Australian dollar gold hits all-time high!

In this week's market update…

• Precious metal prices continued to surge in the past week, led by gold priced in Australian dollars, which hit a new all-time high above AUD $3,100 per troy ounce (oz).

• In USD terms, gold was +5% on the week, rallying back above USD $1,950oz, and now trading well above both 50- and 200-day moving averages.

• Silver was also stronger, last trading at USD $22.80oz, +3% on the week. Despite the increase, silver has lagged gold in this recent spike, with the gold to silver ratio rising to 86.

• Equity markets were weak overall, falling by 2% in both Australia and the United States.

• Commodities surged, with oil +8% on the week, with a barrel of crude oil again trading at UDS $90.

• The bond market continues to sell off, with 10-year yields in both Australia and the United States approaching 5%, while the price of 20-year US government treasuries has now fallen by almost 10% in the last month alone.

Records tumble for gold

Gold prices have surged in the past week, with the escalation of conflict in the Middle East, a spike in the price of oil, and a sell off in risk assets all supporting the precious metal.

The rally in prices has seen gold trade above USD $1,970oz, well in advance of both its 50 and 200-day moving averages, which are closer to USD $1,900oz and USD $1,930oz respectively.

The rally now also sees gold outperforming equities, commodities, and fixed income securities on a weekly, monthly, and annual basis, with the role, or value of holding gold in a portfolio growing clearer by the day.

Silver has also rallied, with the price rising by 3% in the last week. Despite this rise, it has lagged gold in this recent up leg, with the gold to silver ratio (GSR) climbing to 86.

While silver’s relative underperformance in the past five days is understandable given the key drivers influencing the market, it is worth noting, as you typically tend to see silver outperform in precious metal bull markets.

That gold has done so well in the face of the surge in the bond yields that we continue to see, and the so far hawkish tones emanating from the US Federal Reserve regarding the outlook for interest rates, is remarkable, and speaks to strong underlying support for the precious metal.

For Australian investors, the news has been even better, with the last week seeing records tumble in the bullion market. Gold priced in AUD has hit a new all-time high above $3,100oz, pushing the price kilo of a gold above AUD $100,000 per bar, as you can see on the ABC Bullion website.

With the potential for further weakness in the AUD given the RBA’s understandable hesitation in pushing interest rates any higher, we could be in for a period of continued gains for gold.
For gold to really thrive, it not only needs to perform well in its own right, but outperform other assets, most notably equities.

To that end, the chart below, produced by Charlie Morris of Atlas Pulse in a recent article titled “Gold sends a message”, highlights the fact that gold looks like it is basing relative to the S&P 500 (the black line rising means gold is doing better than equities, and vice versa) after the better part of a decade where it has underperformed, or at best kept up.

The trends of outperformance and underperformance between gold and equities tend to last many years once they are well established.

The way things are evolving, it would not surprise to see gold, and other precious metals, dramatically outperforming risk assets between now and the end of this decade.
 
View from the gold industry

The London Bullion Market Association (LBMA) just held its annual precious metal conference, with the event hosted in Barcelona this year.

A record 840 delegates from around the world attended, including colleagues from ABC Refinery, which is the manufacturer of the ABC Bullion brand of precious metal products and the only independently owned Australian precious metal refinery accredited by the LBMA.

Nicky Shiels, Head of Metals Strategy at MKS PAMP, published commentary highlighting several themes that were either discussed or emerged from the conference, including.

The role of gold in portfolios, with the BIS stating that investors should allocate 4-6% of portfolios to gold, but that those allocations should be higher during periods of elevated tail risks.

Note this would be more be referencing institutional investors, who have a wider menu of investment options vs people managing their own money, or their own superfund in Australia.

Nevertheless, 4% of Australia’s institutionally managed superannuation pool would be the better part of AUD $100bn.

In reality, this sector would be lucky to have $5bn-$10bn invested directly in gold at present. There is a lot more room for upside.

Gold price targets from conference delegates remained around the USD $1,990oz level, indicating little change from today’s prices.

This might be surprising given it’s a precious metal conference, where you’d expect more people to be bullish, but its really a function of how much concern there is regarding higher interest rates, and the apparent conviction of central banks to kill inflation, irrespective of the broader impact on the economy and asset markets.

The encouraging part of the market of course remains central bank buying, and physical demand for bars and coins, which remain healthy, and are helping keep the market buoyant, despite continued liquidation from ETFs and the lack of interest from investors who use gold futures.

Silver was also a hot topic, with the looming supply/demand imbalance due to silver’s role in the green energy transition a key industrial element that may help push silver prices higher.

One great snippet was that _“_in 1999, photography demand peaked and was 1/3rd of total demand; now it’s essentially zero, yet total silver demand is much larger, highlighting the ease of new demand applications (led by PV solar plus many other energy technologies”.

Those forecasting the silver price a year out suggest it will be trading closer to USD $27 a year from now, which would be a 20% rally from current prices if that came to fruition.

Overall, from a sentiment perspective, Nicky commented that the market seems quite agnostic on price moves in the short-term and lacks conviction.

We take that as a very positive sign. After all, all bull markets are born from a place of apathy and scepticism. That describes the overall markets view on precious metals today.
 
Inside the office

Gold trading back near all-time highs in Australian dollars has led to a pick-up in turnover, with ABC Bullion seeing healthy levels of two-way trade.

This uptick in demand is being seen from nearly every segment of our client base at ABC Bullion, and across all channels, with the number of clients visiting our stores nationwide, including our Global Flagship store in Martin Place continuing to rise.
 
Online, we continue to see large numbers of investors select pool-allocated metals, which are always attractive given their low trading costs, superior trade flexibility, and lack of storage fees.
 
Looking at our signature cast bar range, our 1oz ABC gold cast bars continue to lead the way, while for silver, demand is always being driven by 1 kilo ABC Bullion silver cast bars.
 
Royal Mint gold products also continue to trade well, with a range of these items including the signature 1oz Brittania gold coin currently being sold with reduced premium.

Jordan Eliseo
General Manager
ABC Bullion Australia

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