Gold: A taste of what’s to come!

In this week's market update:

• Gold prices fell by another 1% this week, with the precious metal last trading at USD $1,913 per troy ounce (oz)

• Silver continued to ease too, falling by 4% in USD terms to USD $22.70oz, with the gold to silver ratio climbing to 84.

• Foreign exchange markets were quiet, with the Australian dollar flat vs the US dollar, while the dollar index was also steady, trading at 102.63.

• Equity markets and commodities were also largely unchanged, while bond yields across the spectrum pulled back somewhat, though remain over 4% on 10-years in both the United States and Australia

• Key data released overnight in the United States showed headline annual inflation accelerated to 3.2% in the year to end July, while core inflation hit 4.7%, its lowest level since October 2021

Special gold report

Gold prices remained on the back foot this week, with the precious metal last trading below USD $1,915 per troy ounce (oz).

Silver was also softer, -4% over the past five trading days and last trading at USD $22.70oz, with the gold to silver ratio (GSR) moving up to 84 this week.

While the recent pullback has taken some of the wind out the sails of precious metal bulls, gold has only fallen by 2% in USD terms in the last month (it’s up 2% in AUD terms owing to a fall in the Australian dollar over the same period), and remains in positive territory, +7%, on a rolling 12-month basis.

Gold also remains above its 200-day moving average, which currently sits just below USD $1890z, with this level a likely area of strong support.

The key data point for the week was released overnight, with US inflation rates rising to 3.2% in the year to end July. While the headline result showed prices rising at a faster rate, markets (and the US Federal Reserve) will likely have been more focused on core inflation, which eased to 4.7%, while both median and trimmed mean inflation measures continued to ease, to 6.1% and 4.8% respectively.

The trends in US inflation data can be visualised in the chart below, which the Cleveland Federal Reserve produces on a monthly basis.

While a headline inflation print of 3.2% is higher than the US Federal Reserve (not to mention everyday American’s struggling with cost-of-living pressures) would like to see, there is nothing in this data point that would alarm policymakers.

The data still suggests that price pressures, while problematic, are largely being brought back under control. At the margin, this strengthens the case for interest rates to remain on hold, for now at least, though the recent spike in oil (+7% in the last month) and other energy related costs remains an obvious point of concern.

Same but different

In just under two weeks, ABC Bullion will be hosting its precious metal forum; “Gold and the Roaring 20s” at the Ivy Ballroom in Sydney.

With more than 500 ABC Bullion clients and guests registered (we’ve recently extended capacity, though the additional tickets aren’t expected to last long), it promises to be a wonderful night of networking and education, with refreshments and drinks included.

The upcoming precious metal forum follows on from similar events ABC Bullion has hosted in both 2016 and again in 2019.
 
The below table highlights what has happened to the USD and AUD gold price since those events took place, noting the prices included in the table for the 22nd of August 2023 are today’s prices.

Between the dates of the two forums held in 2016 and 2019, gold prices increased by 14% in USD terms and 26% in AUD terms. Between 2019 and today, the increase was 27% in USD terms and 32% in AUD terms.

At the upcoming forum, one of the topics we will be touching on is this oft used term de-dollarization, something that has become even more topical since rumours emerged that the BRIC countries may soon look to issue a gold backed currency of sorts.

While we won’t add to that speculation in this article, we did note with interest the below chart, produced by Alpine Macro and shared by @JesseFelder

The chart shows the vast accumulation of gold holdings that has taken place in BRIC nations since the mid-2000s. More importantly, it also shows that these countries remain way behind in terms of gold reserves, when looked at in relation to their G7 counterparts.

In short, while headlines about potential gold backed currencies will always generate interest, no matter how speculative they are, the more important data point is captured in the chart above.

While gold never lost its importance as a strategic reserve asset, it’s clear that the events of the last 15 plus years, from the Global Financial Crisis to the European debt crisis, to Brexit, to COVID to the Russia-Ukraine War have brought it back to the fore.

We will also be exploring the difference in the market environment of today, where gold is trading between USD $1,900-USD $2,000 per troy ounce, and previous periods it has hit similar price levels.

These periods include all the way back in 2011, as well as late 2020, with movements in the gold price visible in the chart below, which dates to the turn of the century.

As we will explain on the night, while the gold price itself is similar or the same to prior periods, the market conditions could not be more different.

We will explain those differences by highlighting a range of factors, from price momentum to the gold silver ratio, to financial market flows, to news media attention, relative performance trends and equity market valuations.

In short, while there can never be any guarantees, the data suggests that unlike previous periods where gold has traded near USD $2,000oz, all the ingredients for a roaring bull market in precious metals are in place today.

Given the remaining tickets are limited, I’d encourage anyone who wants to attend to book today.

On behalf of the entire ABC Bullion team, I look forward to welcoming you on the evening.

See you at the ABC Bullion Precious Metals Forum

Inside the office

While financial market flows into gold remain largely non-existent today, retail buying of physical gold and silver bars and coins remains at healthy levels.
 
Sales of pool allocated metals to clients including SMSF trustees has picked up notably of late, with a 30% week on week increase for gold, and a 24% increase for silver. We have also seen a continued uptick in use of the ABC Bullion Gold Saver product, with turnover up 17% compared to the longer-term averages.
 
In-store, we continue to see solid demand for our signature 1/2oz ABC Bullion gold cast bars, our 1oz ABC Bullion gold cast bars and our 50-gram ABC Bullion gold cast bars, while we’ve also seen renewed interest in Monster Boxes, including for the signature ABC Bullion Eureka silver coin range.
 
We also continue to see solid levels of buyback activity, with investors liquidating part of their precious metal portfolios, the vast majority of whom are realising solid profits given gold remains close to all-time highs near AUD $3,000oz.

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.