Gold resilient as yields surge!

In this week's market update:

• Gold prices have stabilised above USD $1,900 per troy ounce (oz), up 1% over the past five trading days.

• Silver was softer, falling by 1% to USD $22.70oz, with the gold to silver ratio (GSR) rising to 84.

• Currency and equity markets were stable, with the Australian dollar still trading above USD $0.66, while commodity prices have seen a small bounce (+1% for the week), with oil breaking back above USD $70 per barrel.

• The biggest move for the week was in bond markets, with yields for 10-year treasuries rising above 4%, with real yields also continuing to rise.

Gold holding strong despite headwinds

Gold has shown impressive resilience in the first few trading days of the new financial year, ignoring a range of headwinds to hold above USD $1,900 per troy ounce.

Those headwinds have included:

• A surge in employment in the United States, with the US economy adding almost 500,000 jobs in June, more than double analyst expectations.

• Sharp increases in both nominal and real yields, which have risen by 0.20% and 0.13% respectively in the last week alone. Indeed, over the last year, nominal yields on US 10-year treasuries have risen from 2.93% to 4.05%, while real yields have almost tripled, from 0.64% to 1.78%.

• Rather than a decline in the face of what is typically seen as a major barrier to gold price growth, the precious metal is +1% over the week, and +1% over the past year, a sign of incredible underlying resilience.

• A rebound in risk assets, with cryptocurrencies surging over the last quarter, while equities have been strong for most of the year.

• Notable reductions in risk appetite for speculative investors that are long gold, with managed money speculative positions falling to just 108,209 contracts by late June, down 25% from levels seen in early May.

• A continued lack of buying interest from ETF investors, with recent World Gold Council data suggesting these vehicles saw 56 tonnes of divestment in June 2023. Over the first half of the year, despite gold ETFs seeing net negative demand, the price of gold was not only positive (+5% in USD terms), but one of the highest performing assets, outperforming traditional defensive assets like cash and bonds, as well as commodities, which sold off heavily. This is evident in the chart below.

Silver is also holding up, with solid support around current levels. The fact the GSR has stabilised is also an encouraging factor, with the expectation being that this ratio will decline once precious metals reassume their primary uptrend.

Given the above backdrop, and the headwinds precious metals have faced, gold has done very well generating a positive return in 2023, and still sitting with 10% of its all-time high.

As a result, we think investors in precious metals as an asset class should be quite pleased, with the market showing an underlying resilience that bode well for the second half of the year.

Asset allocators continue to buy gold

If survey data is anything to go by, the outlook for gold remains positive, with a recent State Street study suggesting more investors will be adding to their holdings in the period ahead.
The survey included more than 1,000 investors with a minimum of $250,000 in investable assets.

Of those surveyed, almost 20% of them had exposure to gold, with an average allocation of some 14% of total portfolio assets. Seventy percent of these investors hold gold as a hedge against inflation and/or economic downturns.

Interestingly, the data on exposure in a portfolio aligns almost perfectly with ABC Bullion analysis of our SMSF trustee client base, which finds allocations of 10-20% of portfolio assets are common for these clients.

Looking ahead, the State Street study found that:

• Three percent plan to reduce their gold exposure.

• Forty percent plan to keep their exposure steady.

• Fifty-seven percent plan to put more money into gold in the coming year.

One factor that would likely see asset allocators, as well as other types of investors, increase their holdings of gold and other precious metals would be an intensification of recessionary risk.
This is something the World Gold Council highlighted in their recent H1 2023 update, noting that:

“If the recession risk increases, gold investment could see greater upside. An economic deterioration could be driven by a significant increase in defaults following tighter credit conditions or other unintended consequences of the high-rate environment. Historically, such periods have resulted in higher volatility, significant stock market pullbacks, and an overall appetite for high quality, liquid assets such as gold.”

The below chart, which also comes from the World Gold Council, highlights how well gold has done in previous periods the economy has contracted, with gold rising in all major recessionary periods since the 1970s.

The chart also makes clear that not only has gold risen strongly, it has outperformed the US dollar, which is often also seen as a safe haven asset in turbulent times.

For Australian investors, gold’s value could potentially increase even faster, given recessions tend to coincide with periods of significant weakness in the Australian dollar.
 
Gold to hit AUD $5,000 per ounce?

The ABC Bullion Precious Metals Forum: “Precious Metals to Roar in the 2020s” is on in just over a month.

The forum, which will be held at the Ivy Ballroom Sydney on the evening of Tuesday 22nd August is shaping up to be another great night, with a range of expert speakers offering their latest insights into the precious metal market.

I will be looking at the Australian investment case for gold and silver, highlighting a range of factors, including:

• Recent trends in inflation data, suggest gold will thrive from here, even if headline increases in consumer prices moderate from the multi-decade highs, they hit in 2022.

• Why recent price increases in the Australian property market likely represent a dead cat bounce, and how gold is set to meaningfully outperform real estate in the coming years.

• The recent price action in gold which suggests the precious metal could head toward AUD $5,000 per ounce in the next leg of the bull market, with silver to follow suit.

If you are interested in attending, please visit the forum booking page. Tickets are AUD $35.
 
Inside the office

The new financial year has seen a busy start to trade at ABC Bullion, with healthy volumes of both sales and buybacks.

Online, we are seeing continued interest in pool allocated gold and silver, as well as investment into cast gold and silver bars. Silver coins also continue to sell well, including our signature ABC Bullion 1oz Eureka silver coin.

Inside our Global Flagship store, our most popular products remain ½ ounce gold cast bars, 1oz gold cast bars and 50-gram gold cast bars, as well as the 10oz ABC Bullion silver cast bar.

Jordan Eliseo
General Manager
ABC Bullion Australia

Disclaimer: This document has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this document or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it. Although the information and opinions contained in this document are based on sources, we believe to be reliable, to the extent permitted by law, ABC and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice, and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances. To the extent possible, ABC, its associated entities, and any of its or their officers, employees and agents accepts no liability for any loss or damage relating to any use or reliance on the information in this document. It is intended for the use of ABC clients and may not be distributed or reproduced without consent. © Australian Bullion Company (NSW) Pty Limited 2020.