Could gold rally to USD $2,600 per ounce?

In this week's market update:

• Precious metal markets had another mixed week, selling off in earlier trade, before recovering most of their losses in the past 24 hours.

• For the week as a whole, gold is +1% in USD terms, while silver is -1%, with the gold to silver ratio (GSR) edging higher to 76.

• Prices were even softer in Australian dollar terms, owing to continued strength in the value of the Australian dollar, which is currently sitting at USD 0.666

• Equity markets and other risk assets were all bid higher, with the S&P 500 and ASX 200 up 2% and 3% respectively, while Bitcoin topped USD $70,000.

• Commodities bucked the trend, with a broader basket of hard assets -1%, led by oil which fell 3% as is just clinging on to the USD $75 per barrel price point.

• Bond markets rallied strongly, with yields on 10-year government bonds falling by more than 20 basis points in both Australia and the United States, and prices for longer dated US treasuries up by 4%.

Metals resilient as ECB cuts
Precious metal prices rallied strongly in the last 24 hours, with gold up by more 1% and  silver up by close to 5%. The sharp move higher was in contrast to the generally softer tone we had seen in precious metal trade earlier in the week, with silver at one point correcting below USD $30oz.

While price levels like that were always likely to provide strong support, the rally in the past 24 hours was sparked by a move by the European Central Bank (ECB) to cut interest rates by 0.25% at their June policy meeting.

The decision has reignited expectations that policy rates may now move lower in a co-ordinated fashion across the developed world as we approach the second half of the year, with traders now positioning for a potential rate cut in the United States in September.

In other gold related news this week:

• CME Group wrote a great article looking at how gold price movements are ignoring or rewriting history, in that they are now moving in a way that ignores the impact of traditional market fundamentals, in that it is ignoring the impact of equity markets and the performance of the US dollar.

• Analyst Jordan Roy-Byrne released a great video looking at why bull market history suggests silver could rally toward USD $50oz in this cycle with market cycles highlighting that “once silver breaks out and starts moving, it rarely corrects to the 100-day moving average”.

• Legendary hedge fund Ray Dalio repeated his long held view that gold acts as form of insurance, with 2024 offering no shortage of threats, from potential disturbances in the United States with the upcoming Presidential election, the continued surge in public debts, and of course geopolitical conflicts.

• The World Gold Council noted central bank gold buying saw an uptick in April, with more than 30 tonnes of net purchases, spread across multiple central banks, observed.

• Heightened central bank buying was one factor cited by UBS, who recently upped their end September 2024 gold price forecast to USD $2,500oz.

Lastly, Ronald Stoeferle, Managing Partner at Incrementum AG, noted in a Kitco interview that in the gold and precious metal market today, we are witnessing classic early bull market behaviour.

He believes gold prices could more than double, toward USD $4,800oz, by the end of this decade.

Pod of Gold
The Pod of Gold - recorded 27 May 2024

My colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, released his latest Pod of Gold podcast this week, with the episode recorded on May 27th.

As always, it’s a must listen for precious metal enthusiasts, including clients of ABC Bullion, with the episode covering the factors moving the gold market, the importance of speculative flows and a bullish outlook for silver. Monetary policy is also discussed, with the Fed still talking a tough game when it comes to interest rates.

The podcast also explores where a price of USD $2,600oz is possible for gold.

Timestamps below:

• 00:00 – Intro

• 00:48 – What is driving the gold price rise?

• 05:51 – Managed money in this rally

• 09:01 – Bullish targets for silver

• 16:26 – Gold price targets

• 18:13 – Is US$2,600 possible?

• 23:24 – Key takeaways

Chart of the week
The below chart, sourced from The Daily Gold shows the inflation adjusted gold price, as well as a gold stock index, from the middle of the 1960s onward. It shows very clearly that the inflation adjusted gold price is on the verge of breaking out, something it has threatened to do three times in the past fifteen years.

When it does finally break out, we will likely see a huge influx of capital into the sector, driving both gold and silver significantly higher in the years to come.

Inside the Office
Intra week volatility in the precious metal market continues to drive trade at ABC Bullion, which strong turnover seen across all our investment channels, including web based trading.

Across our four showrooms nationwide, we continue to see a preference for lower denomination products, in part driven by investor preferences to hold items that provide more liquidation flexibility (10 x 100 gram ABC Bullion gold cast bars can be sold off in 10 individual parcels of just over AUD $11,000 each at current prices, whereas a 1 kilo ABC Bullion gold cast bar has to be sold in a parcel of more than AUD $110,000).

1 oz ABC Bullion gold cast bars and 37.5 gram Taels are also regular top sellers, while for silver, the 10oz ABC Bullion silver cast bar remains as popular as ever, as do 1oz ABC Bullion Eureka silver coins, which are being sold with a premium over spot ranging from AUD $6 to as low as AUD $4 per coin for those purchasing monster boxes.

Jordan Eliseo
General Manager
ABC Bullion Australia

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