Could gold double again?

In this week's market update:

• Gold prices continued to firm over the past trading week, up $10 per troy ounce (oz) to USD $2,040oz.

• Silver continued its recent outperformance, up another 4%, with the metal last trading at USD $25.80oz, with the gold to silver ratio (GSR) back below 80.

• Currency and equity markets were relatively stable, with US and Australian share markets up 1% each.

• Commodities and cryptocurrencies continue to lead the market higher, with oil prices now firmly above USD $80 per barrel (+3% for the week and +9% for the month), while Bitcoin was up another 7% for the week.

• Bond yields rose modestly over the last week, though are still well down over the last month, as markets price in aggressive easing from the US Fed in late 2023.

How much gold should I own?

Precious metal markets remained buoyant this week, led by silver which rallied by 4% to USD $25.80oz. Gold was steadier, putting on USD $10oz to last trade at USD $2,040oz, within sight of the all-time nominal high it hit back in 2020.

While upward momentum for gold has slowed somewhat, and the market remains susceptible to short-term pullbacks, there is no doubting the underlying strength in the market today, with demand from key sectors of the gold market robust at present, while the price action remains encouraging.

The rally in precious is occurring against a backdrop of heightened financial market volatility, expectations of monetary easing in the latter half of this year, declining headline inflation, and declining inflation expectations, with the latter evidenced both by the market, with breakeven rates falling since late March, and by consumer surveys, with the below chart (courtesy of @CharlieBillelo) highlighting that consumers see inflation heading back toward 2.66% three years from now.

The rally in precious metals, and the backdrop in which it is occurring has led to a lot more mainstream commentary about the role gold in particular can play in a portfolio.

This includes recent articles from both Fidelity (on how much gold to hold in a portfolio) and Aberdeen, with the latter looking at three potential scenarios for the market in 2023 (higher rates for longer, a soft landing, or a moderate recession), and how they will impact gold.

Two of three scenarios Aberdeen discussed suggest gold will perform very well.

Gold to hit USD $4,000 per troy ounce?

Gold prices are currently near all-time highs in USD terms, as well as in many other currencies, with the recent rally in the precious metal bringing to an end the corrective period that began in late 2020.

While many are taking advantage of these near record prices and liquidating part of their bullion portfolio, there are many more who are acquiring the precious metal, in the belief there is further upside ahead.

There is a good chance they will be proved correct, with a number of factors suggesting gold could go much higher in the period ahead. These include:

• Despite gold’s recent surge, its essentially unchanged in USD terms over the past decade. It might seem trite, but proper bull markets can only begin once a bear market has ended. That has happened for gold now

• Gold’s relative unpopularity today. Back in 2011, it was ranked the most popular asset amongst American investors according to a Gallup Poll. By 2022 it was one the least popular

• The lack of speculative fervour in both the gold ETF and futures market, which suggests much more buying potential ahead

• Higher inflation. A decade ago, central banks faced a monumental challenge getting inflation above 2%. We think this decade will be characterised by a monumental challenge to get it below 4% per annum.

• Expensive financial assets, with equities and bonds now substantially more expensive today (in real terms) relative to a decade ago. On a relative basis if nothing else, that makes gold more attractive

• The fact silver is cheap. Precious metal bull markets tend to end when silver has had a sustained period where it strongly outperforms gold. That is yet to happen in this cycle.

Given all of the above, we remain confident in the outlook for gold, and for silver. That view is obviously shared by other gold analysts, including Jordan Roy-Bryne of @TheDailyGold who has suggested gold could hit USD $4,000 oz by 2025.

The chart below helps explain his forecast, with it highlighting

• A very clear long-term cup and handle formation, which suggest further upside

• Historical periods where the metal has gained 100-140% in two to three year windows.

If history rhymes, a gold price of USD $4,000 could well be on the cards.
If silver were to outperform in that scenario, and the GSR fell even as low as 50 (from closer to 80 where it is now), that would suggest a silver price of USD $80oz, which would translate to well over $100oz in Australian dollar terms.

Inside the office this week

There has been no slowdown in precious metal demand despite it being a four day week, with volumes in store still near record levels.
We continue to see high levels of demand or 50-gram ABC Bullion cast gold and 50-gram ABC Bullion minted gold bars, while silver coins and 10oz ABC Bullion silver cast bars are also regular choices from our clients.
High turnover is also being seen on our website, which operates 24/7, with set ups of the ABC Bullion Gold Saver, and trade in ABC Bullion pool allocated products particularly brisk.

The ABC Bullion 50g Gold Cast Bar.

Warm Regards,

Jordan Eliseo
General Manager