Gold price soars above $US1800/oz
Niko Kloeten | Tuesday August 09, 2011 | 13 comments
Gold has hit another milestone, shattering the $US1800/oz barrier, rising more than $US60 in less than a day's trading.
The spot price of gold is trading at about $US1811/oz after being under $US1750/oz less than a day ago.
New Zealand Mint head bullion trader Mike O'Kane says the recent rise in the price of gold has caused a surge of interest from Kiwis, with a large increase in the number of new buyers.
The price of gold has hit a new record, shattering the $US1700/ounce milestone and showing no signs of slowing down as global investors look for a safe haven.
The spot price of gold reached $US1750/ounce this afternoon and for New Zealand investors the gain is being magnified by the fall in the New Zealand dollar.
Mohendra Moodley, a director of Australian fund manager Taurus Funds Management, says New Zealand gold buyers are benefiting twice, due to gold being denominated in US dollars.
This is because the gold price in US dollars is rising while the New Zealand dollar falls against the greenback, raising the value of gold holdings in New Zealand dollar terms.
Although gold price rises are sometimes “diluted” by rises in the dollar, he says during times when markets are “stressed”, such as in 2008, the New Zealand dollar tends to go down while gold goes up.
"Gold has gone up 11-13% per year in New Zealand and Australian dollar terms in the last 10 years, compared to 19% per year in the US, so returns have been diluted but not by much."
Mr Moodley says inflation and interest rates play key roles in the demand for gold, with American investors who get near-zero interest rates from banks finding it particularly attractive.
“The opportunity cost is always the level of interest rates in any country,” he says. “Gold trades inversely to real interest rates – the lower the real interest rates the better the gold price.
“In markets where interest rates [such as New Zealand and Australia] are higher the opportunity cost is higher.
“Having said that, it also depends on the level of inflation – for instance, Chinese investors have high interest rates but also high inflation, meaning the real interest rate is low.”
Even though New Zealanders get better interest rates on savings than in many other countries, Mr Moodley says gold is still an attractive prospect given its recent performance.
“If you’re getting 3-4%, the question is, would you rather be earning 15-20%? I’d take that.”
Mr Moodley says gold run of success has resulted in increased interest in Australia and New Zealand.
“There is some interest coming out of this neck of the woods but most of the global demand is being driven by Asia, particularly India and China, Europe and of course the US.”
