A million reasons to buy gold as precious metals rally!

In this week's market update:

• Precious metal prices continued to trend higher this week, with gold at one point trading above USD $2,500 per troy ounce (oz).

• Silver was also stronger, rallying to USD $28.90oz, up 3% on the week, with the gold to silver ratio falling to 86.

• Performance in Australian dollars was more subdued owing to a +2% rally in the AUDUSD exchange rate to 0.674, with Australian dollar gold easing below $3,700oz.

• Risk assets also moved higher this week, with the ASX 200 in Australia up by 2%, and now trading above 8,000 points, while Bitcoin climbed back above $60,000 per coin.

• Commodities were softer, led by oil which fell by 6% and is now trading back below USD $75 per barrel.

See you at the Australian Gold Conference

ABC Bullion are proud sponsors of the 2024 Australian Gold Conference. Hosted over two days next week from Tuesday 27th to Wednesday 28th at Crown Towers in Sydney, the event promises to be a great showcase for the precious metal industry and cover all the reasons investors should be looking at gold and silver today.

ABC Bullion General Manager Jordan Eliseo will be doing a talk of the upcoming US Federal Election, pending interest rate cuts from the US Federal Reserve, and other factors set to drive bullion moving forward.

We would love to see you there. Please use the code ABCGOLD when purchasing a ticket, which will entitle you to a $50 reduction on the regular ticket price.

A gold bar is worth how much?

Precious metal prices continued to rally this week, with gold hitting new all-time highs above USD $2,500oz.

The milestone caught media attention, with Bloomberg running with the headline “gold bars are worth a million dollars for the first time”, referencing the USD value of a 400oz gold bar, like the ones we produce at ABC Bullion and which underpin the London Bullion Market.

While prices have pulled back marginally in the lead up to Jackson Hole, it has been another stellar month for gold, which has rallied by 5%, while annual gains are now sitting at 30%.
That puts gold ahead of the S&P 500 on a rolling 12-month basis, something that will begin to attract capital allocators should it continue.

Pod of Gold

My colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, released another timely edition of the ‘Pod of Gold’ this week. Recorded on the 20th of August and Titled: “Gold Breaks $2500: What’s Next?”, the podcast delves into a range of issues impacting the precious metal market.

It is a must listen as always, with timestamps below:

• 00:00 – Introduction

• 00:35 – Gold Surpasses $2500: Key Drivers

• 01:13 – U.S. Rate Expectations and Their Impact

• 02:55 – Gold Positioning: Fast vs. Slow Money

• 06:54 – Technical Analysis: Ichimoku Cloud

• 09:22 – Medium term gold targets

• 11:33 – The Stagnation in China and Its Implications

• 22:45 – Australian Dollar vs. Iron Ore: A New Disconnect

• 26:43 – Key Takeaways and Closing Remarks

Chart of the Week

In our most recent market update, we shared a chart that showed fund managers were overwhelmingly convinced that monetary policy was too restrictive, and that central banks needed to lower interest rates. If history is any guide, fund managers will get their wish, with those periods typically coinciding with the start of major bull market moves in precious metals.

This week’s chart reinforces the likelihood (as opposed to certainty) that gold and silver are set to outperform, as it speaks to their role as portfolio diversifiers, and assets that prosper in periods equity markets are falling.

The blue line on the chart shows the cyclically adjusted price earnings ratio (CAPE) for the S&P 500 and how this is moved since the 1970s. CAPE very simply measures the price investors are paying for a given dollar of company earnings and is a simple way of visualising how expensive (bullish/greedy) or how cheap (bearish/fearful) investors are.

The orange line on the chart shows the 5-year forward return for investors in equities from any given point – so for example given the chart starts in 1970, the first data point on the orange line represents the return to end 1975 inclusive.

Source: ABC Bullion, Yale, World Gold Council

What should be very clear from looking at the chart is that high CAPE ratios tend to lead to lower equity market returns, and vice versa. The readings from the early 1980s and the early 2000s are the most glaring examples, with a very low CAPE in 1980 (it was around 10 then) seeing a forward 5-year return of almost 200%, while a CAPE of over 40 in early 2000 saw investors lose almost 50% of their money in the 5 years that followed.

The chart highlights the fact that as today, the CAPE ratio is over 35. It has only ever been more elevated twice in the in the last 100 plus years. History would suggest equity market investors are going to struggle to see real gains in years to come, and instead are more likely to see a major pullback in the value of their assets.

That is likely to be very bullish for gold and silver.

Inside the Office

Record high gold prices have impacted turnover across all channels at ABC Bullion in the past week, with buyers and sellers encouraged to trade.

For those selling, there has literally never been a higher price point to liquidate into, with portfolio rebalancing, profit taking and a desire to pay down debt typically the top three reasons investors are looking to sell, with very few expressing concern that we are near the top of the precious metal market cycle.

For buyers, the rationale remains the same as ever, with precious metals trusted as:

• Inflation hedges

• A source of diversification and market protection

• Performance, with both gold and silver generating strong returns over the long run.

Product wise, we are seeing a notable shift toward silver, with many investors now choosing it as their precious metal of choice, given it typically offers greater upside in bull markets. This is being seen in higher demand for both pool allocated silver, as well as our signature 1-kilo ABC Bullion silver cast bar, and coins, including our recently released Untamed Landscapes collection.

Gold also remains sought after, with 100 gram ABC Bullion gold cast bars selling particularly well, especially amongst investors with larger budgets who value the transactional flexibility smaller to medium denomination products offer when it comes to eventual liquidation.

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.