Gold prices have risen 2% this week, climbing back above USD $1100oz, as China surprised markets with three consecutive devaluations of the yuan, in an attempt to stimulate their slowing economy.

The upward move in gold was exceeded in the silver market, which is up over 5% for the week in USD terms, currently trading just below USD $15.50oz.

The AUD is effectively unchanged for the week, trading at USD $0.7368, meaning precious metal price moves in the local currency have been similar to that experienced in USD.

The AUD gold price is currently sitting at $1513oz, now up nearly 5% for the year.

The upwards movement in precious metal prices this week was not unexpected, with the market looking due for a bounce, something we hinted at last week when we discussed sentiment and investor positioning in the precious metal complex.

But the primary cause of the upwards momentum was the series of currency devaluations enacted in China this week, with authorities there responding to a clearly softening domestic economy.

Trade data out last weekend was no doubt one of the catalysts behind the move, with most market forecasters shocked at the 8% decline in exports year on year, with consensus expecting the drop to be a much lower 1% fall.

Imports into China also plunged 8% year on year to end July 2015, one of the primary factors influencing the slow down in the Australian economy, which has become increasingly reliant on trade with China in the past decade.

The move by China will place pressure on other export dependant economies in South East Asia, and further entrenches the ‘race to the bottom’ currency war that analysts have long been warning about.

And the impact of this move by the Chinese will be felt not only in South East Asia, but Europe and the United States as well. This is because China now directly competes with Europe (read Germany) in a range of potential export sectors where they’ve moved up the value curve as it were, something Vimal Gor of BT attested too in this note discussing the move.

As regards the impact on the United States, the currency devaluation by the Chinese will also change market perceptions regarding the next interest rate move by the Federal Reserve.

Many commentators are now stating that the United States central bank will not possibly be able to hike interest rates in September, which had previously been the market expectation.

Questions regarding the Fed’s ability to hike rates were already beginning to surface after last weeks slightly disappointing employment results in the United States, and have only risen with the latest action in China, as well as the deterioration the Fed’s own GDPNow tracker, which shows slowing economic growth.

With all these factors at play, the upside move in precious metals this week has been entirely expected.

Gold Industry Group

Talking about the gold industry more broadly for a moment, and regular readers will know that last week, the annual Diggers and Dealers conference was held in Kalgoorlie, Western Australia. One of the special features of the conference was the launch of the Gold Industry Group (GIG), with former WA Mines Minister Norman Moore taking up the role of Chairman of the newly formed group.

I wanted to share this news with readers as a healthy gold industry, whether it be the miners, the refiners, the logistic providers, the private vault providers and indeed bullion retailers like ABC Bullion, is important to everyone involved in the precious metals, including investors who are prudently putting their money into physical gold and silver.

The GIG will provide a united voice for the gold industry in this country, which, it should not be forgotten, is Australia’s third largest commodity export, is the mining industry in WA’s second largest employer, and is responsible for at least 50,000 jobs both directly and indirectly.

As such, irrespective of your immediate view on the price direction for yellow metals, anyone interested in a more prosperous Australia should want to see a healthy and vibrant physical gold industry.

ABC Refinery, which is where we manufacture all of our ABC Bullion bars, has joined the GIG, with the Managing Directors of the company attending the breakfast launch over in WA.

Specifically, the GIG will work too

• PROMOTE gold’s importance and its significant contribution to the community and economy

• ADVOCATE on gold-specific issues

• CHAMPION gold-related educational and community initiatives

• PROFILE gold as an investment and asset class

As you know, we are very passionate at ABC Bullion about profiling gold as an investment and as an asset class in it’s own right, and work hard on plenty of gold related educational activities.

Anyone interested in following the GIG can find out more about the group here.

Gold in an Investment Portfolio

Speaking of the importance of investing in gold and understanding it as an asset class, regular readers of our market updates will know that I am a big fan of the permanent portfolio style of investing, especially in todays economic climate.

A permanent portfolio is one that contains a standard 25% allocation to physical gold, alongside similar allocations to traditional investment assets like shares, bonds and cash.

On that note, I was pleased to see that Cor Capital, the only Australian managed fund to adopt a permanent portfolio style investment approach, was recently given an “investment grade” rating by fund rating house Atchison Consultants.

Commenting on the safety of the investment approach, Atchison Consultants noted that the Cor Capital fund had no derivatives or gearing within the portfolio, and also noted that the fund was highly correlated to the AUD gold price.

Most importantly though were the comments regarding the long term returns, and the stability of the portfolio, with Atchison noting that the Cor Capital fund, in relation to a peer group of ‘balanced funds’, displayed the following characteristics

• It had outperformed its peer group over ten year and fifteen year periods

• The volatility of the fund over the longer term was considerably lower than the peer group

• Over 20 years to 31 May 2015, the maximum drawdown of the Fund has been 5.0% which is significantly lower than the peer group’s maximum drawdown of 27.7%

In a nutshell, higher returns, and a lot less risk along the way. It is exactly what investors should be looking for, and the 25% allocation to physical gold plays a key role in the Cor Capital funds ability to deliver that superior outcome.

As such, whether it’s direct physical ownership throughs bars and coins, gold mining stocks, managed funds with healthy allocations to physical gold, or a combination of the above, maintaining a core exposure to physical bullion will remain an important way to protect and build wealth in the years ahead.

Anyone wanting to find out more about the Cor Capital fund can do so by checking out there website here

Until Next Week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.