A golden buying opportunity!

In this week's market update:

• Gold prices fell below USD $1,900 per troy ounce (oz) this week, with the precious metal  falling by 2% over the past five trading days, and -4% for the month.

• Silver was also softer, falling by 1% and last trading at USD $22,70oz, with the gold to silver ratio (GSR) currently sitting at 83.

• In Australian dollar terms, precious metals have been supported by continued weakness in the local currency, which last traded at USD 0.641, with gold and silver sitting at AUD 2,949oz and AUD 35.40oz respectively.

• Equity markets were hit hard, with the S&P 500 -2% over the past week, while the ASX 200 was -3%, while commodities were also softer, falling by 2%, though oil has so far remained above USD $80 per barrel.

• A surge in bond yields has driven recent market weakness, with US and Australian 10-year bond yields now yielding 4.30% and 4.27% respectively. Yields in the US have risen by almost 50 basis points in the last month, with bonds now trading at levels last seen 15 years ago.

Where does support for gold sit?

Precious metal markets continued to trade lower this week, with gold not only falling below the USD $1,900oz price level, but also below its 200-day moving average (200DMA), which currently sits at USD $1,895oz.

Silver was also softer, -1% to USD $22.70oz, with the gold-silver ratio declining from 84 to 83 over the past five trading days, in a sign that this corrective period may be nearing its end.

Gold has now fallen for eight straight trading sessions, with this period of weakness marking its longest losing streak in more than six years.

Surging bond yields have driven the recent weakness, not only in gold but in equity markets too, with US 10-year treasuries now yielding 4.30%.

Those yields have increased by 0.21% in the past week, 0.45% in the last month, and 1.41% in the last year, with yields now back to levels last seen just before the Global Financial Crisis hit.

Real yields, which are even more important when it comes to gold, have also surged, currently sitting at 1.97% on 10-year treasuries, up from just 0.43% a year ago.

In the short-term, the continued surge in bond yields poses a threat to gold, especially given it has fallen through the 200DMA. But with speculators record short bond futures, yields are likely to hit a ceiling soon, and could then reverse violently.

Were that to happen, we’d expect precious metals to find solid buying support, with prices to respond accordingly.

The continued slowdown in the global economy, and challenges posed by higher interest rates, evidenced this week with one time second largest Chinese property developer Evergrande filing for bankruptcy can also be expected to support precious metals in due course.

All eyes on the stock market

While higher bond yields are weighing on gold today, the relationship between the precious metal and stock market should not be overlooked.

To that end, given its role as premiere wealth protection asset, it’s no surprise that gold often sees some if its strongest performance in periods that the stock market is weakest.

To help visualise this, consider the chart below, sourced here, which covers the period from the late 1950s to today. It shows:

• The S&P 500.

• The gold price.

• The silver price.

• Theoretical returns from a 60/40 portfolio of stocks and bonds.

Note that when looking at the S&P 500 section of the chart, the shaded yellow areas represent secular bear markets for the stock market.

The chart highlights that major bear markets for the S&P 500 (the yellow sections) have typically coincided with significant bull market runs in precious metals.

This makes sense, as investors fleeing falling share prices rush to the safety of gold and silver, pushing their prices higher.

Despite this week’s pullback, the stock market is holding up quite strongly at present, with the S&P 500 for example still up 14% for the year, while the NASDAQ is up by 28% over the same period.

The result of this is that today, there is no meaningful ‘flight to safety’ momentum boosting gold, at least not from the mainstream investment community at large. This is evident in the lack of inflows into products like gold ETFs.

We expect this to change in due course though, with decelerating growth, a loss of earnings momentum and the potential for inflation to accelerate all posing challenges to risk assets.
When the headwind of a strong stock market dissipates (as it inevitably will) history suggests precious metals will surge.

Given these potential developments, history may judge that the USD $1,900-USD $2,000oz price level will ultimately represent a floor for the gold price going forward, rather than the ceiling many commentators take it for today.

The ABC Bullion Precious Metal Forum is on next week.

The ABC Bullion Precious Metal Forum: “Gold and the Roaring 20’s” will be held next Tuesday 22nd August at the Ivy Ballroom in Sydney.

With more than 600 clients of ABC Bullion registered to attend, it promises to be fantastic night of networking, as well as the perfect forum to highlight current market dynamics impacting precious metals, supply and demand trends, as well as the big picture case for gold and silver, and the role they can play in an investor’s portfolio today.

One factor we’ll be looking at is the relative disinterest that we are seeing toward gold and silver, based on financial market and news stories that mention precious metals.

This can be visualized in the chart below, which shows the number of stories per month that mention the world gold (black columns), as well as movements in the gold price (orange line), and how the two have trended over the last decade.

Chart: Gold Price and Gold Related Stories

As you can see, the number of stories mentioning gold has fallen off a cliff recently, especially compared to what we saw just over three years ago when COVID hit, and again in early 2022 which essentially aligns with the period armed conflict between Russia and the Ukraine commenced.

This relative lack of interest is actually a tremendous sign for gold going forward. Investor apathy is the prevalent vibe or mood at the start of significant bull market runs in almost any asset class, and gold is no different in this regard.

This, combined with a range of other factors, from fund flows to financial market drivers to relative performance trends all suggest the outlook for precious metals is very bright, despite the current volatility.

If you would like to attend on the night to hear more about these trends in person, please register at the link below.

See you at the ABC Bullion Precious Metals Forum

Inside the office

Demand for physical gold and silver has spiked in the last week, with sales to ABC Bullion’s Australian nationwide client base up by close to 30% compared to the week before.
 
This has been driven by all channels and client types, including wholesale clients and SMSF trustees, many of whom are allocating to gold now that we’ve crossed over into the new financial year, and they have reassessed their investment strategies.
 
Buybacks of metal remain at healthy levels too, with the weakness in the Australian that is keeping the AUD gold price near $3,000oz encouraging some clients to book profits on long-term precious metal holdings.
 
Pool allocated and ABC Bullion gold cast bars continue to dominate trading volumes online, while in store, we’ve seen solid demand for ABC Bullion minted gold and ABC Bullion minted platinum products.
 
We are also seeing renewed interest in silver monster boxes, most notably ABC Bullion Eureka coins, which remain the most cost-effective silver bullion coin on the market.

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.