Eureka moment as metals lead market higher!

In this week's market update:

• Precious metal prices continued their consolidation period this week, with gold falling by 1%, and silver by 4% in USD terms.

• Despite the correction, both gold and silver have been market leaders in the first half of 2024, rising by 12% (gold) and 21% (silver) in USD terms.

• Returns have been even stronger for Australian investors, with prices rising by 15% (gold) and 25% (silver) in the past 6 months.

• Other markets were quiet leading into the end of the month, with equities unchanged, while oil prices rose by 1%, with crude on track to end June trading above USD $80 per barrel.

• Bond yields have also risen leading into the end of the Australian financial year, with 10-years again approaching 4.50%, with latest inflation data suggesting rates may be moving higher in the second half of the year.

A great time to be a gold investor.
With two days to go in the financial year, both gold and silver are on track to record bumper gains, with the two precious metals up by 22% (gold) and 27% (silver) respectively in the last 12 months.

The strong rally has been driven by multiple factors, including near record central bank buying, safe haven buying sparked by heightened geopolitical risk and indeed conflict in certain parts of the world, as well as an increase in long positioning in the gold futures market, as speculators bet on further price rises.

The performance of gold, and of silver as well, is particularly admirable given it has taken place despite the absence of several market factors that are often seen as prerequisites to precious metal bull markets. These include.

• Relative strength in the USD – which has risen by 2% over the past year.

• A strong move higher in equities (see more on this below) with the S&P 500 rallying by 25% in the past twelve months.

• A continued lack of interest from gold ETF investors, who by and large continue to shun the metal, as they have for much of the last three years.

• Higher bond yields, and a reluctance by most central banks to cut interest rates.

Typically, you would expect to see a precious metal bull market coincide with a weaker USD, a sell off in equity markets, lower rates, and surging investment from ETF buyers.
That a bull market is already in play despite the absence of these factors suggests strongly that it may have some way to go.

Chart of the week
The World Gold Council published a timely article on how gold can help diversify portfolios in late June, with a particular focus on Australia and Australian asset markets.

It included the following chart, which showed year-to-date returns for gold and a range of other asset classes, both in 2023, and in the year to end May.

Asset Class Returns in Australian Dollars – 2023 and 2024 (YTD)

Source: World Gold Council

The chart highlights some key points for gold investors.

• That gold was one of the best performing assets in 2023.

• That golds robust performance has continued YTD.

• That gold can do very well in periods risk assets are rising – i.e. it is much more than a safe haven asset.

Higher rates and higher inflation are part of the reason gold has performed so well, with the World Gold Council noting that; “The combination of high inflation and elevated interest rates has led to a rising correlation between Australian equities and bonds over past years. As interest rates climb, bond prices fall, and equities suffer due to a lower net present value of future earnings discounted by a higher rate. And rising inflation erodes the real value of both bonds and equities. And the elevated inflation weakens the appeal of bonds as a diversifier. At inflation levels below 2%, the correlation between global equities and global treasuries has been negative, providing diversification. But at levels above 2%, this relationship starts to break down. A positive correlation between bonds and equities undermines the value proposition of bonds as a portfolio diversifier. And it results in Australian bonds contributing a much larger share of total portfolio risk.

The obvious takeaway from this is that going forward, an ever larger share of investors will look to other assets to protect portfolios, with gold likely to benefit from this trend, given its limited supply, exceptional liquidity, and lack of credit risk, all of which has combined to give it an unprecedented track record as a wealth protector.

Inside the Office
Two-way trade volumes remain extremely healthy at ABC Bullion as we approach the end of the financial year. For investors wanting to add exposure, the recent price dip has been all the encouragement they need, with many more looking to add gold and silver to their portfolios once the calendar ticks over into July 2024.

We are also seeing continued liquidation from some investors, with many happy to lock in profits on both gold and silver, with both up by more than 20% in the last 12 months.

ABC Bullion 1oz Eureka silver coins have been best sellers for much of the last month, with our promotion to celebrate 10 years since they were launched ending at 5pm today. With premiums above spot from as little as $4 per coin (for purchases of 500 or more) the strong sales are no surprise, especially given the strong historical performance of silver in precious metal bull markets.

Pool allocated products also continue to sell well, especially for investors wanting gold and silver exposure that is easy to convert into physical bars or coins (should they decide they want too) but also comes with free storage, while our 10oz ABC Bullion silver cast bars also remain popular with investors favouring lower denomination investments.
On the gold front, we also continue to see a shift toward lower denomination products, with our ½ ounce ABC Bullion gold cast bar, an 10-gram ABC Bullion minted tablets perpetual best sellers.

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.