Why You Should Hold Aussie / New Zealand Dollars and Gold

By Sean Hyman

Back in the good ole days of central banking, banks just lowered and raised interest rates to take care of their economies.

Interest rates could vary big time, anywhere from literally 0% to over 8%! However, that was then. Since the “good ole days” we’ve had a “credit crunch” and “global recession”. It’s not often that almost every major economy in the world goes into a recession around the same time.

Therefore most central banks around the world have “shot most of their bullets” as they lowered rates to at or near 0%. However, just when you think they have done all they can do and their gun is just “clicking”, they reach down in their boot and pull out a knife…and the “battle is on” once again.

Well, what is the rabbit that they are pulling out of their hat now? Quantitative Easing…What is that? When they’ve lowered rates as much as they can in an attempt to make money as “cheap” as they can, they crank up the printing presses and make more money.

You see, that tool hasn’t always existed. Back in the day, money represented something. It was backed by gold in the U.S. and Switzerland, etc. Even many countries that didn’t have their currency backed by gold had their currencies pegged to the dollar which was backed by gold. So there was “substance” and “stability”. Well, Richard Nixon fixed that by taking us off of the gold standard. Why? I believe it was to they could have the “right” to print money like a “mad man”…and sure enough, they’ve been doing it ever since.

So you may think that since the U.S. has had a history of printing more money since the 1970s, that it should be no big deal right? Wrong! Before, they printed money like a river. Today they are printing money like the “raging rapids”.

But this “printing of money” used to be more of a habit of the U.S. Fed more so than for other central banks around the world. However, in light of the global recession and the credit crunch, they’ve almost all hopped on the “money printing wagon”.

The Central Bank’s Final Rabbit to pull out of the Hat: Quantitative Easing!

So who’s involved in this “Quantitative Easing”? Well of course the U.S .is…that’s no surprise. They are the masters at it. They’re printing $300 billion

However, the U.K. has hopped in as well. They’ve dropped rates to the lowest they’ve ever been in their entire 300+ year history. Now they have printed over 75 billion pounds thus far.

Who else has jumped on the band wagon? Canada! Yeah, they call it their “insurance policy against unforeseen economic risks”. Yeah, in other words: They don’t need it now but they’re going to go on ahead and do it anyway, just in case!

Sometimes I feel like these central banks are like little kids. Johnny’s parents let him stay out until 11pm. Why can’t I? Ha-ha! Instead, Canada is saying, “The U.S. and U.K. get to print money, why can’t we?”

Meanwhile, the SNB (Swiss Central Bank) has intervened in its currency to drive down the value of the franc across the board but in particular to the euro (EUR/CHF). So they are selling francs and doing a little printing themselves.

The Bank of Japan didn’t want to be left out either. They printed over 21 trillion yen! (Click to enlarge:)

So what’s a currency investor to do amidst al of these central banks “watering down” their currencies by printing even more? There are a few things you can do.

First, you can go back to the “real” currency: gold. Gold is a great place to go when everyone is willingly driving down the value of their currencies. It retains its value and even can go up when central banks lose their mind like they are doing right now!

The Only Two Major Central Banks that Haven’t Lost their Minds: Australia & New Zealand.

However, you don’t want to have everything just in gold. So there are (so far) a couple of central banks that have yet to join the "money printing club": Australia and New Zealand

So far, they still have a couple of things going for them. Firstly, they actually have an interest rate of 3% on both of their currencies. While this isn’t anything to “write home to mom about”, it certainly beats ½ of 1% that so many are at right now!

Next, they do have inflation (3.7% Year over Year for Australia and 3.4% year-over-year for New Zealand) and not deflation. Given all of this AND the fact that they’ve held off on the urge to print more money, it could cause the AUD and NZD currencies to be buoyed while others continue to sink.

On top of all that, there’s one final benefit to owning these two currencies. They are nick named “commodity currencies”. All of this printing of money will eventually cause rampant inflation, even before the central banks can withdraw it. Therefore, it will cause commodities and the currencies of commodity miners/exporters to thrive.

Therefore, it’s a good thing to hold Aussie and New Zealand dollars and gold while the central banks are in this present “mania”!

Original article

Comments

[whidbey:]

Good analysis. The facts are discouraging, but first we must cope with deflation in the majority of the global economy. So long as there is excess capacity, unemployment, not mention consumer debt at extraordinary levels (lower consumption) - we will face deflationary pressures. That will lead to aggravated money printing by all of the cheating governments, so eventually we will get inflation. It come on little feet in the night as we discover the FED has no guts for reducing the money supply, and Congress applauds and we watch in horror as they pump the brakes and the bus heads for the brick wall!!! Excuse me I got overly involved.

Apr 24 10:53 AM

[altaman:]

We are only in the first phase of the monetary debacle where our beloved Federal government foolishly inflates the money supply and ballons its spending and ownership of toxic assets to prop up the politically connected and an economy built on the sands of cheap credit. Next comes inflation which the government will not wish to clamp down on too quickly because the politically connected do not want it to do so and and because doing so means selling its toxic assets to a reluctant marketplace thus driving up interest rates while booking huge losses for the taxpayer. Pick you poison to defend what little you have leave until the tax man cometh - precious metals, cheap real estate and commodities.

Apr 24 12:46 PM

[Maxe Paul:]

Well i agree with your basic theory, but the kiwi $ is not realy a commodity currency, yes us Aussies have a commodity currency but NZ? They export dairy products, and they are in a deep economic crisis ATM, the dairy industry is going backwards.

You would definately be safer with the Aussie, but with our government spending like there is no tommorrow i would not rule out us Aussies ramping up the printing press a year or so down the track. I guess we are left with gold as the haven of last resort!

I predict the Aussie and Kiwi will gain whilst this bear market rally reins supreme, but in 6 months or so i predict the Aussie to be 50 cents to the US $. So i would not "load the bo" so to speak.

Apr 24 02:03 PM

[Maxe Paul:]

I would not "LOAD THE BOAT" is what i was trying to say


On Apr 24 02:03 PM maxe wrote:

> Well i agree with your basic theory, but the kiwi $ is not realy
> a commodity currency, yes us Aussies have a commodity currency but
> NZ? They export dairy products, and they are in a deep economic crisis
> ATM, the dairy industry is going backwards.
>
> You would definately be safer with the Aussie, but with our government
> spending like there is no tommorrow i would not rule out us Aussies
> ramping up the printing press a year or so down the track. I guess
> we are left with gold as the haven of last resort!
>
> I predict the Aussie and Kiwi will gain whilst this bear market rally
> reins supreme, but in 6 months or so i predict the Aussie to be 50
> cents to the US $. So i would not "load the bo" so to speak.

Apr 24 02:05 PM

[dtblount:]

Another great AUD piece. I like AUD and NZD based, not on inflation/deflation, but on Chinese demand for raw materials.

Apr 24 04:36 PM

[daveddawg:]

I've been thinking about the AU currency as a safe play (lots of commodities, low pop., geographic safety), but am a little concerned about their ties to GBrit.. If the mother country says print, will the Aussies jump or resist. Same with NZ. Mutton,beef, lumber and dairy are also good commodities. Any comments about the "independence" of the NZ and Aus CBs would be welcome.

Apr 24 08:08 PM

[Allan Frain:]

Good piece. Add Silver and I like it more.

Apr 24 08:33 PM

[granger:]

So no to Canada and Brazil as commodity currencies?

Apr 25 08:41 AM

[Dollar Pimp:]

Don't forget the Norwegina Krona as a play on crude prices.

Apr 25 10:30 AM