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Double Boost For Aussie Gold Ahead?
Published : May 08th, 2012
465 words - Reading time : 1 - 1 minutes
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Keywords :   Australian Dollar | Fail | Gold | Gold Market | India | Reuters | Wind |

 

 

 

 

BLOG WATCH

Dr. Alex Cowie at Money Morning has a piece on gold noting that while gold has been range bound recently, during its 12 year bull-run, gold has often made its next move up after it has ‘done some work’ in a particular price range for a while.”

What is more interesting for Australian investors is the discussion of the impact of the AUD/USD foreign exchange (FX) rate on the Australian gold price. In our Depository business we have often seen Australian investors fail to consider the impact of our FX rate on the local gold price, which is (assuming USD gold stable):

• FX rate rises, Australian gold price down

• FX rate falls, Australian gold price up

This sometimes results in clients calling up to sell after a rise in the USD gold price and expecting a profit, but then find we are quoting an AUD gold price lower than their purchase price – all because the effect of the FX rate rising since they bought being greater than the increase in the USD gold price.

A good example of the effect of FX rates was in 2008. Consider the four month period illustrated in the table below.

 


 

Whilst US based investors experienced a loss, gold was positive for Australian investors. Dr. Cowie gives a long term example of this effect, noting that “the Aussie dollar gold price has gone up an average of just 11.0% per year for the last ten yearscompared to the US dollar gold price, which has gone up an average of 17.2% per year.”

However, he sees a good opportunity coming up, with the Aussie dollar havingnow dropped from $1.08 to $1.02 in just a few months. The Reserve Bank of Australia’s 50 basis point interest rate cut last week has really taken the wind out of the Aussie. Judging by the down-leg in previous interest rate cycles – not to mention the state of the Australian economy – more cuts are coming. Which should mean the Aussie may have further to fall yet.”

If that fall in the Australian FX rate coincides with an increasing USD gold price (as some analysts expect), then Australian gold investors are looking at a very good opportunity to buy gold.”

So as an Australian investor you have to consider not just what the USD gold price will do, but also what the Australian dollar will do relative to the US dollar.

Download today’s full Blog Watch (pdf 185kb) for more reviews, including:

PRO MARKET FEEDBACK

Some feedback from professionals in the gold market as reported by Reuters.

SILLY YELLOW TRINKETS

John Mauldin on gold as “insurance”.

INDIAN GOLD TAX SCRAPPED

Wall Street Journal reports that India has removed the excise tax on sales of all gold jewelry.”

 

 

Data and Statistics for these countries : India | All
Gold and Silver Prices for these countries : India | All
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Bron Suchecki

Bron Suchecki is Manager Analysis and Strategy at The Perth Mint.
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