See the latest Australian dollar analysis here:
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.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.