Gold shines for Australian dollar bears

See the latest Australian dollar analysis here:

Macro Afternoon

From some dill at Domain:

Gold has just had its longest winning streak in 18 months, as investors get nervous about the impact of the Trump trade wars on economic growth, and the US Federal Reserve looks likely to cut rates. Once again, excitement surrounding the “quasi-currency” metal is building – and the gold bugs are out in force talking the price higher. But is this excitement really justified?

Gold is one of the strangest “investments” there is. There’s a fevered devotion to the precious metal in some quarters, particularly in the US, that borders on delusional. Devotees claim the end of fiat currency is nigh and the global currency system will collapse – with holders of gold emerging from the ruins as the victors of this financial Armageddon. For some, buying gold is a way of prepping for the end of the world as we know it. It’s the investment equivalent of buying guns and heading for the hills with a bug-out bag.

Rubbish. Gold is a very specific market hedge that will rise and fall quite predictably. Simply put, it is the undollar, the shadow of the greenback, and it will move counter to that pretty much most of the time.

That said, there is an extra calculation for Australians and that is our own dollar. For instance, although gold is right now well below its peaks in USD terms, it is howling to record highs in AUD terms:

So, is an Aussie gold miner a good punt right now? A good miner offers terrific leverage to the price. There is a good argument for it:

  • trade wards are blowing back into the US economy forcing the Fed to ease which will pressure the USD;
  • the same trade wars are weighing very heavily on AUD meaning that both currencies could fall in the period ahead;
  • meaning that the gold price will rise and even more so in AUD terms.

There is one caveat and it is this: if the trade war escalation gets out of hand and turns global shock (or some other shock comes along), then the USD will likely enjoy a safe haven trade during the heat of crisis and gold will fall along with the AUD. During the GFC this proved to be bad for gold given it fell more than the local currency did.

Even so, afterwards, as the Fed launches mass rates cuts and QE, the USD will again sink and gold boom. Though at that juncture it might also be fighting a rebounding AUD, depending upon how far behind the Lunatic RBA remains.

The MB Fund is holding Newcrest.

Houses and Holes
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  1. One thing this dude dont get is that Gold will always be accepted as a guarantee for payment and will always have value no matter what currency it is valued in. It will never lose it lust as it also has been the bedrock form of wealth ever since Humans acquired a brain… it will be a source of wealth long after our current generations have passed…

    • Yes, but in the medium term it is very volatile. So go ahead and bury some as a long term hedge against social collapse. But don’t expect it to necessarily hold a stable value over say 5 years, it could easily go up or down by 50%.

      • That chart confirms my point. In any given time period you can find times it has gone up or down by 25-30% in the course of just a few years. It completely depends upon the start and end dates you pick because it is extremely volatile. Here’s a longer term chart which makes the same point.

        So yeah, right now people holding gold are feeling good because it’s high. But is it a buy, looking at that long term chart? And is it something that holds value well? Both pretty debatable.

      • @Arrow2
        Stone The Crows is right:you haven’t done your gold homework.
        Gold doesn’t go up and down… the currency goes up and down
        At 5:29 pm the A$ is worth 15.75 mg of gold.
        Before this mess is over the A$ will be 2mg of gold.
        Remember that fiat currency is created by the retail banks as credit(debt).
        Only gold can extinguish the debt and it will need a large revaluation to do that.
        When the present experimental system fails, we’ll go back using gold…

      • Stone the Crows

        In terms of gold and currency debasement A2 I will go back as far as 1971 (when I was a glam rocker) and take any chart against gold going forward. Thanks to the precious metal I am debt free, retired, sleep like a baby and own a property with views across the Tasman Sea, purchased when virtually everybody on this blog was saying DON’t BUT NOW !…………my golf handicap is taking a beating.

        And life is very sweet thank you.

      • Athlone – no, you need to do your homework. You can’t buy groceries or a washing machine or pay your doctor or your taxes with gold. All you can buy is fiat currency.

        You are suggesting that the price of fiat (and potatoes and washing machines) is volatile because the price of gold stays constant while everything else revolves around it. Ridiculous.

        If you think fiat currency will cease to exist eventually you may well be right but that is a whole different argument. For the purposes of everyday investment gold is hugely volatile, end of story.

      • Stone the Crows you have cherry picked 1971, by coincidence the lowest gold price in the last 75 years, as your starting point for your claim.

        Even if you aren’t a BS spruiker then that is not a good test case. If you’d bought in say 1974 you’d have made very little and if you’d bought in early 1980 you’d still be underwater.

        It’s a speculative asset which swings wildly, and putting a lot of money into gold right now (close to its all time high) has a huge amount of downside risk. That’s all.

    • Next time, please warn before selling, so the rest of us can top up our positions. Please?

      • TheRedEconomistMEMBER

        hahaha… yeah feel like the mock right now…. Whilst I made profit … it was hard work and I was down 20% at one stage and NCM main mine near Bathurst had some earthquake issues as well.

        I hold MCR (Mincor) which is a nickel miner and looking into Gold also… but it has just wallowed around 40c and they recently went to market for a capital raising. I bought these long ago for way to much…

        Just sitting and waiting….

    • Still keep NCM as long term investment and if they go below $24 will top up again – unless shares are falling because NCM stuffed and not because of AUD/AU price movements.
      I had MCR and sold when they went above 45c. They are actually looking at selling their gold interests – I might be wrong but you better check again – not sure if your message means MCR are looking at gold or you are but I thought I bring this to your attention.

    • jeepers RE after holding NCM for so long and being down on you entry you sell out for a useful % profit but its going to be far less than what is achievable when NCM gets back to its old highs and probably well beyond. AUD POG could get over $2500 in the next 2-3 years.

      I think MCR is likely getting out of its gold activities at least for the near term, so it trades for its nickel production potential.

      It is a volatile metal, and the goldies even more so, but the upside is obvious given how the AUD is likely to trend and how the gold price will take off once the US Fed cuts rates.

      Well they do say, a profit is a profit.

    • RE – have a look at:
      They all have various risks but all have huge potential – Especially CHZ. For the record I hold shares in all.

      • Those are the sorts of goldies (not sure if they are all still into gold, CHZ still there?) one holds for a very spec gold run where exploration is given a lot of value by the market, but the main holding now should be in more solid producers. I do have some TRY shares because I like their exploration tenements, but the company needs to find more gold or its going to be out of business some time next year. They have done great mining shareholders for a while.

        I picked up some SBM near their recent low – but it could go lower, affter they release a not so hot quarterly report in July.

    • Even if you get the direction of gold correct, you still need to hold the right stock.
      NCM has been a bit of a dog, but it is done ok this year.
      You made money on NCM, so that’s good.
      There are plenty of punters out there who would have lost money and sold NCM in disgust.
      I tend to find EVN a solid stock to own.

      • I thought all your money was in long dated government bonds. What do you know about gold?

  2. So what does MB think JP Morgan meant when he said “Gold is money. Everything else is credit”? The more correct analysis is that the AUD has fallen to its lowest ever level against gold – albeit against manipulated Comex paper gold. This is the huge story that no MSM outlet is covering. Physical gold is still used as hard currency between banks and between central banks. The Basel III rules classify physical gold as among the highest tier bank reserves. Gold doesn’t need to behave like an “investment” when it has intrinsic value and no counterparty risk. Gold has only been demonetised by TPTB for the rest of us – it is most assuredly still money. Physical gold has intrinsic value. It is only manipulated paper gold that represents a “very specific market hedge”. Physical gold represents a general hedge and a reliable store of value in the age of QE to infinity, and a speculative powerhouse if you believe surging central bank accumulation and the slow but inexorable demise of the USD means gold suppression will end abruptly one day soon. There is no need to believe in Armageddon to appreciate the role of physical gold. Of course, the manipulated price of “paper gold” makes its value appear unstable, but this documented price suppression is necessary for fiat currencies to even stand a chance. If the market was allowed to prevail, and the legislative prescription of the AUD and other fiat currencies as “legal tender” was to end, then the use of gold (and silver) as currency would re-emerge almost instantaneously around the world. MB has been very astute in following the shenanigans of the RBA. So if the purchasing power of the AUD wasn’t being constantly eroded by the RBA, why would Australia still be in a per capita recession at a time when credit growth is still slightly positive? It sounds like it may be MB that is not doing “the extra calculation…that is our own dollar.” What currency are your NCM shares denominated in?

    • ‘alliance’, you understand gold.
      I am constantly amazed on this site that when you try to help some people understand gold, they do their best to make themselves look stupid by rubbishing you and then move on in ignorance.
      Why can’t people spend a dozen weekends to study the subject instead of depending on the Keynesian material they absorbed at school.
      Why would 121 out of 198 countries hold gold if there was no purpose in doing so, especially in this period of experimentation since 1971 of all countries using fiat currency?
      Experience runs an expensive school but fools will learn in no other.

  3. There is some chance that the trade war will be resolved, and that will put pressure on gold to fall in the short term..
    However, trade war or no trade war, the fed will cut, so hopefully the USD will fall and that will be good for gold.

  4. peterbruceMEMBER

    Well its taken 6yrs on this blog to finally see a chart demonstrating the TREND in A$ gold.
    Well done.

  5. TheRedEconomistMEMBER

    I go by the adage of Warren Buffet to his success.

    ”I always sold to early…”