Key levels to watch as gold holds USD $2,000

In this week's market update

• Precious metal prices steadied this week, with the price of gold essentially unchanged after rebounding from a brief foray below USD $2,000oz.

• Silver managed a small bounce, +1% for the week, with the precious metal trading back above UDS $24oz.

• Prices in Australian dollars pulled back for both metals, owing to a 3% rally in the AUD, which is now trading at USD 0.671.

• Equity markets staged major rallies, with both the S&P 500 and ASX 200 +3% over the past give trading days, while oil is back above USD $71 per barrel.

• Bond yields continued to ease, with 10-year yields in both Australia and the United States now close to 4%, having fallen by between 0.40-0.50% in the last month alone.

Key levels to watch for gold
Precious metal prices have steadied over the past five trading days, with the market rebounding from a pullback earlier in the week that had seen gold and silver temporarily fall below USD $2,000oz and USD $23 per troy ounce respectively.

The US Federal Reserve’s decision to keep interest rates on hold as Christmas approaches, combined with their view that rates will be cut by up to 0.75% across 2024 was enough to end the correction in precious metals.

It also boosted other asset prices, with a range of equity markets now back or near all-time highs. Market participants are apparently keen to see a Santa rally in the remaining days before Christmas, though there are already signs the rally in risk assets may have run too fast, too far, with Wall Street’s best known “fear gauge”, the VIX, bouncing off a four year low.
Back to precious metals, and while price action has been choppy in December so far, the outlook remains positive.

Indeed, while some investors may have been spooked that gold spiked above USD $2,100oz, then proceeded to fall back below USD $2,000oz in a matter of days, market history is full of similar events.

This can be seen in the chart below, which is sourced from an article titled; “Final Resistance for Gold & Silver”, with the red dots indicating periods gold had seen a greater than 2% intraday rally, with the price hitting a one year high, then subsequently falling.

As you can see, it has happened on several occasions in the past twenty years, with most of these periods seeing gold have a small pullback, before powering on to new highs.

We have arguably already seen that pullback in gold this time around, given the price action that took place earlier this week, with gold likely to be strongly supported in the mid to high USD $1,950-USD $1,975oz range at a minimum.

Given this market history, we remain optimistic on the outlook for the precious metal as we approach 2024. While it may take some time, the market looks poised to fight its way back above USD $2,100 an ounce, and close above that level on its next foray.

That will be a game changer in terms of sentiment, with silver also likely to surge in such an environment.

Why gold is not Bitcoin for Boomers
For several years, many a financial market commentator has tried to compare gold to Bitcoin, with articles of such nature tending to come to the fore in periods like the one we are experiencing now, where gold has been trading in a subdued or range bound fashion, and Bitcoin prices are surging.

This is unsurprising given such periods also typically see pro-Bitcoin advocates make a lot of noise about why Bitcoin is supposedly gold 2.0, or digital gold, with many arguing Bitcoin is superior to gold given its more easily divisible, globally transportable, and arguably scarcer.

Indeed, just recently Bloomberg ran an article stating that gold’s fickleness makes it like Bitcoin for Boomers, given the older generation still tend to prefer the trusted hard asset with a multi-millennia track record, vs its digital teenage competitor that is yet to survive one full credit cycle.

While we have no issue with Bitcoin per se (we don’t have an issue with any asset class for that matter, there is after all very good reasons while large highly liquid stock and bond markets exist), it is worth remembering several important differentiators when it comes to gold and Bitcoin, and how that may influence what role, if any, either could play in your portfolio.

• The gold market is huge, with a total market value in excess of USD $13 trillion. That is larger than almost all sovereign bond markets, and the market value of all the stocks listed on most individual stock exchanges globally. There is a reason central banks buy, own, trade, and lease gold. Its big enough to matter. Bitcoin by chance is a child’s bath toy by comparison, with a market value of circa USD $800 billion. That is less than the size of one of the US mega cap tech stocks. It is like comparing a supertanker with a speed boat.

• Gold has a multi-decade history of preserving wealth. Bitcoin does not.

• Gold is volatile in the short-term, but this volatility is comparable to the stock market. Bitcoin by comparison is far more volatile.

• Gold is also a trusted portfolio diversifier in periods equity markets tank, whereas Bitcoin tends to be pro-cyclical, and often sells off when the stock market does.

• Finally, Bitcoin’s best days are almost certainly behind it. The fantastical price growth Bitcoin advocates use to lure in new buyers was only possible because it essentially started with a value of $0. Its best year performance wise was in 2010, when it rose 9900%. In price terms though that was an increase from $0.003 to $0.30, with barely $1m (i.e. less than the value of one average SMSF in Australia) in actual value created with that price move. For gold on the other hand, there seems little reason to expect that it cannot continue to deliver long term returns of around 9% per annum, in line with long-term money supply growth figures, supported by central bank and household/investor buying all over the world.

We discussed some of the above factors in a now year old blog post titled “three reasons gold investors shouldn’t fear Bitcoin”. That article included the following chart, which helps highlight just how tiny Bitcoin remains relative to gold.

Chart: Market share – gold vs bitcoin as percentage of both markets combined 2010 to 2022  

The article also highlighted why gold’s tepid performance between 2011 and 2021 had nothing to do with the emergence of Bitcoin, as some argue, and why the passage of time will also favour gold, as young risk-taking speculators who currently prefer Bitcoin will inevitably change their focus to more stable wealth preservation and growth.

Gold is in safe hands.

Inside the office this week
Trade volumes across all ABC Bullion channels remain very healthy in the lead into Christmas, with the recent spike in price volatility encouraging investors on both the buy and sell side, with many adding bullion to their portfolio, while others are raising cash ahead of the holiday period and the New Year.

We’ve seen a notable move into silver, some of which is being seen through our pool allocated products, as well as our signature ABC Bullion cast bar range, with investors taking advantage of silver’s recent price dip, and a gold silver ratio that is well above 80, suggesting silver may well outperform in the coming months and years.

Gold remains as popular as ever, both in cast bar form, as well as our minted range of ABC Bullion products, which always see a spike in popularity at this time of year, given they make a timeless and memorable Christmas gift for family, friends and loved ones.

Bullion coins and platinum minted tablets are also proving popular in this regard, while we are also seeing lots of interest in our lunar product range.

Jordan Eliseo
General Manager
ABC Bullion Australia

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