Buying opportunity as gold and silver correct

• Gold prices fell by 2% this week in USD terms, with the precious metal last trading at USD $2,331 per troy ounce (oz).

• Silver also pulled back, -4% in USD terms to USD $27.40oz, with the gold to silver ratio (GSR) rising to 85.

• The pullback carried over to AUD gold and silver prices, which were down 3% (gold) and 5% (silver) respectively, owing to a small uptick in the value of the Australian dollar, which rose to USD 0.652.

• Equity markets, commodities and cryptocurrencies were all in positive territory, despite weakness in some of the bigger names in tech, with companies like NVIDIA and META selling off sharply.

• Bond yields continue to rise, with US 10-year treasuries now approaching 4.75%. The threat of higher inflation for longer is pushing back expectations of when the US Federal Reserve (and other central banks) will be able to implement interest rate cuts, a subject that is particularly complex in the United States given the upcoming Presidential election cycle.

Fundaments for precious metals rock solid
Precious metal prices went through a regulation pullback this week, with gold and silver down 2% and 4% respectively in USD terms. While this may be a cause of frustration for some, precious metal bulls will see it as a buying opportunity, with pullbacks like this a normal and healthy part of any cycle.

While it’s too soon to say for certain that there won’t be any more short-term price weakness, the fundamentals for both and gold and silver couldn’t be stronger. This was evidenced in news this week that the US economy is both underperforming on the growth side (GDP growth was just 1.6% in the 1st quarter of 2024, well short of expectations), while inflation is coming in hotter than expected, with core CPI sitting at 3.7% year on year, above market expectations which were for 3.4%, and almost double where this reading sat at the end of 2023.

Inflation is not going anyway soon, a fact that will almost certainly be conducive to higher precious metal demand, and higher precious metal prices in due course.

In other precious metal related news this week:

• Michael Widmer, Head of Commodities Research at Bank of America, remains bullish on the outlook for gold prices, noting that the precious metal could head toward USD $3,000oz.

• Price targets of USD $3,000oz only reinforce the idea that the current correction is a buying opportunity, a subject that Nicky Shiels, MKS PAMP head of precious metal strategy discussed on CNBC.

• The latest update from Ross Norman at Sharps Pixley delves further into the recent trading activity in China, with Ross noting that after this week’s decline; “There is a sense that the speculative froth is leaving the market and as it declines, gold will re-engage with its core physical buyers who have been left behind”. Further commentary on the rise of trading activity in China can be found here, with Samson Li, who works in Hong Kong for the Commodity Discovery Fund suggesting the rise in trading activity in China is also encouraging more activity in Western Markets, while Daniel Ghali of TD Securities notes both central banks and retail investors continue to buy gold with the latter seeing “that their currency is depreciating and want to hedge against it.”

• Investor positioning in the market is far from exuberant levels, with gross longs sitting at just under 170,000 contracts. They would need to rise a further 60% from here to reach levels seen in February 2020 when the COVID pandemic began.

• Pension funds in Asia are turning to gold, with a $35 billion fund run out of Thailand decreasing exposure to risk assets with a view to allocating more to precious metals and energy assets.

Chart of the week
Gold has many attributes that make it attractive to investors, from its strong long-term returns, its inflation fighting qualities, its total absence of credit risk, and its exceptional liquidity.

Another factor that help drives gold demand is its portfolio protection qualities, or diversification benefits, with research from the World Gold Council, from fund managers like AQR, and our own ABC Bullion infographic showing that gold is one of the best performing assets in periods the equity market is selling off.

This subject was referenced in a recent article from @TheDailyGold titled “Gold and Silver will Soar when Stocks Crash”, which included the following chart, showing the performance of the S&P 500, Gold, Gold Stocks and Silver in the 1970s.

The chart shows a clear surge in precious metal pries during the sharp drop off in the S&P 500 in the early 1970s (the recessionary period marked in yellow), and again in the late 1970s, which marked the crescendo of that great bull market cycle.

If history rhymes let alone repeats, those who are buying precious metals are likely to be well rewarded in the years ahead.

Inside the office
The pullback in gold and silver that we have seen in the past five trading days has been met with a wave of dip buying, both from existing investors that are topping up their portfolios, as well as new clients, who had been looking for an opportunity to add precious metals to their portfolio for the first time.

The spike in activity very much continues a trend that has been in place for most of the last two months, with near record levels of account openings seen at ABC Bullion, which has flowed through to increased demand for a range of products, including clients activating ABC Bullion Gold Saver programs.

Product wise, we are seeing a notable shift toward minted tablets, with clients attracted to their low denomination size, given they are available from 1gram through to 100 gram options, with 10-gram products particularly popular.

The preference for lower denomination product is also flowing through to the ABC Bullion cast bar range, with huge demand seen for ½ troy ounce ABC Bullion gold cast bars, which can still be accessed for less than AUD $2,000 per bar.

For silver investors, it’s the 10oz ABC Bullion silver cast bar that is increasingly in favour, while we are also seeing a pick-up in appetite for silver coins, ranging from ABC Bullion’s signature 1oz ABC Bullion Eureka silver coin through to Monster Boxes of key silver coin products.

Jordan Eliseo
General Manager
ABC Bullion Australia

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