Market Updates

On Tuesday night, ABC Bullion hosted a sold out seminar; “The New Bull Market in Precious Metals”, in front of over 600 existing and new clients, as well as an assorted mix of finance professionals and media at the Ivy Ballroom in Sydney, NSW.

We had key-note speeches from Jake Klein, the Executive Chairman of ASX listed gold Evolution Mining, as well as Tom Rachcoff from Cor Capital Pty Ltd, a diversified investment portfolio with a strategic holding in physical gold bars.

In this week’s market update – we’re going to highlight what we believe some of the takeaways from the night were, and discuss possible price targets for precious metals in the next few years.

There has been a flurry of articles written about precious metals lately, not surprising considering the strong rally in the first half of 2016, which saw gold and silver outperform most mainstream asset classes by some margin.

Some of the articles have been wildly bullish, whilst others are unconvinced by the recent rally, believing that gold is still stuck in the cyclical bear market that can be traced back to the latter part of 2011, when gold peaked at around USD $1900oz.

One of the more interesting articles we’ve seen on the topic of late came from Montgomery Investment Management, run by Roger Montgomery, one of Australia’s most successful and best known value investors. They discussed the precious metal in an article titled; “Is it time to buy gold?”, which they published on June 28th, just before the end of the financial year.

Financial markets went through one of their most volatile trading days on record Friday, with an unexpected Brexit vote causing chaos on currency markets and stock exchanges, with huge moves in the Japanese yen, declines in bond yields, and a rally in gold, as investors flocked to safe haven assets.
 
This morning, gold is trading back USD $1320 per troy ounce, whilst in Australian dollars, the price is closing in on AUD $1800 per troy ounce, owing to a sharp decline in the local currency.
 
Below we share our thoughts on the impact that the vote will have on markets and the investing world, as well as the result itself!

Gold prices rallied strongly on Friday night, an understandable reaction to some of the worst US employment data in years. The news, which rattled currency markets, saw a notable re-pricing of US interest rate expectations, whilst the Australian dollar rallied too.
 
This week, we wanted to share something a little different to our regular market updates. It is not precious metal specific (though gold is a topic that is discussed) but which we think is highly relevant to all Australian investors, as the vast majority of ABC Bullion clients are.

For the first time in 2016, precious metal investors are on the back foot, with gold and silver declining from early May. After closing out April at USD $1274.50 and USD $17.85 per troy ounce respectively, the two precious metals eased 5% and 10% respectively.
 
With gold closing out May at USD $1210.50 per troy ounce, and silver at USD $16.06, the gold silver ratio has also increased back to 75:1, a not unexpected development considering the overall trend in the market the past four weeks.

Despite the overnight pullback, it’s been another solid week for precious metal investors, with gold in USD trading at $1267 per troy ounce. In Australian dollars, prices are closer to $1735 per troy ounce, with the local currency having fallen below USD $0.73.
The fall in the currency represents a dramatic change in the space of just a few weeks, owing to the RBA rate cut from early May, as well as a dramatic repricing of interest rate futures, which suggest we could hit Xmas 2016 with a cash rate closer to 1% than 2%.

Look for a move to US$1020 with support at US$1013

If support at US$1013  doesn’t hold then note a target to US$982 on the hourly P and F? That takes the price back to near the weekly cloud base.

Click to see our weekly report that captures the technical outlook for precious metals using Point and Figure and Ichimoku Cloud charts, along with a brief commentary that addresses the changes in speculative positioning in US futures exchanges and global ETFs. We will also discuss economic and other news affecting precious metals.

Weekly Technical and Precious Metals Positioning Report

Starting this week, ABC Bullion will be distributing a weekly report that captures the technical outlook for precious metals using Point and Figure and Ichimoku Cloud charts, along with a brief commentary that addresses the changes in speculative positioning in US futures exchanges and global ETFs. We will also discuss economic and other news affecting precious metals.

After the decent break that took place on Tuesday the 19th, it looks worthwhile to have a quick visit to the Weekly Charts and ratio charts to see how the picture has moved on since the report written a fortnight ago.

“Why investors may need to lower their sights”, looks at the extraordinary performance of financial markets in the last thirty years, describing them as a ‘golden age’ for investors, before noting that those returns were significantly higher than the long-term average.

Platinum has had a strong start to 2016, with the market rallying from US$889.50 to a high of US$1,008.50 in early March, a 13.30% increase, before easing back slightly. The price has pretty much as good a run as gold and silver, and has outshone its sister metal, palladium. To read more about this intriguing precious metal please click the image below to view our in depth report.

Nicholas Frappell
General Manager

ABC Bullion

Precious metals continue to impress, with another impressive week for the gold and especially silver. In US Dollars, the gold price continues to consolidate around the $1250 per troy ounce level, whilst it is again sitting comfortably above AUD $1600 per troy ounce, despite the continued strength in the Australian dollar, which was pushing above USD $0.78 earlier in the week.

This week also saw the launch of the Shanghai Gold Fix, with the Shanghai Gold Exchange starting a twice daily fixing system, an unsurprising development considering the growth of the gold market in China. The first fix was set at 256.92 per gram (circa $USD $1233.85 per troy ounce), according to Bloomberg.

Despite the overnight weakness, it’s been another solid week for precious metal investors, with gold trading just below USD $1230 per troy ounce, whilst in local currency, it is sitting just below AUD $1600 per troy ounce, with the dollar pushing well above $0.76 vs. the USD.

The bigger news has been in silver, with the little cousin of the precious metal complex now trading closer to USD $16.20 per troy ounce, up nearly 9% since the start of the month, when it was trading closer to USD $15.

The outperformance of silver in the last few trading days is giving further encouragement to those who believe the next move in this precious metal cycle will be to the upside, building on the impressive gains seen in Q1 2016.

Gold and silver prices have had another solid week, with the precious metals trading above USD $1230 and USD $15 per troy ounce respectively.

In Australian dollar terms, the metals are also trading strongly, sitting above AUD $1630 and $20 per troy ounce, consolidating the impressive returns in Q1 that saw the metal rise 17% in USD terms.

Precious metals have closed out a very impressive Q1 2016, a welcome respite after what has been a tough three years for those who’ve been long in the sector. After starting the year trading at USD $1,060 and USD $13.85 per troy ounce for gold and silver respectively, the market has rallied strongly, with the two metals finishing the quarter up 16% (gold) and 11% (silver). That is based on closing prices of USD $1234 and USD $15.38 per troy ounce for the two metals.

Gold prices corrected sharply overnight, with the price of the yellow metal falling as low as USD $1214 per ounce, with silver following suit, trading as low as USD $15.13 per ounce before stabilizing somewhat.

Prices for Australian dollar investors have also pulled back, with the local currency still stubbornly sitting above $0.75 per ounce. AUD gold is currently trading at $1620 per ounce, whilst silver is sitting at AUD $20.40, an area that has proved very good buying for most of the last year.

The price decline we’ve seen overnight has not come as a huge surprise, with a pullback expected for much of the past two to three weeks. Speculative and commercial positioning in the futures markets had suggesting precious metals were short-term overbought, and this kind of weakness is often a good thing, setting the market up for another move higher.

We will take a more detailed technical look at where the market sits today, after this pullback, and where the key support lines are late on in this report.

Gold prices have consolidated this week, originally pulling back before the very dovish projections from the Fed put some wind under the sails of precious metal prices.

In USD, gold is currently trading at $1259 per ounce, essentially unchanged for the week, whilst silver is sitting at $16 per ounce, up nearly 3% for the week. Prices in Australian dollars have corrected, owing to the quite extraordinary rally in the local currency, which has pushed above 76 cents vs. the US dollar.

AUD gold and silver are now trading just below $1650 and $21 per ounce respectively, a pullback that is all currency related, rather than due to any actual precious metal price weakness.

If they closed the books on 2016 tomorrow – precious metal investors would be celebrating a very happy year indeed. After ending 2015 as the most hated asset class on the planet, gold has trumped all over the last several weeks, currently trading north of USD $1250 and AUD $1700 per ounce.

The price in Australian dollars, up nearly 20% for the year, is even more extraordinary when one considers where the local currency is, with the Australian dollar sitting at $0.74 vs. the US dollar, testament to better than expected GDP figures down under, a bounce in iron ore, and the realization the Fed’s forecasts for stronger growth and higher rates in the United States were as inaccurate heading into 2016 as they were heading into 2008.

The performance of gold over this period has seen huge inflows into gold ETFs, strong retail demand (ABC Bullion turnover is particularly brisk right now), and an incredible change in speculative activity in the precious metal market, with managed money now aggressively long, whilst shorts have all but disappeared.

Indeed so strong has gold been of late that we’ve even seen the more ‘entertaining’ end of the finance media endorse gold investment, with Jim Kramer coming out and stating that every portfolio should have an allocation to gold and silver. Obviously we agree – though on a short-term basis, too much bullishness towards the sector makes us nervous, and we are more inclined to believe a correction can’t be too far away.

First: the facts. Gold prices have been on a tear the past week, with the price of the yellow metal climbing above USD $1240 an ounce, now up an incredible 18% in USD terms since the start of the year. Silver has come along for the ride of late too, currently trading at USD $15.70 an ounce. YTD it is now up 14%, with precious metals comfortably the best performing asset class of the year.

In Australian dollar terms, the news is even better, with silver now trading above AUD $22 per ounce, whilst gold has just broken through AUD $1750 per ounce, up nearly 25% from the lows of late 2015, and within striking distance of its all time highs.

Precious metals continued their impressive rally this week, with gold and silver climbing above USD $1150 an ounce and within touching distance of USD $15 an ounce respectively, as weak data, continued market volatility and a shock move by the Bank of Japan to implement negative interest rates boosted demand for safe haven assets.

The move by the Bank of Japan (BoJ) follows increasingly dovish tones coming from the European Central Bank (ECB), with the market expecting more easing from Mario Draghi soon, whilst weak data out of the United States has called into question whether the Federal Reserve will be able to make any interest rate hikes at all in 2016, let alone the four they supposedly have planned.

It’s been another positive week for precious metal investors, with the gold price comfortably pushing through USD $1100 an ounce, whilst silver has also strengthened, currently trading near USD $14.50 an ounce, up a further 2% for the week.

If the metals can hold onto their gains for the entire week, it will cap a very strong January 2016 for the sector, with both gold and silver up 4-5% for the month, a performance that is even stronger on a relative basis, when one considers the substantial decline we’ve seen in equity markets, and the broader commodity complex so far this year.

After closing out 2015 as one of the least popular asset classes on the planet, precious metals have come ‘back to life’, holding their own and even advancing in value whilst financial markets and broader commodities endure the kind of volatility we’ve not seen for years.

ETF investors are buying again, coin demand the world over is robust, whilst interest from retail clients, institutional investors and SMSF trustees has noticeably picked up in Australia, something we expect to continue throughout 2016

In this weeks market update, we’ll be looking at some of the latest gold charts, what is happening in stock markets the world over (decreases in which are spurring precious metal demand), and why gold as an asset class reminds us of the latest Hollywood blockbuster; “The Revenant”.

We are also going to share some thoughts on an interesting report published earlier in the week by PWC, who interviewed CEO’s around the globe regarding their view on the economy, and future investment and hiring plans.

Calendar year 2016 has had a volatile start for investors in financial markets, with equities the world over under significant stress. Fears regarding a slow-down and potential hard landing in China, as well as broader concerns about tepid global growth, as well as rising geopolitical tensions in the Middle East and Korea have seen hundreds of billions in ‘wealth’ wiped out.

No region has escaped the rout, with the pain felt in Shanghai, London, New York and Sydney too, with the ASX falling below 4,900 points earlier this week, in what has proved to be the worst start for equity markets on record.

Fortunately, those of us with investments in precious metals have been sheltered from this storm, with the price of gold rising back above USD $1100 an ounce at point, though some profit taking and some commodity index rebalancing has since seen the price of the yellow metal ease back toward USD $1,080.

Silver has held its ground, currently sitting just below USD $14.00 an ounce, whilst prices in Australian dollars for both metals have surged, with the weakness in the local currency pushing gold and silver toward AUD $1550 and AUD $20 an ounce respectively.

Demand for physical metal has been robust over the holiday period, especially at the retail level, with US Mint silver coin sales apparently quadrupling. With a gold/silver ratio near 80:1, we were happy to personally take part in that buying activity, and topped up our own SMSF with some silver over the holiday period.

We’ve noted many of our clients have also done so over the past few weeks, with gold and silver sales off to a solid start to the year, evidence of the robust demand that exists for precious metals today.

Was it worth it?

That’s the question we think a lot of investors will be asking as they wrap Xmas presents this year. The hours spent reading blogs and research and balance sheets and company announcements, all trying to work out which asset class to invest in, which ones to avoid, or which sectors of the market to focus their capital in.

In truth, whether we look at Australian equities, at gold, at the bond market, or global stock exchanges, 2015 is not one most investors (unless they’re been great stock pickers or market timers) will look back at fondly, with quite a few swings in asset markets, but few that have appreciated meaningfully.

What follows below is a review of 2015, not so much looking at asset market returns themselves, but what some of the major drivers have been, as well as commenting on a few things that have caught the eye in the last 12 months, both in Australia and overseas.

We will also share some our favourite charts for the year.

Obviously we’ll also take a look at the precious metal market, summarising our thoughts on its current state based on the developments we’ve seen not only in the past year, but since the cyclical peak in gold back in 2011.