The price of gold has hit a record high this week rising above US$3000 per ounce. Photo / 123RF
OPINION
Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up for my weekly newsletter, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Q: I saw the price of gold has hit a record above US$3000 [an ounce]. Why is it still seen as such a safe investment?
Jarrod W.
That’s right, gold prices have surged in the past few days. They went through an historic record above US$3,000 an ounce at the weekend.
After another spike overnight gold is now trading at US$3037 an ounce.
The price is up by 15% since the start of 2025, the BBC reported.
In its commentary, it added: “Gold is seen as a safer asset for investors and is often sought after in times of economic instability”.
With Trump’s trade wars rattling markets and threatening economic growth it makes sense that investors are looking for safe havens.
But why gold? What makes it special?
Well, part of it is historic. As a widely accepted way to store value, gold has the longest track record of anything we have.
It’s been used as currency or as a financial asset for about 6000 years — dating back to ancient Egypt and Mesopotamia.
Belief in the intrinsic value of gold was so strong that it was used to back the value of currency until very recently.
The US only abandoned the gold standard in 1971. The Swiss held on until 2000.
Gold still instils confidence in people that it can hold value through all sorts of financial and political upheaval.
Gold is also tangible. In other words, in theory, if you own gold you own some physical thing somewhere.
However, while you can buy and hold real gold, these days a lot of gold investing is done on paper (or computer) with certificates and contracts.
People can invest in exchange-traded funds (ETFs) that track the gold price.
Gold has some utility value. It is used in electronics and jewellery but that doesn’t come close to justifying the investment price.
So in many respects, it is not that different to a cryptocurrency. Its value is based on a collective agreement about what it is worth.
But gold has thousands of years of cultural respect on its side and seems to be a lot less volatile.
It also lacks any kind of return other than its capital value. But gold supply is limited — it only increases by 1% to 2% a year, so it doesn’t suffer from inflation.
Gold has risen in value by about 500% since 2005. It had a big surge through the Global Financial Crisis years. After falling back significantly through the 2010s it surged again around 2018 to the start of the pandemic.
But once the pandemic stimulus was in place it tracked sideways before taking off again in late 2023.
It has been seen as safe haven that often performs well when stocks and bonds are under pressure.
The latest surge seems to prove that it’s lost none of its shine in this respect.
We get to see the December quarter GDP figure on Thursday and it should hopefully tell us we are no longer in recession*.
But not by much.
Economists are picking growth of between 0.3% and 0.5% for the last quarter of 2024.
It’s pretty marginal though and broadly there is a feeling that the momentum of this recovery is very slow.
That’s prompted several economists to revise their forecasts downwards in the past few weeks.
It can be hard to keep up but we get a good snapshot of the outlook from the quarterly Consensus Forecasts report produced every quarter by economic think-tank NZIER.
The NZIER survey compiles forecasts by the Reserve Bank, Treasury, all the major banks as well as economic consultancies.
The March survey was released Monday and shows a downward revision in growth expectations for the year to March 2025 — from flat (0.0%) to negative (-0.8%).
That suggests that the growth for the last quarter of 2024 and this current quarter is expected to be low — too low to offset the big contraction in the June and September quarters last year.
A pick-up to 2.1% growth is expected in the year to March 2026. Hardly a booming recovery, but some growth at least.
Forecasts of household spending have also been revised lower.
“With about 55% of mortgages due for repricing within the coming six months, many households will face further reductions in their mortgage repayments at the next repricing of their mortgages,” NZIER senior economist Ting Huang says.
“While this should support a recovery in discretionary spending over the coming years, this recovery is expected to be tempered by the soft labour market and slowing net migration.”
*Okay, that’s based on the commonly used definition of two successive quarters of contraction. If you want to make the case that inflation, low growth and rising unemployment have made things feel recessionary for a lot longer than that, well, I won’t argue with you.
The one bright spot in the revisions seems to be that forecast export growth has been revised up for 2025. It’s not news that dairy prices have surged this season. But the consensus is for lower prices in 2026.
“[Export] growth is expected to be weighed by slowing global growth due to increased trade tensions,” Huang said.
Those fears of trade wars limiting New Zealand’s export earnings are logical enough.
We can see them reflected in the downgraded global growth forecasts put out his week by the OECD (Organisation for Economic Co-operation and Development).
It has downgraded its global growth outlook for 2025 from 3.3% to 3.1% and its outlook for 2026 from 3.3% to 3.0%.
“Signs of weakness are appearing against a backdrop of slower growth, lingering inflation and an uncertain policy environment,” the OECD said.
“Further fragmentation of the global economy is a key concern.”
“Higher and broader increases in trade barriers would hit growth around the world and add to inflation. Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.”
Okay, so far so grim.
But ANZ’s economics team has come to the rescue, with a China forecast that could be very good news for New Zealand if it is accurate.
ANZ chief economist for China Raymond Yeung has revised up his outlook for GDP from 4.3% to 4.8%. He has revised up his 2026 GDP outlook to 4.5%.
That comes after better-than-expected industrial production and retail sales data this week.
Adding to the good news out of China, the Government there has unveiled a new stimulus plan to “vigorously boost consumption”.
Stimulus measures included larger pensions, better medical benefits and higher minimum wages.
“The action comes as China’s leaders are searching for ways to rebalance the economy away from its dependence on an ever-rising trade surplus, which reached almost US$1 trillion ($1.7t) last year,” the New York Times reports.
Consumer confidence in China has been subdued in recent years, in part by a big property market slump.
A turnaround in consumer spending would be good news for New Zealand and, given how heavily our exports are weighted towards China, would go a long way to offset the downsides of the wider trade war.
With official GDP figures so backward-looking (and so often subject to revision) economists have been increasingly looking to more immediate monthly data.
The BNZ/Business NZ Performance of Manufacturing and Performance of Services Indexes fit that bill.
Both surveys poll buyers at the coalface in two key sectors — manufacturing and services.
Last month, there was excitement as both bounced into positive territory for the first time in many months.
The results for February were mixed. Manufacturing has continued to expand — underpinned by meat and dairy processing for those booming export sectors.
But New Zealand’s services sector slipped back into contraction during February.
With a bit of dig at the historic nature of GDP data, BNZ head of research Stephen Toplis described the PSI news as the “most important domestic news of the week”.
Its contraction was “a reminder that things are not all plain sailing right now,” he said.
“Nonetheless, the broad trend in the composite PMI and PSI is upward and remains consistent with our view that the economy is slowly, but surely, on the mend.”
Sadly one of the last parts of the economy to mend is likely to be the employment market.
New figures from the Ministry of Social Development show nearly 22,000 more Kiwis are receiving the Jobseeker benefit than a year ago — a jump of almost 12% in 12 months.
In her story on Monday, Herald reporter Julia Gabel notes the number of additional people on the dole is roughly equivalent to the entire estimated population of towns such as Levin or Ashburton.
Overall there are now 213,321 people receiving Jobseeker Support.
That’s more like a city the size of Wellington.
It’s also a lot of people whose lives have been turned upside down and a lot more when you consider their families and dependents.
Economists typically rely more heavily on Stats NZ labour market data, which includes the official unemployment rate.
That’s hitting at 5.1% currently.
So how do the two metrics compare?
To make a direct comparison with the unemployment rate we first need to look at those on the Jobseeker (work ready) benefit, as opposed to the total number which includes (what we used to call) sickness beneficiaries.
At the end of December 2024, 120,399 people were receiving Jobseeker Support — Work Ready. This was up 10,701 or 9.8% when compared to December 2023.
Meanwhile, according to Stats NZ Unemployment rose to 5.1% in the year to December 2024, with 33,000 more people jobless for a total of 156,000.
There is, obviously, a correlation between the two figures, but Jobseeker Benefit numbers don’t catch large numbers of people who are unemployed but not on a benefit.
To further confuse things, Jobseeker Benefits do include people who may have some hours of work — but who wouldn’t count as unemployed in the official stats.
To get a complete picture of the labour market, Stats NZ runs the Household Labour Force Survey, which gives us that official figure.
Polling 15,000 households (about 30,000 people) across 13 weeks they generate an average for the quarter — rather than a set point in time.
The survey has a quite specific definition of who is unemployed.
They have to be not working at. They have to have been actively seeking work in the past four weeks or are due to start in four weeks. And they have to be actually making an effort, contacting employers and applying.
Any work at all, no matter how little, means you don’t count as unemployed.
Part-time workers who would like a full-time job or more hours of work are classified as under-employed. That puts you into those more nuanced categories within underutilisation.”
For all its strict parameters, the Household Labour Force Survey is a useful tool to measure the relative state of the economy.
It dates back to 1986 and isn’t subject to the political definitions of unemployment used to determine eligibility for benefits.
It means, for example, we can see how bad things are relative to the record 11 per cent unemployment rate we hit in the recession of 1991.
Where will unemployment land?
Expectations are that we’ll eventually see the unemployment rate peak in the next couple of quarters between 5.2 and 5.5%. That would be at or just below the belong term historical average for unemployment since 1986.
Landing back at the historically average levels of unemployment doesn’t seem so bad given the recessionary period we’ve been through.
But there is no doubt the number has been flattered by the high number of young Kiwis leaving in the past two years.
UBS Australia and New Zealand economist Nic Guenson says the rate would likely be closer to 6% without the exodus.
Regardless rising rate is always going to feel bad.
It’s also typically the last part of the economic cycle to turn. The low rate of job creation combined with widespread job losses is bad for those who become unemployed.
But it also creates job insecurity, dampening consumer confidence and limiting options to boost wages by shifting jobs.
It’s the last piece of the macroeconomic puzzle that needs to fall into place before we can talk about a real economic recovery.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
The current account deficit has narrowed on improved tourism and dairy exports.