Gold rallying on the road to new highs

In this week's market update:

• Gold prices rallied again this week, increasing by another 1%, with the precious metal last trading at USD $1,968 per troy ounce (oz).

• Silver was also higher, at one point trading back above USD $25oz, with the precious metals up 2%, helping push the gold to silver ratio (GSR) back toward 80.

• Currency and equity markets were relatively quiet, with the US Dollar Index (DXY) reclaiming the 100 level, for now at least while both the S&P 500 and ASX 200 were +1% over the past five trading days.

• Risk in back in the cryptocurrency space, with Bitcoin off 6% and back below USD $30,000 per coin, despite the best attempts of certain promoters, which of late include Blackrock, to promote it as ‘digital gold’.

• Bond markets also traded in a relatively narrow range, with Australian 10-year yields edging back above 4%, with stronger than expected employment data suggesting the RBA may indeed hike rates again as soon as August.

Sentiment lukewarm despite gold rally

Precious metal prices have continued to rally over the past five trading days, with gold and silver up 1% and 2% respectively in USD terms.

Silver, which at one point traded above USD $25oz this week, has been particularly strong of late, with the gold to silver ratio (GSR) declining from 85 to 80 in the past month with silver rallying by 9% over this time period.

This is an encouraging sign given silver outperformance is typically a precondition of any fully fledged precious metal bull market.

This recent spike in metals prices, which has put gold within circa 5% of its all time high in both USD and AUD terms, has seen a range of bullish forecasts come to the fore, with Citi potentially seeing gold head toward USD $2,150oz in H1 2024. Including from WisdomTree, who believe gold is on track to hit $2,225oz within a year, according to Nitesh Shah, their head of commodities and economic research.

Invesco’s Paul Syms, head of EMEA ETF fixed income and commodity product management was even more bullish, noting that: “We believe gold remains an asset worth holding especially given uncertainties around the US debt ceiling, any further banking crisis, a correction in stock markets, escalation in the war or countless other geopolitical concerns.”

He went on to note that; “If the Fed begins monetary expansion by autumn 2023, bond yields will be falling and, assuming it moves before the European Central Bank and other major central banks, we could see the US dollar depreciate at a faster rate. We assume inflation will be stronger than in the consensus scenario as a result of the Fed loosening monetary conditions. Assuming that the recession fears that the Fed is responding to are real, we expect positioning in gold futures to remain elevated.”

Price wise, Syms believes this could see gold reach USD $2,490oz, more than 20% higher than the previous records it has set.

Given silver would be expected to outperform in such a scenario, a world of USD $2,500oz gold could see silver trade at between USD $35-$40oz.

So far, this renewed round of bullish commentary toward precious metals isn’t yet being matched by investor flows, with ETF holdings and managed money positioning still neutral at best, as the below chart highlights.

Source: ABC Refinery, CME, Bloomberg

Fund managers are also currently heavily underweight commodities. From a contrarian perspective, this is actually encouraging, as it demonstrates the fact that institutional portfolio managers have significant room to add to gold positioning from current levels.

Precious Metal Forum and the Pod of Gold

The ABC Bullion Precious Metals Forum: Gold & the Roaring 20s, will be held at the Ivy Ballroom Sydney in just over a month, on Tuesday 22nd August.

The key note list of speakers features some fantastic international guests, including Nikos Kavalis of Metals Focus, and Jaspar Crawley of the World Gold Council. If you are interested in attending, please visit the forum booking page. Tickets are AUD $35, and on behalf of whole ABC Bullion team, we look forward to welcoming you there.

As a final comment on the forum for now, I’d also note both myself and my colleague Nicholas Frappell will be releasing a special Pod of Gold podcast regarding the forum next week, which is not to be missed.

In the meantime, podcast fans may wish to catch up on our most recent edition, recorded on the 13th July, just as gold was beginning to reassert its primary bull market trend.

Topics discussed included the technical set up for gold, managed money positioning, a look at what is happening in Japan, and a report from ANZ highlighting an expected increase in silver demand. The podcast also includes some price targets for both the Australian dollar, as well as gold over the short and long-term.

Inside the office

Demand for physical gold, especially amongst retail investors buying bars and coins, remains at healthy levels right now, with new clients, as well as longer-term buyers adding to holdings in the current environment.

Online, that is best seen through sales of pool allocated metals and ABC Bullion gold cast bars , while in-store, we continue to see steady acquisition of ABC Bullion silver cast bars, as well as silver coins and gold minted tablets.

The recent rally in the gold price, which has again pushed gold close to AUD $3,000 per ounce has also seen a renewed pick up in buyback activity, with some longer-term investors liquidating part of their portfolio.

Jordan Eliseo
General Manager
ABC Bullion Australia

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