Records tumble as bullion surges!

In this week's market update:

• Gold prices surged to record highs this week, with the precious metal trading above USD $2,300 and AUD $3,500oz for the first time.

• Silver also rallied, with a 9% surge seeing prices approach USD $27oz and top AUD $40oz, with the gold to silver ratio (GSR) falling from 90 to 85 in the past five trading days.

• The surge in precious metal prices has now seen gold rally by more than 10% YTD (silver is up more than 15%), as investors rediscover their appetite for hard assets.

• The strength in precious metal prices stands in stark contrast to risk assets, with equity markets coming under selling pressure, including in the United States where the S&P 500 is down by 2%.

• Fixed income markets also sold off this week, with bond yields rising across the spectrum, while cryptocurrency markets were also soft, with Bitcoin -4% and now back below USD $70,000 per coin.

Gold train has left the station
Precious metal prices surged this week, continuing a month-long bull-trend that has seen prices rally by 6% for gold and 10% for silver.

The rally saw records tumble, especially for gold, which traded above USD $2,300oz and AUD $3,500oz for the first time, as suspicions central banks around the world, led by the US Federal Reserve, will tolerate ‘higher for longer’ inflation, and deliver multiple interest rate cuts in a bid to keep economies growing.

Recent comments from high profile central bankers, including US Federal Reserve Chair Jerome Powell have only magnified that sentiment, which would obviously lower real yields and therefore the opportunity cost of investing in assets like gold and silver.

While gold and silver will no doubt need a period of price consolidation soon, there seems to be real legs to this current rally, with USD $2,000oz gold, which up until recently was thought of as a price ceiling, now looking more and more like a floor for precious metals.

Continued buying from the world’s central banks is one factor supporting the current price strength, while a likely uplift in physical demand could add more fuel, at least according to analysts at Bank of America.

The positive outlook for gold is also shared by analysts at ScotiaBank, who note the diversification opportunities gold offers, amongst others, and the strength of central bank buying in a recent update, while high profile investors like David Einhorn of Greenlight Capital have also increased exposure to gold.

The recent rally in gold, and how quickly it has transpired, has also exposed, or again highlighted one of gold’s more interesting, but perhaps less appreciated qualities. That being that while its volatile, its mostly volatile to the upside.

By that we mean that while gold is a volatile asset, its sharpest moves tend to be price rises, rather than price falls. This is completely different to what we see in the equity market, which tends to rise more gradually, then experience sharp selloffs, which is what ultimately gave rise to the expression of markets ‘going up the stairs but down the elevator’.

Given all that is happening in the world, including recession warnings, ongoing geopolitical risks and the threat of more entrenched inflationary pressures, the case for gold (and silver) remains as strong as ever, with significant upside potential remaining.

Discussing all things gold!
Last week, I had the pleasure of sitting down with @PhilMuscatello who hosts the popular Share for Beginners Podcast, for a discussion on the current state of the precious metal market, and what has been driving the recent gold price surge.

We discussed a range of other topics as well, including various ways investors can get exposure to gold (and some of the pros and cons of those approaches), what has been happening with silver, the causes of and outlook for inflation, and current sentiment in the gold market.

The topic I enjoyed most was the discussion around the positive and negative attributes of gold as investment, and superannuation fund exposure to gold, of which I’ve included an extract in this article; “it depends which superannuation fund you're with. And look, some super funds almost might by default may have some exposure even just to gold mining companies, if not bullion directly, largely due to the fact that the ASX obviously has a number of gold producers, given Australia is one of the largest producers of gold in the world.

But absolutely, again, if I go back to my background, wealth management, portfolio construction, to me, gold has some unique qualities that make it a very useful asset to hold as part of a portfolio. And if you look at various asset classes, all of them tend to have a number of positive attributes and at least one drawback, if it makes sense. So, if you look at gold, you start with the drawback. There's no income, it doesn't produce a dividend or a regular cash flow.

You look at the positives though it's generated extremely solid capital growth over the long run, it is exceptionally liquid, tends to be a great protector against inflation over the medium long to long term. And perhaps the most important one. It is the diversifier that tends to pay off best when you need it most. And by that, I mean if you look at market history, whenever of those inevitable hiccups in the stock market and the economy come along, gold tends to be the best performing asset in those scenarios.

So, I think if you speak to a well-balanced investor, even if their specialty might be equities, or might be fixed income or might be property, they're not hand on heart going to go, you should have all your money in just that asset class. For me, that's exactly how I look at gold as well. I think there is an enormous body of credible research that shows that for the average investor, let's say allocations of ten to 20% in a portfolio can often make a lot of sense. Not for me to say that's appropriate for any one particular person. It deserves to be part of the conversation, just like any other asset class does.

We also talked about where gold sits from a price point of view, and whether it’s cheap, fairly valued, or expensive at present, noting the price was closer to AUD $3,300oz when we recorded, so the market has popped higher since.

A copy of the podcast is accessible here, with that link also containing a transcript of the discussion in full.

Chart of the week
This week’s chart comes from MKS PAMP, who in a recent gold market update included the below 2024 performance chart for a range of asset classes. While some commodities and other assets have suffered so far this year, many asset classes are performing quite strongly, gold and silver included.

The chart comes from a detailed update (accessible here), which includes the following excerpt regarding gold.

Gold: Original Forecast $2050/oz (mildly bullish vs the street) is now upgraded to $2200/oz (outright bullish) as gold sniffs out a collective turn in major CB policy willing to accept higher for long inflation, amidst solid physical demand.

What has played out as expected (so far) → new ATHS & timing:

• Our original 2024 forecast published in January was $2050/oz (high-low range of $1900-$2200/oz), hinging on the Fed cutting rates as the global economy slowed. We also expected new all-timehighs. So far Gold has already taken out our high price forecast of $2200/oz with the timing as expected as Golds pre-empts a Fed rate cutting cycle, while Central Bank and physical demand remains relentless.

• One of our bull cases (not our base case**) drivers was Asian or CB physical demand being stronger than expected & responding to higher floors quicker than expected. That has played out (earlier than expected) and is the game changing development behind higher floors.

Inside the office
The surge in gold and silver prices has been matched by a jump in investor activity in the precious metal market, which ABC Bullion is seeing across all its investment channels.
For those looking to lock in profits, gold prices north of AUD $3,500oz and silver back above AUD $40oz makes for ‘good selling’ as it were, with elevated levels of buyback activity. The period of elevated buybacks has now been in place for the last 12 months, remembering that gold first hit AUD $3,000oz back in March of 2023, with the latest price spike representing an acceleration of a now year long trend.

On the buying side, we are also seeing a renewed appetite for gold and silver, though not at the exuberant levels that have often coincided with interim tops in the precious metal market.
For silver buyers, the 10oz ABC Bullion cast bar is proving incredibly popular, as is the newly released 1/4oz silver coin from The Royal Mint. On the gold side, it is our ½ ounce and 1oz ABC Bullion gold cast bars, as well as the 37.5 gram Tael that are leading the way, as investors gravitate toward lower weight items, which offer greater trade flexibility, especially in a bull market.

Jordan Eliseo
General Manager
ABC Bullion Australia

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