Gold's Cup Overflows

In this week's market update:

• Precious metals were steadier this week, with gold holding above important support at USD $1,800 per troy ounce (oz).

• Silver fell by 1%, and is now down 10% for the month, last trading just above USD $21oz.

• Equities have pulled back, with both the S&P 500 and ASX 200 off by 2% over the past five trading days, as the early new year rally in risk assets tapers off.

• Commodities and cryptocurrencies were both soft, with oil last trading near $75 per barrel, while Bitcoin is below $25,000.

• Bond yields have steadied, with 10 years in both the US and Australia sitting just below 3.90%, with the yield curve remaining heavily inverted in the United States.

Headwinds to dissipate for gold as market set to turn

Precious metal prices largely stabilised this week, with gold flat in USD terms, while silver was off just 1%.

While the relatively calm of the last five trading days has served as respite for precious metal bulls disappointed with the recent weakness across the sector, the market remains on a defensive footing for now, with the two metals off by 6% (gold) and 10% (silver) over the past month.

The defensive posture may continue in the short-term, with certain indicators, including long positioning in the managed money futures market suggesting speculative traders are yet to meaningfully reduce their exposure. If they end up doing so, it will pose a risk to the market short-term.

That side, the bigger picture outlook for gold remains bright, with the below chart, from @TheDailyGold highlighting a bullish cup and handle formation.

While gold bulls will obviously want the precious metal to maintain support levels near USD $1,800oz given current market pricing, the reality is gold could up to 10% from there, down toward USD $1,600oz, with the long-term outlook still bullish from those levels.

Note that’s not a price prediction, but a guide as to where the market could potentially head, though we are not certain the pullback will be quite so severe, with some of the headwinds gold is currently facing (higher rates, a rebound in the USD etc) inevitably set to turn.

Charts like this also help contextualise the volatility that we see on a daily basis across the precious metals sphere, with savvy investors likely to use the current correction, and any subsequent price weakness if it continues, as a buying opportunity.

Discussion with World Gold Council

In early February, we were honoured to welcome John Reade, Chief Market Strategist for the World Gold Council, to Custodian Vaults, our high-security purpose-built bullion vault, located in Castlereagh Street Sydney.

John and I spent the better part of half an hour talking through a range of key topics currently impacting the macroeconomic and market outlook, with an obvious focus on gold. Specifically, we addressed:

• Gold’s performance in the last part of 2022 and 2023, where there has been a notable uplift in the USD price, even though the last couple of weeks have marked a sharp consolidation of earlier price strength

• Factors underpinning recent market moves, including the importance of strength and weakness in the US dollar

• Central bank demand, and what’s been driving record levels of buying from that sector

• The gold ETF market, and why investors in Europe and North America who typically favour these products have been shy to allocate to the precious metal in recent times

• Inflation dynamics, which direction it's heading, and how that’s likely to impact gold in 2023

• Recession risk, and the various signals the market is sending, from inverted yield curves to strong employment figures, and how economic developments may impact safe-haven demand for gold going forward

• How developments in China may impact gold this year, with reopening likely to bode well for jewellery demand in particular

We thoroughly enjoyed the conversation and walked away feeling more encouraged than ever about gold’s enduring role as a wealth protector, a portfolio diversifier, and its potential to deliver of long-term investment returns.

For those interested, you can access the full interview below.

WATCH NOW

Five reasons to invest in silver

Silver has been somewhat unloved in recent times, underperforming gold, with the gold to silver ratio (GSR) rising back toward 85 in the last month.

While that performance may have disappointed some investors, others, including clients at ABC Bullion, are seeing it as a buying opportunity, with a handful of catalysts set to not only see the silver price rise, but outperform gold in the next few years.

This is something we highlighted in a recent ABC Bullion silver infographic which looks at five reasons investors may wish to add the precious metal to their portfolio, with the infographic noting:

• Silver’s inflation hedging capabilities, and how it has historically outperformed gold when inflation is high

• How silver has typically risen alongside a rising stock market, in part due to its higher industrial usage

• How silver often strongly outperforms gold in a precious metal bull market, with average gains of almost 500% in prior bull runs

• Why history suggests silver is cheap relative to gold today, and the price levels relative to gold that it would need to reach in order to be expensive.

• Silver’s greater trade flexibility, looking at a potential $100,000 investment into precious metals, and why silver can be easier to trade in smaller investment parcels

The infographic also highlights some of the most popular silver products our clients trade with us at ABC Bullion, from pool allocated silver, to a range of coins, and our signature cast bars.
While markets will always be hard to pick from one week to the next, and while silver will likely remain more volatile than gold, we think those choosing to add silver to their portfolio at or near current levels will be well rewarded in the fullness of time.

Inside the office this week

It’s been another busy week inside ABC Bullion offices Australia-wide, with investors happily building positions in precious metals on the recent price weakness.

1oz ABC gold cast bars and 1oz Eureka silver coins are proving particularly popular, as are our signature ABC 1 kilo silver cast bars.

In a sign of where sentiment sits within the market right now, we are also seeing decent levels of buybacks, with long-term investors locking in gains, while online, we continue to see a range of silver coins sell well.

The ABC Bullion 1kg Silver Cast Bar.

Warm Regards,

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.