Bull market indicators and betting on gold

In this week's market update:

• Precious metal prices declined this week, with gold falling by 2%, last trading below USD $1,950 per troy ounce (oz).

• Silver was also softer, falling by 3% to USD $22.40oz, with the gold to silver ratio (GSR) rising to 87.

• Equity markets were on more solid ground, with the S&P 500 +1%, while in Australia the ASX 200 was +2%, and back above 7,000 points.

• Commodity prices continued to sink, led by oil which fell by 8% to USD $76 per barrel.

• Bond yields were also down with 10-year US Treasuries -0.28% over the past five trading days, and now back below 4.50%.

Gold eases as RBA hikes

Gold prices eased this week, with the precious metal falling by 2% in USD and AUD terms, Silver was also impacted, declining by 3%.

Despite the pullback, gold is trading above AUD $3,000 per troy ounce, with the key piece of Australian economic data this week the decision from the Reserve Bank of Australia (RBA) to hike interest rates again, with the local cash rate now sitting at 4.35%.

The pullback, and a period of consolidation for gold was to be expected given the spike that we saw after the commencement of hostilities in the Middle East, with a forward looking view suggesting there is a good chance gold and other precious metals will continue to lead the way asset class wise.

While that might seem a bold statement given it is already nudging all-time highs, there are indicators suggesting gold is going to rally from here.

We touched on this subject in our most recent wire which covered the continued divestment of gold from ETF investors globally, and the net short position in the futures market, with the latter a rare occurrence that often coincides with the end of a corrective period for gold.

Further insight into where the gold market sits today can be gained by looking at recent data on investment into physical gold bars and coins. According to the World Gold Council in their recently released Q3 2023 Gold Demand Trends Report, global gold bar and coin demand was just 296 tonnes in the 3 months to end September, down 12% in the last year.

If you look at countries like Germany, a key European gold buying nation, demand is down 73% in the last year, and 61% below the demand levels seen in Q3 2020, when gold hit an all-time high.

Declines in investment demand of such magnitude typically happen AFTER a bubble has burst, not when a bull market is off and racing.

At ABC Bullion, while we continue to see very robust turnover amongst our Australian client base, we have also seen a shift in the balance between buying and selling, especially when compared to previous periods gold traded near USD $2,000oz. Consider that.

• In August 2020, when gold first traded above USD $2,000oz, 95% of retail turnover was sales to clients vs. 5% of turnover being clients selling back to ABC Bullion.

• In March 2022, not long after Russia invaded the Ukraine, 90% of retail turnover was sales vs 10% of turnover being clients selling back to ABC Bullion.

• In April 2023, just after Silicon Valley Bank collapsed and we opened our Global Flagship store at 38 Martin Place, 85% of turnover was sales to clients, and 15% was clients selling.

• In October 2023, despite again nudging back above USD $2,000oz, just 70% of turnover is sales to clients, with 30% of turnover representing clients selling metal back to us.

Most bull markets end when retail money is piling in, speculators using derivatives are aggressively net long, and financial news media is full of headlines proclaiming more gains to come. Gold is shooting zero from three on these three metrics today, meaning not one of them is a bubble warning indicator at present.

It is an encouraging sign.

The Making of the Melbourne Cup

ABC Bullion is not only the largest independent bullion dealer in Australia, we are a fully owned subsidiary of Pallion Group, Australasia’s largest precious metal enterprise, which includes ABC Refinery, the largest exporter located in NSW.

The Pallion Group, also includes W.J. Sanders, one of Australia’s oldest, surviving gold and silversmiths.

Since 2016, we’ve been the exclusive producer of the Lexus Melbourne Cup. It is now the very definition of Australian Made, with the gold used to make Australia’s most prestigious sporting trophy mined, refined, and handcrafted in Australia.

This year, the gold that has been used to make the Lexus Melbourne Cup was supplied by Newcrest Mining from their Cadia mine located in Orange, NSW.

The winners of the Cup have not only had their names etched into sporting history, they have also won a prize that has almost doubled in value since ABC Bullion first began producing this iconic trophy. This can be seen in the chart below showing the price of gold in Australian dollars on every Melbourne Cup day since 2016, noting the 2023 price is at Monday 6th November.

Source: ABC Bullion, World Gold Council

You can watch a video about the making of the 2023 Lexus Melbourne Cup here.

Fun facts about the Melbourne Cup Trophy

• ABC Bullion is the sole authorised supplier of the suite of Lexus Melbourne Cup trophies. These trophies are produced by ABC Bullion’s sister company W.J. Sanders.

• It takes over 250 hours to make the Lexus Melbourne Cup annually.

• Every element of the Cup is hand-made.

• The trophy is known as the ‘Loving Cup’ due to its design, the three handles symbolizing the relationship between the winning jockey, trainer and owner.

• The Cup weighs 3.8 kilograms and is made from 18ct Australian Yellow Gold.

• The Cup following an independent valuation in 2023 is now valued at $600,000.

• Every team member at W.J. Sanders has a hand in making the trophy.

• W.J. Sanders has been making the Cup since 2016.

• The Cup is ornamentally hand engraved.

• There is only one Lexus Melbourne Cup Owners trophy presented annually on Melbourne Cup Day, but trophies are also presented to the jockey, trainer, strapper and breeder made from Australian Silver and gold-plated to the exacting standards set by the VRC.

• Superstition states that no one can touch the Cup before it is presented to the winner – so before that time anyone who touches the Cup must wear white gloves.

• A second Cup is manufactured by W.J. Sanders every year in case there is a dead heat.

Inside the office this week

This week it has been all about Diwali, with today, Friday 10th November set to be one of our busiest days for trade with clients in Sydney, Melbourne, Brisbane and Perth.

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.