Metals bounce as silver rallies above USD $30oz

In this week's market update:

• Precious metals were back in bull market mode, with gold and silver rising by 2% (gold) and 5% (silver) respectively in USD terms.

• The rally in precious metal prices saw silver reclaim the critical USD $30oz price point, with the gold silver ratio falling to 77.

• Traditional markets saw little movement across the week, with both equities and bonds essentially flat.

• Oil was a big mover, rallying by 4% and now trading back above USD $80 per barrel.

• Bitcoin came under renewed selling pressure, falling by 3% for the week and now back below USD $65,000.

Precious metals on track for bumper 6 months
Precious metal prices rallied strongly this week, with gold and silver increasing by 2% and 5% respectively in USD terms. Prices rose by a similar amount in AUD terms, with little movement in foreign exchange markets this week, with one Australian dollar still buying 66.7 US cents.

In local currency terms, Australian dollar gold last traded just above AUD $3,500oz while silver is closer to AUD $46oz, with the two precious metals on track to record gains of 16% and 30% for the first half of 2024, should prices stay at these levels through to 30th June.

Gains like that would significantly outpace what we’ve seen in other markets so far this year, with gold and silver outperformance particularly impressive given some of the traditional tailwinds that you’d expect to see in bull markets largely absent over the past six months.

Part of the rally in recent days owes to softer than expected US retail sales data, with the latest figures suggesting the US economy is slowing down, heightening expectations that the US Federal Reserve may need to cut rates more aggressively than they currently plan too.

In other precious metal related news this week, we have seen:

• News from the Czech Central Bank that they want to boost gold holdings to 100 tonnes, which would represent a more than 100% increase from current levels closer to 40 tonnes, with ‘price and financial stability’ the primary reason to increase bullion holdings.

• More reports on the phenomenon that is Costco selling gold bars, with the exposure that Costco brings given its reputation and vast membership base undoubtedly a positive for the overall profile of gold as an investment.

• More news on the potential (and we do stress potential) combining of gold and crypto related assets, with Tether, the largest stablecoin in the crypto market, issuing a new product titled “Alloy”. While we remain skeptical about many of the bullish narratives that will support crypto asset, we do think it remains noteworthy how often crypto projects try and align part of their sales pitch with gold. Clearly, they are hoping the trusted role and recognition that gold has in the minds of billions of citizens will help ‘sell’ their product.

• Indications from independent financial advisory firms that more and more investors are seeking to add gold exposure to their portfolios, with Nigel Green of deVere Group noting that; “A growing number of investors around the world are considering increasing their holdings of gold within their diversified investment portfolio. Their decision-making process to invest in gold is not merely based on its historical significance, but on several current and compelling factors that could collectively signal a steady rise in its price over the long term.”

We have also seen The World Gold Council release their annual Central Bank Gold Survey, which forms the basis of our Chart of the Week.

Chart of the week
The World Gold Council release several ‘must read’ reports each year, including Gold Demand Trends, and their Strategic Case for Gold reports.

Another one to add to the list is their annual Central Bank Gold Reserves Survey, which looks at the intentions of central banks as it relates to their gold holdings. The introduction to this year’s survey notes that (bolded underlined emphasis mine); “An increasingly complex geopolitical and financial environment is making gold reserves management more relevant than ever. In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase in history – following a record high of 1,082 tonnes in 2022. Following these record numbers, gold continues to be viewed favourably by central banks as a reserve asset. According to the 2024 Central Bank Gold Reserves (CBGR) survey, which was conducted between 19 February and 30 April 2024 with a total of 70 responses, 29% of central banks respondents intend to increase their gold reserves in the next twelve months, the highest level we have observed since we began this survey in 2018. The planned purchases are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns including higher crisis risks and rising inflation.

Based on those statements, it is fair to say the outlook from this segment of the market is ‘as good as gold’ (pun intended) with the following chart showing that 81% of central banks expecting total gold holdings amongst their counterparts to increase, with none expecting it to decrease.

This is strong validation on the outlook for gold, and the likelihood of continued support that will come from this key area of the market.

Inside the Office
ABC Bullion continues to see robust trade in the lead in to the end of the 2023/24 financial year in Australia. This is being seen through both purchases and sales, with some investors taking advantage of the recent corrective period to lock in their precious metal holdings and portfolio allocations ahead of the new financial year, while others are liquidating to free up cash.

On the investment side, sales continue to be led by our signature range of gold cast bars and silver cast bars, with SMSF trustees and HNW investors typically gravitating toward 1 kilo silver bars, and 100-gram to 250 gram gold cast bars, given those products offer great liquidation flexibility.

We are also seeing continued demand for 1oz silver coins, with ABC Bullion continuing to run its 10-year celebration of Eureka, with monster boxes of these 1oz coins available from $4oz above spot.

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.