Gold rebounds as silver fires!

In this week's market update:

• Gold prices rallied strongly this week, with a +3% move pushing the precious metal back toward USD $2,350 per troy ounce (oz).

• Silver was an even stronger performer, rallying by +8% to USD $28.30oz, with the gold to silver ratio falling to 83 over the past five trading days.

• The rally in markets was not limited to precious metals, with equity markets also ripping higher, both in the United States where the S&P 500 was +3%, while in Australia the ASX 200 was +2%.

• Other risk assets also rose, including Bitcoin, which was +6% and again trading above USD $60,000, while commodities were also bid, with oil again approaching USD $80 per barrel.

• Bond yields fell across the board, with 10-year US treasuries now back below 4.5%, with Australian government bonds of the same maturity trading at similar levels.

Bad news is good news again
Precious metal price rose sharply this week, with silver rallying by 8% in USD terms, while gold was +3%. The move higher was also seen in Australia, though it was slightly more subdued, owing to a 1% increase in the value of the Australian dollar, with the AUD gold and AUD silver price currently sitting at $3,567oz and $43oz respectively.

The rally in precious metals was replicated across risk assets as well, with equities, cryptocurrencies and commodities all rallying, as did the bond market, with longer-term US treasuries up by 2% for the week.

The proximate cause was a return to the ‘bad news is good news’ mantra that dominated market psychology for years leading into the COVID pandemic. In short, markets often interpreted bad economic data as being ‘good for markets’ as it would encourage the US Federal Reserve (the Fed) and other central banks to ease monetary policy.

This theme played out again this week, with a notable uptick in initial jobless claims in the United States seeing markets rally hard, as hopes of a rate cut from the Fed surging.

In other gold related news, we have seen:

• Continued strength in retail gold demand in Asia, with the notoriously Thai friendly gold market going from strength to strength despite higher prices. Investment demand was up 10% year on year, while total consumer demand (which includes jewellery) was up 4%, as households continue to favour the precious metal.

• Demand in Asia is obviously not limited to strength in Thailand, with the Chinese market going from strength to strength. This is seen in the below chart which shows average daily trading on the Shanghai Gold Exchange, which rose 79% in the year to over six hundred tonnes, while gold bar and coin demand was up 68% in the first quarter of this year, topping 110 tonnes.

• Gold’s global appeal, from East to West, and from developing to developed markets was also highlighted in an article looking at demand in Germany, with citizens both young and old turning to gold. Collectively, Germans hold more than 9,000 tonnes of the precious metal, almost 6% of all the worlds (mined) gold.

• The World Gold Council released a report looking at the recent performance of gold, noting that central bank demand and Chinese buying were obvious drivers of the market, while rising stagflation risks (a combination of higher inflation and lower growth) should continue to support the market.

Finally, for those who like charts, the team at Apollo Global Management have published an update looking the gold market. Titled “Why are gold prices going up?” the presentation looks at US inflation, geopolitics, and Chinese demand.

It is a great read for precious metal enthusiasts.

Chart of the Week
This week’s chart of the week comes from ABC Bullion. It shows the Australian dollar gold price from the end of 1999 through to the end of April 2024.

Source: ABC Bullion, LBMA, World Gold Council

For precious metal investors, it is a thing of beauty, with the price rising by approximately 700% (which comes to almost 9% per annum) since the turn of the century.

This is a market leading return that has seen gold outperform most mainstream asset classes, including the share market, the Australian housing market, and indeed most superannuation products that invest across multiple asset classes.

The chart also highlights why, for long-term investors at least, gold’s short-term volatility can be ignored in many cases. It is part of the ‘noise’ of the market cycle, with most corrections looking like buying opportunities when viewed through the rearview mirror.

This is highly relevant now given gold is currently consolidating the gains from earlier this year which have seen the market rise by almost 15% year to date.

Inside the office
Investors have responded to this week’s spike in gold and silver prices with solid buying interest for both gold and silver, as well a decent uptick in demand for platinum, which is primarily for minted bars.

On the gold side, SMSF trustees continue to lead the way, with a preference for cast bars and pool allocated bullion. And while the investment budgets of SMSF trustees (typically in the vicinity of AUD $100k to AUD $250k) allow for investment in larger cast bars like 500 gram and 1 kilo products, there has been a notable shift toward lower denomination products, like the ½ ounce and our signature 1oz ABC Bullion cast bar.

This is to allow for greater trade flexibility in the future, with pool allocated gold, as well as pool allocated silver increasingly popular for this reason too.

Speaking of silver, we are also seeing a preference for lower denomination products, with investors increasingly focused on the 10oz cast bar, while silver coins, including our signature ABC Bullion 1oz Eureka coin, which is currently on sale, also continue to sell well.

The spike in market prices is also keeping buybacks of precious metals at healthy levels, a trend we expect to continue given the broader economic and investing climate in Australia, and indeed around the world today.

Jordan Eliseo
General Manager
ABC Bullion Australia

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