Why foreigners don't invest in Gold

29.11.2003
By CATHERINE MASTERS, SIMON COLLINS and AGENCIES

New Zealanders are spending more than they are earning at a faster rate than they have for years, piling up overseas debts in a boom driven by the rampant kiwi dollar and the house price bubble.

Last month the country imported 30 per cent more than it exported, the biggest October gap between imports and exports since 1989.

The major culprit was the kiwi dollar, which jumped 15.7 per cent in the past year as the once mighty US dollar weakened. The surging kiwi has made imports cheaper, paving the way for a bumper pre-Christmas spending spree.

Electronic goods, in particular, have plunged in price. A 14-inch television from Dick Smith Electronics would have cost buyers $279 in February. Now it is just $159.

 The above is a piece taken from the Auckland Herald newspaper. Before I was scared for the New Zealand economy, now I am frightened out of my wits. We are an export based nation, a commodity nation if you like. We aren't earning enough. 

Just as America was pre 2000, New Zealand is on the road to financial ruin, everything is based around debt. The reason is simple, we are awash with liquidity. Liquidity imported from offshore as capital flees ailing nations such as the United States. 

The main export components are from pastoral farming, forestry, fishery and tourism. Think about that for a moment. 

As the currency strengthens the cost of labour goes up in the same percentage terms. Labour is pricing itself out of the market. Already we have forestry gangs being stood down, next it will be the freezing industry for perishable goods ie beef and lamb. To a degree the dairy industry is well automated but herd sizes must increase to counter the cost the labour inputs. In fact farm acreages generally must increase.  The only way that can happen is if the more financially liquid farmers take on MORE debt. We will have less people working the land. Where will the ones who sold up get jobs in a market where labour is overvalued internationally? The price of our currency has a deleterious effect on people wishing to have a cheap overseas holiday. Our dollar was 38.9 cents US, now it is 64 cents, when I run that on the calculator I find a 64% INCREASE IN THE COST OF A HOLIDAY TO NEW ZEALAND. Who would want to come here on those terms.  

The Reserve Bank Governor, Dr Bollard, has come out and said point blank that there are risks to the economy. He stated one of those risks to be house prices. In the area I live in I looked at very nice houses 2 years ago for $170,000, now those same houses are selling for $400,000. That has to be a bubble. Now price those houses into US dollars and you get 170,000 and ( 400,000x164% ) 656,000, a whooping 385% increase in the US dollar value of a home in 2 years...........????????? No wonder home owners think they are wealthy. I bought gold in August 2002. I paid US$305 an ounce at a conversion of 0.465 or NZ$656, it is now US$402 an ounce at a conversion of 0.64 or NZ$628, and so far I have made a loss of about NZ$28 an ounce. If gold had kept up with property it would be a profit of NZ$1896 per ounce. I know which one is likely to go up from here, and it isn't property. Does that effectivly show why gold is not on the general publics radar? 

With China's linkage of currency to the US dollar we are awash with "cheap" goods. Effectively we produce nothing for consumption here, our "spending" money is all going offshore. That cannot continue. As a small nation we cannot do as the Japanese have done and buy American debt to devalue our currency, nor should we. That would be spreading the debt load onto the prudent, but then we do have a nanny, or wet nurse type government that panders to the imprudent. 

It is my view that when America does eventually fall to the forces of the business cycle, and fiat currency is seen to be worthless there, it will be seen as such world wide. The Kondratief winters first storm will impact internationally and gold will fly as interest rates surge higher. That is when the excesses of debt will be washed from all systems. It will only be when the cleansing begins that we will see a flight to gold in commodity based nations. That won't happen until this property bull has run its ultimate course and there is real financial pain being inflicted on the indebted. When will that happen? I don't know, but house prices are rising no longer. It could be sooner rather than later.

 May God help us all.

Allie Oop

Alan Lunt allies1111@netscape.net.