Global Instability and the falling NZD: Why Gold is the ultimate safe haven

The New Zealand dollar (NZD) has experienced a significant decline since October 1st 2024 due to several interrelated factors:

1. Strengthening U.S. Dollar: Robust U.S. economic data, particularly strong job growth in December, has bolstered the U.S. dollar. This strength exerts downward pressure on other currencies, including the NZD. (Source: REUTERS)
2. Domestic Economic Challenges: New Zealand’s economy has entered a recession, with GDP contracting by 1.0% in the third quarter of 2024, following a 1.1% decline in the second quarter. This downturn has led to expectations of further interest rate cuts by the Reserve Bank of New Zealand (RBNZ), which can diminish the currency’s appeal to investors. (Source: REUTERS)
3. Global Economic Concerns: Slowing growth in major economies, notably China, has negatively impacted demand for New Zealand’s exports. As a commodity-linked currency, the NZD is sensitive to such global economic shifts. (Source: FXSTREET)

Gold as a Hedge Against a Falling NZ Dollar

The New Zealand dollar (NZD) has been under pressure recently, moving from .6344 on October 1st to .5625 on January 15th, a drop of 11%.

As the NZD declines, the purchasing power of your cash holdings diminishes, eroding their real-world value. This is where gold demonstrates its timeless advantage.

Internationally, gold is priced in USD and when other currencies like the NZD drop, gold is repriced higher in the local currency. The value of gold is that it acts as a hedge against a strengthening USD.

In 2024, gold prices surged an impressive 42% in NZD terms. This remarkable performance underscores gold’s role as a financial insurance policy, preserving wealth in times of currency volatility.

Five Key Points Highlighting Gold’s Role as Insurance:

1. Shield Against NZD Depreciation: As the New Zealand dollar weakens, holding gold ensures the value of your assets is preserved in global terms.
2. Protection Against Inflation: Gold acts as a safeguard against the diminishing purchasing power of cash, particularly during periods of high inflation.
3. Store of Value Across Generations: While currencies like ours can fluctuate and devalue, gold has consistently retained its worth over centuries.
4. Hedge Against Geopolitical Risks: Global instability often triggers capital flight to gold, bolstering its value and providing a safe haven for investors.
5. Complement to Currency Diversification: By adding gold to a portfolio, investors can reduce reliance on any single currency, including the NZD, enhancing overall financial resilience.

The Global Context: Political and Economic Uncertainty

The world in 2025 is a landscape of heightened geopolitical tensions and economic instability. From strained international relations to inflationary pressures in major economies, uncertainty reigns.

Such turmoil historically drives demand for gold, as investors seek refuge in an asset perceived to retain value irrespective of external shocks.

In addition to serving as a currency hedge, gold’s allure lies in its ability to act as a counterbalance to the broader market. When equities and bonds falter due to geopolitical or economic shocks, gold typically thrives, offering much-needed stability.

Why Now is the Time to Buy Gold

1. Protection Against Erosion of Wealth: With the NZD weakening, gold safeguards your purchasing power by maintaining value independent of local currency fluctuations.
2. Hedge Against Inflation: As inflation diminishes the value of cash, gold’s intrinsic value often increases, providing a robust shield against rising costs.
3. Diversification Benefits: Gold’s negative correlation with traditional financial assets like stocks and bonds makes it an essential portfolio component, mitigating risk during market downturns.
4. Global Demand Dynamics: As global political and economic turmoil fuels demand, gold prices are likely to remain robust, offering potential capital appreciation alongside its defensive benefits.

Managing director, Tony Coleman, agrees. “The myriad factors create an environment where we could see gold continue to climb through 2025, with many global commentators picking at least US$3000 gold. We recommend a 15-20% weighting of bullion in your investment portfolio to protect and preserve wealth in such times”.

For New Zealand investors, the case for gold is compelling. In a world where uncertainty is the only certainty, gold offers a tangible store of value and a hedge against both local currency depreciation and global instability. With its impressive 2024 performance in NZD terms, gold has proven its mettle as a cornerstone of any well-rounded investment strategy.

Incorporating gold into your portfolio isn’t just about chasing returns; it’s about securing peace of mind.

Whether you’re a seasoned investor or just starting your financial journey, now is the time to consider gold’s role in protecting and enhancing your wealth.