In gold we trust as metal market consolidates
24 May 2024
In this week's market update:
Precious metal markets sold off in trading toward the end of this week, with gold -2% in USD terms, last sitting at USD $2,331 per troy ounce (oz).
The pullback comes after a surge in gold prices that at one point saw the precious metal trade above USD $2,400oz, with the market consolidating recent gains.
Silver also corrected, last trading just above USD $30oz, with the metal still up 10% over the past month, with the gold to silver ratio falling from 85 to 77 during this period.
Risk assets were softer across the week, with equities down 1% in both the United States and Australia, while oil was -4%, and again trading below USD $80 per barrel.
Protection against chaos
Precious metal markets continue to probe new highs this week, with gold trading near USD $2,400 per troy ounce (oz), while silver rallied well beyond USD $30oz earlier this week, before pulling back as the week draws to a close.
So topical has gold become, that it generated a lot of attention at the Morningstar Conference held at the ICC in Darling Harbour Sydney this week. There were a number of keynote speakers across the course of the day, with some of standout observations coming from Katie Petering of Blackrock, and Robert Alameida on MFS Investment Management.
In a panel discussion that ended up with a heavy precious metal focus, Petering noted that while gold can be volatile in its own right, from a portfolio perspective, it really comes into its own in periods of heightened volatility in other asset classes.
Given this, it was noted that gold acts as a hyper-diversifier, with the precious metal becoming more popular as a ‘go-to’ asset to include in broader investment portfolios, with Petering implying they’ve been using it for a number of years.
Alameida meanwhile noted that while gold is hard to value (conventional metrics don’t apply), it serves three useful functions:
It protects against inflation
It protects against deflation
It protects against outright chaos
He went on to note that all three are on the table in the current investment, geopolitical and economic environment, with a statement that the decoupling of gold from real rates that has occurred in the last few months suggestive of changing global regime.
Macro Outlook
Luci Ellis, now at Westpac but ex RBA, also did a great macro session, noting that:
While the inflation beast has not yet been fully slayed (and is particularly concentrated in non-discretionary items where its running at close to 4% per annum), it’s eased enough that most central banks are likely to feel comfortable cutting rates soon
That rate cuts are likely needed, given already sluggish and slowing global growth, especially outside of the United States
That the United States itself faces a significant dilemma, as while GDP growth there is way ahead of other developed market peers, this is in part due to extraordinary federal budget deficits, which must be curtailed
Lastly, she noted that while the economy is still technically growing in Australia, we are in a per capita recession, with consumption growth in Australia sitting at close to -2.5% year on year at present. That is worse than Europe (where its basically flat), and far behind the United States, where the number is closer to +3%.
Some other interesting tidbits, which do have some implications for investment markets were that for the first time in years, sustainable funds, or ESG focused products, are seeing outflows from investors.
We are also going to see a huge increase in the number of older Australian’s in the years to come, with those aged 65 years or older growing from 17% to 23% of the population in the next 15 to 20 years.
Given the population itself will grow by circa 15m people in this timeframe – that is a meaningful number, with most of these people needing to come up with ways to protect and sustainably grow their wealth.
Gold can play a vital role in this regard.
In Gold We Trust
We couldn’t end this weeks report without special mention of the release of the annual In Gold We Trust report, published by my good friend Ronald Stoeferle and the team at Incrementum AG.
Titled “The New Gold Playbook”, it is, as always, it is a must read for precious metal and general market enthusiasts.
We are certain ABC Bullion clients will enjoy it, and after reading it, will be comfortable than ever with their decision to hold gold and silver in their investment portfolios.
Jordan Eliseo
General Manager
ABC Bullion Australia
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