NZ investors wary about returning to gold

By NZPA

Wednesday 5th February 2003

New Zealand investors are not likely to turn to gold in a hurry despite its price returning to levels not seen since November 1996.

Gold has risen to more than six-year highs on fears of a United States-led attack on Iraq. The precious metal is considered a safe haven during uncertainty as it insulates investors from volatile movements in currencies and financial markets.

Gold surged to $US380 an ounce for the first time in more than six years in New York trade on Tuesday, and its "war premium" continued to grow ahead of US Secretary of State Colin Powell's speech about Iraq to the United Nations Security Council.

Allan Tattersfield, manager of jeweller and dealer Walker & Hall, said New Zealanders would be wary about investing in gold.

"I think most New Zealand investors have had quite a difficult period with gold over the past 20 years and are very cagey, to put it mildly.

"There was a bear market from 1980 to 2000, a long time in most people's lives, and people mostly lost money in that period," Mr Tattersfield said.

Sustained selling of gold reserves by central banks in Europe and Australia had helped depress the gold market.

"The New Zealand currency varied a lot, but the gold price peaked at $US850 in 1980 and bottomed out at $US250, 20 years later.

"This latest rise has come out of the blue, it's caught a lot of people by significant surprise," he said.

New Zealanders tended to sell when the price of investments such as gold rose.

Lewis Morris of Auckland-based Morris and Watson said local investors had to keep in mind what the New Zealand currency was doing, as well as the price of gold in US dollars.

The US dollar is the standard currency used for trading gold and other precious metals. Two months ago the NZ dollar was buying 43 US cents, and it has since risen to US55c.

"This has a depressing effect on the price of gold. The price of gold has moved in the last month from $US320 an ounce to $US379. It would be quite a bit more if it hadn't been for the rise in the kiwi."

In New Zealand dollar terms, the price of gold at the current price of $US379/oz is $NZ689/oz.

However, if the kiwi had remained at 43 US cents, gold would have been $NZ881/oz.

"You'd want a low kiwi and a high US dollar," Mr Morris said.

Therefore it was not an ideal time for New Zealanders to invest in gold, although there had been some interest.

"I think there's a fair amount of risk involved ... if the war does start in Iraq then we'll see a high gold price, and I don't know what's going to happen to the kiwi.

"No-one can predict what the gold price will do and what the currency will do," he said.

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