Gold to make a mint?
5:00AM Sunday May 20, 2007
By Gill South
There's a restaurant in France where you can eat very fine gold. Gold is one of the few non-foods you can put into your body that it won't reject. Hence it is used by dentists.
New Zealand's main manufacturer and broker of gold, the NZ Mint, doesn't expect us to eat the stuff but it would like it if we would all include it in our menu of investments.
And some Kiwis have been buying NZ gold recently, lured by the low US dollar and the corresponding strong NZ dollar. The currency unit for gold trading is the US dollar, and when the NZ currency is strong against the US currency, this has the effect of repressing the gold price into New Zealand. The spot price of an ounce of gold is around US$665 (NZ$932) at the moment.
The dollar is currently worth US73 cents and if this changes back to the more normal 63 cents, then gold will be worth NZ$1040. What's not to like?
Property developer Olly Newland, calls himself a "gold bug". He always has some pure gold coins held in his bank safety box. It has always made him feel secure in the uncertain world of property developing.
AdvertisementGold has a universal appeal and value, he says, and recommends people put an average of $5000 or $10,000 aside in the precious metal.
At the moment with the strong New Zealand dollar investors will do very nicely, he adds. "It's always a good time to buy gold," he says. "Five years ago it was worth $200 plus, now it's worth $600 plus."
The businessman is unusual. Traditionally most New Zealanders have preferred to put their money into property and a few stocks and shares, rather than in precious metals.
But the growing awareness of the profits to be made in gold at the moment has led the NZ Mint to hope Kiwis might see gold as an investment class to be taken seriously.
After some publicity about the gold market in the past couple of months, NZ Mint, a company privately owned by a family trust, is reporting a 400 per cent increase in investments in the past few weeks.
Most of the buyers have been people who had never looked at gold as an investment before. And even after the exchange rates correct themselves, NZ Mint is predicting gold to rise to more than US$1000 in the coming 24 to 36 months - it currently sits just below US$700.
To capitalise on the growing awareness out there among investors, NZ Mint general manager, Mark Sutton is kicking off an education drive on gold among fund managers and financial advisers in the coming weeks.
"If you don't have fund managers and business advisers saying it's an option, we have to educate the market," says Sutton. "At the end of the day we are still a mint, we are not a business adviser. If we have to take the high ground and start the process then that's what we'll do."
Sutton admits Kiwis don't have a great affinity to gold despite it being the world's third largest gold producer in the 1900s. Now, most don't know a lot about how to buy it or what to do with it, he says.
Gold Kiwi coins or bullion are what most people buy. $30,000 would be 32 coins the size of a 20 cent piece, says Sutton. Most people keep them in safety boxes at the bank or at the mint. If you buy pure gold, such as a Gold Kiwi coin, there's no GST.
One of the reasons Sutton is so bullish about gold values is the strong global demand for it, which he sees increasing as supply diminishes. About 70 per cent of the world's gold goes to the jewellery market, the rest is in strong demand from the electronics market and the dentistry profession.
Overseas investors have about a 10-12 per cent exposure to gold in their investment portfolios and pension funds in America have an exposure to gold, says Sutton, who believes that an exposure of between 8 and 12 per cent of a portfolio is about right.
In recent months two types of gold investors have emerged, says Sutton. Some are people in their 20s, who don't see buying a house in Auckland, "in their rainbow".
Then there's the semi-retiree who has sold the nice house in the suburbs and who is now looking for a home.
"What investors like is that they can pass it on to children and control it. With property they have got to pay real estate agents 4.5 per cent."
It's a cultural thing. Gold has always been popular in China. South Africans are very comfortable with it as are Americans who see it as a nest egg in case something happens. And the Australian market is far more mature than here.
Despite its best efforts, NZ Mint may have some difficulty convincing the investment community that the timing is right for gold exposure.
AMP Capital Investors is not recommending commodities of any kind at the moment in diversified portfolios, says its head of investment strategy, Leo Krippner. He thinks precious commodities are very generously priced in the current market and is therefore not convinced about the predictions that their values will continue to rise.
And even if it were well disposed towards gold, the AMP would never advise its investors to take on just one commodity.
Krippner prefers a commodity index that would give a combination of returns from lots of different commodities. This would include gold, silver, copper, nickel, tin and other "soft commodities" including sugar, coffee, meat and wheat, which trade on US futures. Another major part of the index would be energy, natural gas, heating oil in the US.
Cautious fund managers will always bring up the possibility that Europe's central banks, which all hold significant gold stockpiles, might just decide to divest themselves in the coming years - which they have done before.
Economist and head of the Vestar investment committee Donal Curtin warns that people are getting interested in gold too late.
"People tend to get excited about commodities at the height [of a boom]. By the time the news has reached the level of the shoeshine boy... the four or five years [run] is well finished, it's happened already," he says.
The NZ investor would be giving up unusually high bank interest rates to take a punt on the precious commodity.
"Bank interest rates are very high, you have to be pretty sure that gold is going to keep going up by five per cent a year," says Curtin.
Added to this, there is no income from owning gold, something New Zealanders like from their investments. Investors would be relying solely on capital appreciation. "If you're pessimistic about the world outlook, gold is one of the protections against that."
