Gold and Silver in Australia

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Brett K's picture
Brett K
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Gold and Silver in Australia

Hi there fellow forum followers,

I am particularly interested in the views of other CM forum followers on the impact in Australia and opinions on increasing holdings of gold and silver, particularly in light of some of the information available at present.

There is certainly a move to gold and silver as a way to protect wealth against inflation, that much is clear. Having been in the US recently and experiencing the sentiment I can understand why (not to mention the enlightening information presented by CM).

It is not surprising that areas where the average Joe (to coin a US phrase) really experiences and understands the impact of economic (and social) issues is in employment and real estate. As experienced in the US and Europe.

However, here in Aus our unemployment figures are far healthier than the US (Aus "reported" at about 5.2% unemployment) and our housing market is still moving upward with the median house prices in the major cities at high levels. Mainland major capital cities median house prices ranging between $460k Brisbane to $580k Sydney (excl Adelaide).

We certainly did not appear to experience the GFC to the extent of most nations. We (speaking in general) are of the belief that we were somewhat shielded due to the resource sector and better banking regulations (greater regulated lending practices preventing the rate of default as experienced elsewhere) preventing our housing bubble from bursting. We also seem to feel that these factors will protect and shield us in the future and will mean that we continue to defy the trends seen in the rest of the developed world. 

I can certainly understand the sense of urgency in the US and Europe to protect what wealth they have left. They have had a taste of what is potentially to come and many are keen to do what they can to protect and shield themselves... with also some thought that their relative wealth may actually increase (should inflation sky-rocket or should the whole thing collapse) through making the right decisions now and being in the right asset class when it all goes wrong.

As an Australian though, it is still somewhat hard to really picture this happening here. I take on board all that Chris has demonstrated. It all makes sense (incredible sense). I know that we will be affected in some way. However, it is still difficult to know to what extent.... 

I know that our housing bubble has not been tested. Our national employment figures have remained strong, our banks have continued towards record profits and demand has generally maintained for our natural resources. I can’t help but think that all of this has lulled us into some false sense of security. I know a time will come when this is tested, but I am an Australian who has never really experienced a 'rainy day'... even in the face of the world’s greatest financial crisis!! It is therefore understandable that I can’t help but be somewhat of an optimist (or maybe a little ignorant).

The one area that I keep coming back to as I ponder Chris' material is Energy (particularly OIL)... it is this area where I know that our enviable banking sector and our natural resources cannot shield us. The world with a shortage of oil is certainly a different place (as outlined by Chris). Decreased oil means decreased output. This must impact our mining sector, food production and exports. It won't be surprising at this point to see our government turn to stimulus spending, printing and debt... after all, our government too responded in this way to the recent GFC.

I can’t help but assume that the collapse of the US economy, or at least the increasing debt, inflation and unemployment will have to affect us back home in Aus. For one, China is our major trade partner and the major trade partner of China is the US.

The following may occur.... Chinese exports to the US go down, Chinese growth also slows, their demand for resources slows, our vitally important resource sector slows, unemployment increases, the default rate increases, our housing bubble bursts, widespread panic and a tightening of spending, 'negative growth', government stimulus, printing of currency, increasing of debt and away we go too... (Yes, I am sure this is very simplistic and no doubt I have missed some key steps in here, but I am just trying to piece it all together, as the average Joe that I am).

So, really, I am not entirely sure how all this will affect my family and friends here in Aus. I am speculating and trying to connect more than just a few dots.

As a precaution however, I am considering some investment in gold and silver (an area I have not invested in personally before). I would be interested in hearing any recommendations or views on local traders in Australia. I am really interested in knowing of some reputable local dealers with good prices, good access to holdings and buy back arrangements.

Any thoughts, experiences and advice would be welcomed.

Travlin's picture
Travlin
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Re: Gold and Silver in Australia

G’day Brett *

Welcome to the forums.  Here are a few thoughts for you.

Only you can determine if gold and silver make sense for your personal situation, but in general Australians would benefit too.

My impression is that the same economic forces that have crippled the US are present in Australia, and are just later in reaching a head.  With your dollar virtually at parity with ours, the housing prices you cited are clearly many times the average income and in bubble territory, so it is just a matter of time before it is pricked.  I think you folks will just be later to experience the same general problems we have.  The big plus for you is you have real exports and a big market in China, which will soften the blow.

What does GFC stand for?  Greatest Financial Crisis?

I seriously wonder why you think you have a safe banking system.  This Wikipedia link paints a very different picture of a long history of repeated bank failures, which resulted in tight regulation which has now been loosened considerably.  Having financial power concentrated in four banks means they are “too big to fail” and you can see from our example were that gets you.  http://en.wikipedia.org/wiki/Banking_in_Australia  Wiki is not an authoritative source, so I’m really interested in your views as a local.

People here did not believe these things could happen, but they did.  You are forewarned so don’t be, “lulled … into some false sense of security”.

Good to see you understand the energy factor.  Your description of how decreased US demand for China’s goods can affect you is very good.  You’re awareness and thinking show a good grasp of the overall situation.

For coin dealers I’d start with Google and make some calls and visits.  Also Google for precious metals / coins forums.  I’m sure some of those posters will be knowledgeable about Australia.  Kitco.com might get you off to a good start, especially if you do a search within the site for Australia.  Some posters will refer to other forums that you can check out.

The Perth Mint in Australia is a government monopoly and very expensive.  If you go that route be sure your holdings are “allocated” to you.

You are very fortunate that you can take heed from the US experience and benefit from the hindsight it provides.

Travlin

* No, I’m not from Oz 

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Damnthematrix
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Re: Gold and Silver in Australia

G'day Brett*

My personal take on PMs is that they are the last thing you buy if you have excess wealth and have all your affairs in order to take the crash..  ie, NO DEBTS, means of supporting yourself with little or no money (self sufficient in water food and electricity) and have the necessary skills to be as self sufficient as possible.  If you don't have the skills.....  buy some with that excess wealth!

Re oil:  Australia will be importing ~90% of all its liquid fuel within 5 years.  IF we can get it.

Re our resources export boom:  It can't last.  China is in a bubble of its own making, and it WILL burst.  Just don't know when.  Make no mistake, when Europe and the US go down the toilet, so will Australia!

Let us know what you think after reading this......  where in AUS do you live BTW?

Mike

*I am in Australia!

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nigel
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Re: Gold and Silver in Australia

I am an australian. I agree with Damnthematrix, spend your money on solar panels and water pumps and vegetable gardens, gold last. However I am in a slightly different situation. I have a reasonable size superannuation amount set aside (read 401k in the USA). In australia there are rules about when and what we can spend it on. I can only invest it in the share markets/funds or buy precious metals. Some years ago I took my Superannuation money out of the fund it was in and invested in gold and silver. I now run my own self managed fund simply for my gold.

It was very easy to do, my accountant set up the fund for me very simply and quickly. I purchased the gold from ABC in sydney, it was very easy and simple.

I am very happy with the results.

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jlmcgrath
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New to Australia

My family and I have recently moved to Perth after my wife was accepted into a PhD metallurgy program at Curtin Uni. I have been following Chris's work the best I can for about a year now. I see this post hasn't been updated since December, and am wondering how things have changed after the Japan earthquak/tsunami/nuclear situation as well as the unrest in the middle east. Everyone that I talk to says that WA's natural resources will be the savior, but like you said earlier Brett K. What happens when China Stops buying?

From what I understand, Australia imports most of its oil from Singapore, who imports it from the middle east. The price of petrol has gone up almost 15 cents from when I frist arrived on 13-2-11.  

At this point i am mostly worried about preparing. I unfortunately live in a rented house, where I can do very little on my own as far as solar or water. I would love some suggestions on the major impact things I could do while living in a rental with limited space.

Any extra info on oz or reliable websites(like chrismatrenson.com) would be greatly appreciated.

Sorry to ramble, I have had to many glasses of clean skin wine.

Thanks in advance

Jeff M

nigel's picture
nigel
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Good Australian Sites

Jeff, try Steve Keen's Debtwatch

http://www.debtdeflation.com/blogs/

I believe we get some of our oil from oil fields in vietnam(no sub text there at all). We supply about 50% of oil production domestically. Somewhere around 2008/09 we reached peak and we have been producing significantly less, I think last year was about a 5% reduction in domestic production.

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mrobinson
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Hi  Nigel I’m glad you

Hi  Nigel

I’m glad you said buying gold from ABC in Sydney worked out for you, I was thinking of doing the same soon. With the $AUD higher than the $US gold is actually declining in $AUD terms ie gold in $AUD is $1,414 and $US $1,515.

I understand the $AUD won’t keep going on this trajectory. Our RBA may intervene sooner or later. 

Jeff 

After the financial crisis i wanted to know how someone in the US, not paying their mortgage loan, put my colleagues out of work.                                            

I stumbled across CM's site which enlightened me to the storm on the horizon outlined in the 3 'E's. I also found the CM site was way ahead of the curve in many respects and may not be relevant at the same time in Australia. (I’m talking years) So I had to take it back a few notches and find sites relevant to the current timing for Australia.

Also our PM Rudd at the time of the financial crisis threw so much money at the ‘people’ with first home grants and school hall construction together with the RBA cutting interest rates placed Australia on a different path. But effectively all this did was ‘kick the can down the road’ as our home prices are artificially propped up.

The US threw the money at the banks and it didn’t work.

This site is like a looking glass into the future if Australia follows the same route……so far I think we are, but on a smaller scale. Our personal debt to GDP is actually higher than the US at the present moment. (Thanks Steve Keen for that info).

The only reason we are not following the US is because of our ‘dirt’, and China and India want gobs of it. This won’t last long as other players enter the field. We are just a quarry for these nations. 

Sites with more of an Australian focus and tuned to our position with housing and resources to China.

Steve Keens ‘Roving Cavaliers of Credit’ is an absolute must read. Was my penny drop moment. The system runs on credit not paper money. Theirs a big difference when discussing inflation / deflation.

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

Another excellent site for daily update on Oz is.http://macrobusiness.com.au/

Chinese/English sites

http://english.caing.com/andy_xie/index.html                                     

http://mpettis.com/

http://www.chinadaily.com.cn/index.html

FWIW, here's my quick take on the Oz position and our relationship with China.

  • Housing is in a bubble, particularly Sydney where i live. However strangely enough the poor planning system here limiting supply will soften the blow. Although that didn’t stop UK house prices falling. 
  • Banks can fail and the BOQ and NAB need to be watched. NAB was the most exposed during the financial crisis purchasing US banks and subprime loans prior to the crisis. They were the recipients of ‘Timberwolf’ sold by JP Morgan (or Goldman can’t remember).
  • Banks have created a 'squeeze play' at the moment, ie no more money for developers to develop new stock while maintaining their own asset. Their assets are your mortgage debt.
  • IMO the RBA won’t cut or raise rates at the moment. Cutting rates means the $AUD will fall and Australia will feel the effects of higher inflationary costs as the $AUD has been floating higher then the $US. At the moment we are partially shielded.
  • China overall will be the player overtaking the US in say 5 years (no one knows). China’s primary market is Europe not the US. That’s why you will find China actively supporting European countries ensuring that market stays afloat and actively buying sovereign bonds.
  • China is stimulating their economy by artificial means and their housing supply is also in a bubble. The Chinese Government is putting measures in place, limiting lending quotas, raising interest rates, limiting investor ownership of properties etc to cool the market down..............Its working.
  • Our country is reliant more on China’s construction boom which is now declining (29% in Shanghai). This does spell trouble for Australia..…Interim trouble only. The Chinese will look at falling house prices as a buying opportunity. 
  • The Chinese will not raise their currency and shouldn’t either…Not yet. They are developing and expanding the middle class first before this can be done. China is heading into consumerism.Shear weight of numbers is hard to compete against.
  • The US population of 300million is a rounding number for the Chinese 1.3billion people growing into a middle class will turn China into a powerhouse. (25% retiring US baby boomers in the next 15 years doesn’t help)
  • I’ve heard all the doom on China and how Chinese population can’t afford homes etc, Then how this week does the Chinese overtake the US on vehicle ownership. Shear weight of numbers. With any nation growing the will have pitfalls, I tend to think of them as growing pains.
  • China is also leading the technology and the race for full electric vehicles. In some ways having a authoritive Government mandating regulation makes it easier to transition into that new world without fossil fuels.

Sorry for the length, but that’s my take.

Australia only foreseeable trouble will be a 30% fall in house prices and long overdue. The banks have already priced it in.

Remember, 30% rent, no mortgage, 30% own their own home, no mortgage, 30% with a mortgage of which half have paid off. The people that will hurt the most are the First Home Buyers that the Government screwed...Don't expect fireworks.

All the best

Mike

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mathewcostin
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Intro and Hello

G'day All,

My name is Mathew, and I also live in Australia.

I am considering some of the same paths forward with how to invest. I have absolutely no faith in the future viability Australian Dollar, or rather I have almost absolute faith that as we creep further into the territory of increased credit defaults in the private, then corporate sectors (due particularly to rising fuel and food costs for those of us who hover around the poverty line, myself included) --- Our wacky Government will get stuck into printing money like it's about to go out of fashion.

Did you know that one of the most basic ideas one learns in MacroEconomics is that raising interest rates doesn't really affect supply-cost driven inflation? I can understand that the RBA is wanting to cool down housing price increases and avoid that bubble bursting - and to stop inflation that has occurred due to the recent Government (read Incompetents) economic stimulus packages (read debt for tomorrow's Incompetents to handle) ---  but the rate rises are hurting low-income earners significantly, forcing many with barely-manageable debt into default.

OH-OH! Spells all kind of disastrous to me!

Honestly, I expect a whole-system type Australian Financial shut-down sometime within the next 18-36 months, depending on how Global Oil Prices play out. I invite anyone who has a desire to listen and share openly with me, to plan for this event now. It is possible that we may see a series of successively worsening GFCs (global financial crises as we term them in the land down under) the origin of each depending on which nations are reaching mass-credit-default territory. Obviously all of them will impact Australians in a Damaging manner.

Wow, It used to be "all-the-rage" Globalisation really is a dirty word now for those in-the-know. It's quantum entanglement / butterfly effect style interconnectedness means that there are so many variables at play that we are really pushed into guesswork about whether we may survive (both economically and physically) the coming decade.

We, as Australians cannot escape the fall-out. Rising resource prices may prop our dollar up against other currencies, but this balances out as we import more and more oil.

I personally made a terribly stupid investment that turned out to be a scam, and so have lost pretty well everything. So now, the one time that I wish I could have just enough to own a home, I am thinking "What the heck can I do with $20,000-$40,000." I can't buy land with that much. Even if I go in with a group of others to look at co-farming in my area (Armidale, NSW) (if you are considering something also please contact me!) our current savings may not really enough to entitle my family to land on which to grow food and build an earth-home.

So, do I take a bet that gold and/or silver will rise in price much faster than farming land over the next couple of years? Can anyone really give me an idea of what the prices of gold and silver are expected to do in the medium-term future? Obviously rise, but by how much I wonder. I have even considered (if I can have long term access to farming land to store it) purchasing a 50,000-$100,000 litre steel or poly tank and filling it with Diesel or Petrol.

Sounds crazy, but I prefer primary assets in the hope that I may be able to bargain onto a property to provide my family long-term security with the resources needed to evolve into a food, information and energy oasis.

Would love to hear any feedback!

Thankyou!!

Mathew

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Arthur Robey
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From the Emperor's Toga to paranoia.

The spruikers of gold and silver say that through out history an ounce of gold will buy you a good toga and either 91/2 kg or 16 kg of silver will buy you a 3 bedroom house. 

Well, we can see that an ounce of gold works at $1400 for a suit. But crazy silver? Either silver is way behind and has some catching up to do or the spruikers are having a lend of us. I buy silver because my circumstances preclude me from owning a warm dry bed in my old age. I am hoping that it is a case of silver catching up.

However, what is happening is that the Powers that Be have invoked the anti-Terrorism laws and want all our particulars before smiling and handing over the shiny stuff.

So I am thinking that they will say to me "Give us your silver, or you will not get a pension." But I shall be thinking to myself  "They have spent my pension. They are just tricking me."

Therefore I shall take half of Dmitri Orlov's advice and learn how to live like a church mouse. (Dmitri suggested not holding any Precious Metals as it will just make you a chick,  err. criminal magnet.)

However, I am a wild optimist with paranoia issues.

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Damnthematrix
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Posts: 3998
Australia's position

Hi Mike, good post, and thanks for the links.  I'd like to add http://groups.yahoo.com/group/roeoz/ if you want local discussion.

The housing market isn't just falling in Sydney.  Sometimes it feels like half my town in QLD is for sale, and not selling!  I've met RE agents who've quit their job because they hadn't earned a commission in three months......

Our banks are deep dodos.  Their credit ratings were all downgarded recently by Standard and Poors.  And I doubt it will take China 5 years to overtake the US as the world's largest economy, and once that economy goes pear shaped, make no mistake, the dominoes will fall.

The elephant in the room for us truly is Peak Oil.

As I write this, the Japanese disaster is going from bad to worse. The global nuclear industry is in disarray, and the combination of this catastrophe, added to all the others that have occurred over the past twelve months (Russian drought/decimated wheat crop, Pakistani floods/decimated agriculture, floods right down Australia’s seaboard, cat 5 cyclone wiping out infrastructure and banana/sugar crops in Nth QLD, earthquake in NZ) to me at least signal that the collapse has begun.

Oil is now over $100, and I can’t see it ever coming down again unless a full blown depression kicks in destroying demand dramatically. Especially if the NAME nations continue on their merry revolutionary way….. in particular of course Saudi Arabia. Which will soon be the only nation still able to export any oil. Unless of course the wikileaks cables which exposed the Saudis for overstating their reserves numbers by at least 40% turn out to be correct…. in which case all bets are off.

Meanwhile Australia’s oil woes are also going from bad to worse.

What got me started on this phase of investigation in Australia’s Peak Oil dilemmas was an article in the Australian.  Such a conservative newspaper too…  The author, Professor Stephen Lincoln, wrote “At present rates of extraction, Australian oil, condensate and liquefied petroleum gas supplies are likely to last 8, 36 and 45 years respectively” http://www.theaustralian.com.au/news/arts/energy/story-e6frg8nf-1225961564279  My first reaction was “no way…”, but a little delving quickly discovered he may actually be optimistic on the condensates figures.

Australia's failing oil production

source http://www.aspo-australia.org.au/ODPBR/image003.gif extrapolation by me.

Extrapolating from the current data, and assuming that no surprisingly large new fields are discovered double quick, we will be as good as totally out of oil by 2020.  And condensates too.

EXPORT LAND MODEL

The concept is deceptively simple:
Oil producing countries consume their own production first, and then export their surplus. Observations of oil exporters clearly show that their domestic markets are growing exponentially (ie, by a certain percentage per annum) even after they peak. So their export capacity is hit by 2 factors – declining production and increasing domestic consumption. As a result, their export capacity drops with surprising rapidity….. the clash of two opposing exponential hockeysticks!  If you don’t know what a hockeystick is, go and do the crash course.

The consensus seems to be that there will be a serious supply crunch within 5 years, so we should look at how we will be positioned in 5 years.

AUSTRALIA

Australia currently produces a bit under 50% of the oil we consume. Our production peaked in 2000, and is now in decline, with occasional jumps as new production is added. We currently produce slightly more than 500,000 barrels/day and this figure is dropping:

Our growing reliance on imports

Australian Oil Production
Source: EIA, http://www.eia.doe.gov

That ‘bump’ at the far right end of the graph above was caused by the discovery of a very substantial oil field off the NW coast of Western Australia.  The effect on the steepness of the depletion curve was , well, negligible.  A slightly larger ‘bump’ can also be observed on the equivalent curve for the USA’s production; except that ‘bump’ was Prudhoe Bay, the largest ever oil field discovered in Nth America.  It too had a negligible effect on the total production outcome.  For Australia to NOT run out by 2020, we would have to find something as large as all the oil we’ve consumed in history.

An enthusiastic reader of this blog recently reminded me that BP plans to further drill the Great Australian Bight where 100 million barrels of oil are believed to exist…. but to put this in perspective, the whole lot would be consumed in barely more than three months.  Just one more bump on the downside of the depletion curve.

But here’s the crunch line: by 2020, no oil exporting nation will be selling us oil.  At all.  By then the Export Land Model will have reached its inevitable outcome.

Are we in trouble…?  YOU decide.

Mike

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