Investor Insight - Australian Gold Turnover

Having been in business since 1972, ABC Bullion now services over 40,000 clients, who utilise our services to buy, sell and store gold. This includes those who save regularly in gold (via our Gold Saver product), invest for their portfolios (in particular, SMSF clients hedging stock market risk) as well as those who buy for cultural reasons, including large sections of the Indian community who find it auspicious to buy during festivals like Diwali.

Having this diverse direct client base allows us to gain an insight to the market that one may otherwise struggle to come across, and helps augment our views, which are also obviously influenced by ETF flows, futures positioning, equity market volatility, inflation dynamics, USD strength or weakness, etc.

This week, we wanted to share an insight from one particular group of clients, and that is the large number of jewellery shops who service Sydney’s Chinese and Vietnamese community, who buy gold from ABC Bullion. These clients of ours trade not only in gold jewellery with their customers, but in investment grade physical gold bullion as well, with 1oz and 37.5g cast bars (called Luong) by far the most popular products.

As you’ll see from the chart below (which plots their buying as a distinct group), these clients are typically very price conscious, and tend to pick up their buying whenever prices have dipped, and are on the verge of their next rally.

Source: ABC Bullion

Note that in the chart, the orange line represents the AUD gold price (plotted on the Y axis on the right of the chart as you look at it), whilst the blue line represents client turnover, which has been rebased to 100 (the red line). Anytime the blue line is above the red line, that means they’ve been buying more than their average amount, and vice versa.

You can see that as a buying group, they have an uncanny knack of aggressively stepping up purchases prior to decent rallies in the gold price, including in mid 2013, late 2014, and late 2015, prior to the strong rally in the first six months of last year that was caused by a combination of Japanese NIRP, volatile equities and Brexit/Trump fears.

Unlike many other buyers, they also chose not to chase the rally in the first 6 months of 2016, instead waiting until the Trump induced stock boom pushed gold back down to more reasonable buying levels around AUD $1,600oz late last year.

This year, it’s been more of the same, with their buying drying up as gold moved up toward AUD $1,700oz in May, only for it to explode again last month, as the huge rally in the Australian dollar saw gold prices head back below AUD $1,570oz.

Indeed, as you can see from the chart, their buying in the last month is now back towards record levels seen over the last 5 years.

If history is any guide, it would suggest another bounce in AUD gold is on the near horizon.

Warm Regards,
Jordan Eliseo

Disclaimer
This publication is for educational purposes only and should not be considered either general or 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, and 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.