such as gold.
Silver's outperformance of gold in the last month is also discussed and whether it is sustainable.
Some commentators expect the gold to silver ratio improve to 15 to 1 from its current 36 to 1, but O'Kane points out the average ratio over the last 100 years has been around 45 to 1, indicating the rise in silver may be overdone.
See the chart below.
Concerns about inflation are also contributing to demand, as is the prospect of tight supply as gold miners in South Africa strike for higher pay.
O'Kane also talks about the history of the Bunker-Hunt brothers, who were jailed in the 1970s for trying to corner the silver market.
It's topical given recent legal action against JP Morgan over its activities in the silver market.
Here's the chart showing the ratio of the gold to silver price over the last 15 years.
It has ranged between 40 to 1 to 80 to 1, but has just broken down through the bottom of that range.
Gold to Silver ratio
See our interactive chart below
Precious metals
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37 Comments
New Zealand, Burundi, Kenya, Haiti - hmmm – why does New Zealand not buy gold/ silver considering the current worldwide situation ?
Mauritius becomes a nation to buy gold.
In spite of the small size of the transaction announced on Tuesday, it confirms the fresh appetite for gold among central banks fearful about a long-term decline in the value of the US dollar, the world’s main reserve currency
http://www.ft.com/cms/s/0/6d40ffa2-d356-11de-9607-00144feabdc0.html#axzz1JeRPtKyG
The whole situation worldwide is very explainable. The USD value is being erodeded by QE 1-2. As Jack Welsh says "balance sheets matter". Strong dollar policy countries will survive and prosper. Countries who "race to the bottom" , as BH and other proponents of "lets jam down the exchange rate by any means necessary" will suffer. To get market share of exports the citizens of countries following the "QE" path will have there savings bases crushed and ultimatily bankrupt not only their govt but their citizenery too.
As a young spotty investor in 1980 I invested in silver. I made huge money on paper. Then I didnt. The Hunt brothers did go to jail however.
Check this chart and weep.Its the last one. I then invested in diamonds, I still remember the blonde who sold them to me, but I was 21.
http://silverprice.org/silver-price-history.html
If you want some good weekend reading you should read the Automatic earth and watch the video
http://theautomaticearth.blogspot.com/
then read CH Smith http://www.oftwominds.com/blog.html Im in the deflation camp. To reinforce my argument, I spoke to two friends this week both larger than average farmers. They have decided to sell trees, the prices were not as good as they hoped especially for pruned which is hardly getting a premium at the moment. The reason for selling, they both want to reduce debt which they see as the only strategy in this market that worth following. They are focused on debt reduction they are happy with stock prices but the debt is more important than short term gain they are even looking at reducing stock numbers at the moment to pay debt down even further or in one case become debt free. By the way the central north Island is bloody dry again.Your right there Aj, about it getting dry again, but here in the BoP we're getting good rain tonite. But tell me, are you experiancing the Army caterpillar plague like we are...unbelievable stuff..striping the young grass and winter crops..having to spray and reseed..neva seen it before..like our own 'day of the triffids'...crazy!
Neil, we are having a great season grass everywhere. I here that Taihape is very short and friends are de-stocking. Short in the plateau this time of year would be rough.
I have no Caterpillars at present, Im a bit heavy for grass grub including the Tasmainian one, Lucky you have time to replant.I worked in Canada when I was 19 and we had an outbreak of Tent worm caterpillar which was so bad you could slip on the road they were so thick. We sprayed trees to try and save them from the air, they were everywhere all over the house and cars.
Yeah Taihape has been short all the way through this season but those guys farm conservatively as a rule so they'l be ok..btw this is a thread about gold and stuff not farming, i offen wonder whether BH/interest.co.nz would benefit from a Daily General Debate thread like kiwiblog..neh maybe not
The world is changing faster, then many of the experts think.
Andrew, the current worldwide downturn is of far bigger magnitude - not only taking the financial/ monetary aspect into consideration. The world coming under financial stress can and will cause catastrophic events, similar to the disasters in the Gulf of Mexico and Fukushima - costing billions. Climate change/ natural disasters and it’s consequences are hardly taken into account by economists, but will costs societies/ businesses massive. The world will experiencing changes on the political front, interrupting and changing the face not only of economics. The combined accumulation and acceleration of events, which the world never experienced before isn’t manageable anymore – the tipping point is already here.
…and what on earth are we doing having the case of Christchurch, climate change, etc. but racing with cars around Hamilton and our PM is there too – how stupid of a society accepting people doing that !!
Financial and economic pressure are high – risks taken mounting – disasters likely – repair costs enormous.
What we need are brooms not drills otherwise the world is just driving faster to the cliff.
of2minds....I think he's not following occams razor....ie personally I dont see plans I just see stupidity....and the simplist answer is usually the one. That doesnt mean there wont be opportunists....and looking at the GD bonds gave very good returns........
Deflation only comes with a depression I think, and yes Im firmly in this camp....2 years ago even one I thought maybe they would do enough to stop that terror/misery....but I dont think they have, at best its delayed til around now...If Obama had spent 1.2+Trillion and early enough and if the mortgage scam / fraud hadnt been as bad as it obviously is I think they may have got away with it....instead it was 1/2 the money and too slow and the sub-prime and alt market is clearly total fraud.....and now no one will spend the 1trillion plus needed.....especially not the GOP....so the US is totally (insert f word here) IMHO....and they will take everyone else out like a grenade going off in a full room.....
Debt reduction makes huge sense IMHO....I think commodity prices will drop significantly...those with no debt have less overheads and stand the best chance of getting through....
I think what worries me even if I keep my house and job, is Im going to be crippled by taxes....taxes from 30% un-employment, BB medical care and private debt the Govn will cover....and thats if I keep employed....
regards
Any currency is unlikely to be backed by gold or silver because governments are too aware of what happened in early 20C. It is called 'social amplification of risk' and certain decisions become politically unacceptable. Think nuclear, what chance do you give it, never mind the logic?
Gold and silver are going up because there is an excess of demand over supply, or (perhaps slightly more accurately) an excess of buyers over sellers, at current prices.
There is no indication Nations are moving away from fiat currencies....its simply needed, an essential to how economies work.....if you think otherwise well buy it....
Now once globalisation goes toes up....we will see who's left naked....energy and food are where its at......
Gold is worthless if no one will sell you food, or oil....
regards
Steven & John,
People who don't get the idea of owning Gold & Silver don't get the idea of owning a commodity which is a store of value that appreciates generally in line with the price of oil.
http://www.youtube.com/watch?v=pt1wNi4SZ68&feature=player_embedded
Instead these people prefer the promise that a $ is good for a $ and accept that each year there $'s are guaranteed to be worth less when exchanging the $'s into commodities like bread, milk, Gold and Silver.
OIl is or has peaked.....just because both have gone up does not mean there is a correletion.
America is a loony place....they are clearly de-basing their USD....but I think gold is a frenzy....a bubble its too expensive, everyone is in it buying....think tulips....Gold can drop in price, so its a risk....make your choice, Ive made it.
On these ppl or at least I recognise money and gold is a proxy for energy...ie gold and $ is a promise to be given energy....so what really counts is energy.
regards
So Steven I think your points are valid, but what outcome do you see for fiat currencies?
Bottom line is they have to continue to create electronic debt to keep the scheme going, but at some point the scheme will fall over, deflation if they stop printing, hyerinflation if they keep going. But I can't help but wonder if we are already in a hyperinflationary environment, where paper money is already worthless.
Perhaps the metals will do well in either outcome. At some point all the debt will have to be reconciled, and having something physical could be useful. Buying at inflated prices is the risk, but when the commodity boom ends the pschology of people might still be inclined towards something other than paper money as a store of wealth.
Word I have heard from a silver bug is that they do expect a pull back in prices when the boom is over, but it will be short lived and prices will continue to rise.
I was looking at interesting numbers yesterday. Look at the disparity between M0 & M3. 6700%. Question is how much of M3 is debt? Probably all of it.
I just want to find total value of assets in NZ, and total income. RBNZ has the total value of residential land at $600B, but I want to work out how much of that has debt over it. Debt servicing is at 92% of disposable income.
Deleveraging will be ugly I think, and will the dollar hold up to it?
Fiat currencies, I dont know, Im still trying to figure it out in my mind....and when I read economists its obvious they cant see the overall picture or details so cant convince me they are right, so what hope do I have. Some I think like Paul krugman are right in that if we stop spending then we will go into a depression. (I think the Fed etc knows this and is buying like crazy to make sure it doesnt happen). PK seems to think that we can spend now and pay it back later, but he's making no allowance for peak oil (I dont think he aknowledges it) which will pauper us IMHO. If so how then can we pay it back later? mind you, how will anyone? So Im sort of with the austerity camp in some respects, we have to adjust and we might as well start now....dont fight a battle unless you can win it.....so I dont agree with the austerity camp for the reasons they spout....I think they maybe right for the wrong reasons.....
Will we go back to silver and gold? for local trade....I suppose if globalisation goes away totally it could and thats probable, something has to be the medium of exchange.
In a world of massive possibilities and unkowns Im about as sure as I can be that we will have deflation and a depression.....a bloody long one, probably seeing out my days...ie 20+ years....yes deleveraging has to happen, yes I think it will be ugly....just looking at the GD and NZ had an un-employment of 30%....thats mind boggling, awful...
Metals in either outcome, yes thats possible....gold etc might lose you money but other assets (houses etc) lose even more......like I said ppl are buying gold and it might be the right action but Im not happy its for the right reason....
Will the dollar hold up? I suppose its context or relatives....If we look at the NZD in isolation it doesnt look good, but NZ has some real assets, we have a productive food system, we have land to grow food / fuel, we have enough minerals for our own use and our population per hectare is very low....as I said above we could lose but I think others will lose more....
"residential land at $600B, but I want to work out how much of that has debt over it. Debt servicing is at 92% of disposable income." Debt I think caused the depression to be so deep if it didnt actually cause it....and now our debt is significantly worse...also the run up to 1929 was a short decade, everything I see suggests an unwind matches that run up period +/- 30%....This time ours was 30 years in the making....so payback takes not less than 20 years and maybe 40years....this isnt a 5 year thing....we will measures this in numbers of decades something like they talk of Japan entering its 3rd decade of depression/deflation. X, Y and Z generations are so f**** and they are not gong to be happy in the slightest...
regards
Will precious metals continue to rise? here's one view point on why it will.
/www.youtube.com/watch?v=_IKbAmsGey0&feature=player_embedded
I understand you don't want to listen to me Steven so here's what the experts think
http://www.businessinsider.com/marc-faber-the-dollars-value-in-the-futu…
Hopefully Bernard posts this story in tomorrows top ten and google $500 Silver you might learn a thing our two about the real currency
No I'm just a realist,
I think you'll find everything is going up in relation to the dollar not just Gold and Oil.
http://www.youtube.com/watch?v=9wt7YcfG93Y&feature=player_embedded
My question to you is why do you want to be paid in cash when it has no intrinsic value? It is fiat and it's real value is dependent here on the whim of money printing largely from the US.
Very Interesting piece on air transportation post-peak oil.
http://aspo.tv/speakers/schlumberger-charles/the-future-of-air-transpor…
Some highlights....We'd need the area of Argentina to supply 6% of the world's biofuel needs just for air transportation....ie 100%....
Ramping up biofuel production to 3% (50% of air transportation fuel) would take 30 years...
This doesnt leave much scope for land transportation...
Air transport is essential to GDP...
In the 1950s it cost the equiv of $100,000 to fly from Europe to Sydney, today $1500...so where does that leave cattle class? um no where...
and that brings back the cost of a $10 ticket to emergrate to NZ....$10 v $100,000!!!
and just where is your lifestyle?
regards
buy gold.....buy gold.....buy gold....
;]
I can see what he's saying and at least he aknolwegdes deflation comes first....then inflation is possible...
Oil to $10? if the recession/depression is so severe I guess anything is possible, we got to $35 and that was just the first recession........what has me doubting his conventional wisdom is, how long and we come out of the depression....the GD only actually ended due to masive Govn stimulus in the form of weapons building....
So right there is my first real world example of Govn deficit spending working to boot strap an economy out of a depression....
Second real world example, did the US suffer hyper-inflation in that period? no it didnt....when the Govn tried stimulus in 1933 it revered the deflation, they then stopped and it came back...(sound familiar?) 1940s it came back but was all of 10% (not sure if thats CPI or core btw)
So Im still not convinced on hefty inflation let alone hyper-inflation........so not precious metals. Im not yet convinced because there wont be the energy.........
SOmeone, anyone, show ne an economist who allows for that.....
regards
Gearing up for war certainly helped America out of depression, but they did that on the back of other countries debt. I think Great Britain only recently paid off its debts from WWII. They weren't in a position of having to pay back debt themselves either.
What these things mean I don't know yet. Perhaps the US will target those who can pay. Maybe rather than fight China for resources they will help China in a war by manufacturing weapons and munitions?India, Brazil?
I have read that America could have sided with either axis during either war, but chose the UK because that is who was most indebted to them.
Anyway back to PM's, if you subcribe to the fact that there are only 3 forms of investment: PM's, Equities or Property, then currently the PM's win hands down. At some point this will change and my pick is that we need to see GFC 2 bottom out before equities then make a return and gold will back off. But how will equities perform without oil? Property will likely depreciate considerably yet.
Not sure if cash can be considered an investment option but I know you support it now, and I actually agree.
I also understand that gold performed well for people in the 30's, but I guess holding cash would have done the same.
I have some more thoughts on M0 and M3 vs debt but might introduce that somewhere else once I have cemeted those thoughts.
Ahh yes that was the one.
But apparently 2006 was correct, and WWI has still not been settle because an inconvenient depression came along.
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