Precious metals rock solid in 2023

In this week's market update:

• Precious metal steadied again this week, with still trading above USD $2,040 and AUD $3,000 per troy ounce (oz).

• Silver was also solid, last trading at USD $24.30oz, +1% for the week, with the gold to silver ratio (GSR) declining to 84.

• Equity and commodity prices were positive, with the ASX200 +2%, while oil is +3% and last trading at USD $73.90 per barrel.

• Bond markets continue to dominate market attention, with yields falling sharply in the last week, as recession risks and the chances of substantial reductions in interest rates during 2024 grow stronger.

Gold clocks up another win
With Christmas fast approaching and the New Year just over a week away, it looks like being another good year for the precious metal sector, with gold up 10% for the year so far.

Silver has lagged, with the precious metal essentially flat across the course of the year, though it has rallied by close to 20% since March, when it flirted with critical support near USD $20oz.

As it stands, the gold to silver ratio (GSR) is currently sitting at 84, having risen from 76 at the start of the year. The GSR suggests silver remains significantly undervalued at present, which only strengthens its potential to outperform in 2024 and beyond.

Two charts to watch as we approach the new year
One of the key drivers of gold over time is the level of demand for the precious metal that comes from investors seeking a safe haven. Typically, the safe haven they are seeking protection from will be either high inflation, recession risk, or a falling stock market.

On the latter point, there are two charts worth reflecting on as we head into calendar year 2024.

The first, seen below, is just how strongly the stock market has rebounded in recent times, with Charlie Billelo noting that the stock market is now up 16% in the last 36 trading days, as seen in the chart below. That is one of the sharpest rallies seen in the last 3 decades, and in the 99th percentile based on historical records.

Extremely sharp rallies are typically following by painful corrections, with some of the sharpest rallied we can see in the chart above (2001, 2008) coinciding with major bear markets in stocks.

Clearly, the good news of a supposed soft landing, and a pivot to lower interest rates (with those lower rates supposedly bullish for stocks) is already, or largely priced in.

That is particularly relevant given the fact that interest rate easing cycles have historically been bearish, not bullish for stocks, at least over the past quarter century.

This is illustrated in the below chart, which shows the performance of the S&P 500 over the past 20 plus years, with movements in the Federal Funds rate overlayed with movements in the stock market.

As is clear, in both of the major rate cutting cycles we’ve seen (2000-2003 and 2007-2008) stocks have cratered, with losses of more than 50%.

A repeat performance in 2024 would likely be very bullish for gold and precious metals more generally, with investors likely to seek out wealth protection in such an environment.

Pod of Gold
My colleague Nicholas Frappell, Global Head of Institutional Markets, recently recorded the Pod of Gold, with this edition titled “Gold’s set up for 2024”.

The podcast covers a range of topics as usual, with notable timestamps below:

• 01:00 - Gold’s reaction to latest jobs data

• 03:30 - The ongoing disconnect between the Federal Reserve and markets

• 08:40 - Managed money positioning in the gold market

• 14:10 - Technical price points for gold

• 18:30 - The US dollar (DXY) cycle

• 23:00 - The Bank of Japan and their attempt to exit yield curve control

• 25:30 - OPEC and their struggle to put a floor under a cratering oil price

• 30:00 - The Chinese property sector and the mispricing of risk

As always, the podcast is a must listen, especially for those who are looking for a gold market outlook as we head into 2024.

Inside the office this week
Trade volumes in the lead into Christmas have remained very healthy across all ABC Bullion channels, with something of a Santa rush as investors bolster their portfolios ahead of the New Year.

This has been particularly noticeable in silver, with high-net worth investors buying both ABC Bullion silver cast bars, as well as pool allocated metals.

We are also seeing very strong buying of ABC Bullion gold minted products, with many of these being purchased as the perfect investment/gift. Other clients are taking advantage of the ability to convert their holdings in their ABC Bullion Gold Saver account into physical bars and coins.

As we head into the New Year, we expect trade volumes to remain robust, with the case for precious metals growing stronger by the day.

Thank You
With Christmas and the New Year fast approaching, we’d like to use this opportunity to say a very warm thank you to all our wonderful clients who continue to support ABC Bullion and make this such an incredible organisation to be a part of.

It has been another wonderful year, highlighted by our move into the ABC Bullion Global Flagship store at 38 Martin Place, and we look forward to bringing you new and exciting products and services in the new year.

From everyone here at ABC Bullion, we wish you a merry festive season, and a happy, healthy and prosperous new year.

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.