Silver breaking out as metals rally!

In this week's market update...

• Precious metal prices rallied again this week, with gold at one point trading up toward USD $2,050 per troy ounce (oz). Last trading at USD $2,034oz, gold is +2% for the week and +16% over the past twelve months.

• Silver also rallied, exploding above USD $25oz (+7% for the week), with momentum firmly to the upside. Silver’s outperformance relative to gold has seen the gold to silver ratio (GSR) fall back to 81.

• Currency markets were relatively calm, with the Australian dollar +1% vs the USD, while the USD itself was flat against a broader basket of currencies, with the dollar index still trading below 105.

• Equity markets and cryptocurrencies were also largely flat, with the ASX 200 eking out a 1% gain.

• Bond markets continue to rally, with yields on US 10-year treasuries falling to 4.35% as markets begin to factor in an expected end to the US Federal Reserve’s rate hiking stance and shift to more accommodative monetary policy in 2024.

Metals look strong as Christmas approaches

Precious metal prices strongly rallied this week, led by silver, which surged by 7% in USD terms, and is now trading back above USD $25oz.

This recent price move puts momentum firmly on the side of precious metal bulls, with speculative positioning in futures market, largely stagnant ETF flows and a range of other indicators suggesting there may be more upside ahead.

Gold and silver are also trading well above their 50-day and 200-day moving averages, with any potential corrections likely to be well supported, especially if risk continues to remain elevated, from both a geopolitical as well as investment perspective. Fidelity commented on this in a recent research note, stating that “there is little doubt gold retains the capacity to help protect investment portfolios in times of economic or market stress.”

In the short-term, the precious metal will continue to weigh the outlook for inflation and interest rates, with the market so far looking through stronger than expected GDP growth, with research published on investinghaven.com suggesting the market has more upside to come, with gold likely to hit a new all-time high.

Should that happen, we’d expect silver to rally even more strongly, with Charlie Morris of Atlas Pulse noting that investors remain heavily underweight precious metals even as gold is trading above USD $2,000oz.

The article from Morris also comments on the recent passing of Charlie Munger, Warren Buffett’s right-hand man at Berkshire Hathaway. While Munger was publicly dismissive of the case for gold (Buffet tends to be as well), Berkshire itself did make major investments in silver back in the late 1990s.

The timing of Berkshire buying silver, and their actual purchase time can be seen in the chart below, with Berkshire noting at the time that: “Because of recent price movements in the silver market and because Berkshire Hathaway has received inquiries about its ownership of the metal, the company is releasing certain information that it would normally have published next month in its annual report. The company owns 129,710,000 ounces of silver. Its first purchase was made on July 25, 1997 and its most recent purchase was made on January 12, 1998.”

Two things stand out from the above chart:

• That silver was available in the late 1990s at less than USD $5oz, with the price 5 times higher today (it was almost 10 times higher at its cycle peak in 2011).

• The Gold to silver ratio ended the 1990s at 56. It is much higher today, indicating silver is even cheaper relative to gold today than it was back then.

We delve into this in more detail below.

Six Reasons to add Silver to your Portfolio

With precious metals marching higher as we head toward Christmas, many investors are weighing up what percentage of their precious metal allocation they should dedicate toward gold, and what allocation should be dedicated toward silver.

While gold exhibits lower volatility, has delivered excellent long-term returns, has proved a reliable inflation hedge and is the more reliable diversifier in periods the share market falls, there are multiple reasons to be looking at silver as well.

Indeed, if history is if any guide, it will not surprise to see silver lead the way higher in 2024, and through the next precious metal bull market, with six of the key reasons to look at silver including.

• Inflation Protection: Silver typically outperforms gold in periods of rapidly rising consumer prices, with average returns of close to 18% in years in inflation is high.

• Bull Market Runs: In precious metal bull markets, silver typically leads the way, with the precious metal delivering average returns of close to 500% in five major bull market periods since the 1970s.

• Industrial Use: Industrial demand for silver has hit all-time highs in 2023.  This will help support the market going forward, with demand from this segment of the market set to increase with investment in green technology.

• Historically Cheap: The gold to silver ratio (which measures how many ounces of silver you need to buy an ounce of gold) is currently sitting at close to 80. This number has averaged closer to 60 over the long-run and has been below 30 in the past. This suggests silver is cheap relative to gold and reinforces idea it may strongly outperform in the next precious metal bull market.

• Liquid and Portable: Silver is very liquid, highly portable, and available in small denomination investments including 1oz coins and 10 oz cast bars. This can be very useful for investors who like to hold tangible wealth in smaller sizes that are not only liquid but easy to trade.

• Momentum Matters: Silver has rallied by more than 10% in the last month, and has historically done well in December, with an average gain of 7% in the month of December in the last 6 years. This current Santa Rally has precious metals looking like they are on the cusp of a major break out.

For more information on key reasons to look at silver, please refer to the latest ABC Bullion Silver Infographic.
 
Pod of Gold

My colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, recorded his most recent Pod of Gold Episode just over a week ago, on November 22nd.

As usual, Nicholas covers a range of topics in this half hour podcast, looking at investor positioning, technical charts, the outlook for monetary policy in both the United States and Australia, latest developments in the bond market, the recent upside momentum in precious metals and a range of potential price targets for gold in this market cycle.

Timestamps:

• 00:00 – Intro

• 01:20 – How likely is a Fed rate cut?

• 03:43 – Gold jumping to US$2000/oz?

• 06:28 – Geopolitical vulnerabilities

• 07:11 – Gold's war premium

• 08:08 – How is managed money buying gold?

• 13:27 – Gold on the Ichimoku cloud

• 16:09 – Gold Point and Figure

• 17:44 – Gold Upside Targets

• 18:09 – Will the Fed Pause?

• 22:56 – RBA joining global tightening.

• 26:38 – Key takeaways from this week

The Pod of Gold is a must listen for ABC Bullion clients interested in the outlook for the precious metal market.

Inside the office this week

Turnover at ABC Bullion remains robust as we head into the Christmas season, with healthy levels of two-way trade seen across all our investment channels (online, phone, and in-store in our 4 locations nationwide).

For investors looking to liquidate, recent price action has been highly encouraging, with gold well and truly back above AUD $3,000oz, while silver is currently trading above AUD $38oz, back near the highs for the year.

Given this price action, almost all clients who are selling will be doing so at a profit.

On the buy side, we continue to see very healthy levels of account openings and trade from both new and existing clients, as the case for gold and silver in an investment portfolio growing stronger by the day given the current economic and investment landscape.

While gold cast bars continue to lead the way in terms of investor demand, we are also seeing lots of demand for minted gold tablets, especially for those buying gold as part investment/part-gift in the lead into Christmas.

Given the fundamentals underpinning silver, we are also seeing an uptick in demand for ABC silver cast bars and ABC Bullion Eureka 1oz silver coins, as investors look to profit from the current uptrend and potential breakout in the precious metal sector.

Saving in gold also remains popular, with clients continuing to set up ABC Bullion Gold Saver accounts. We expect this trend to accelerate as we enter the New Year, which is often a period for clients to reassess saving and investment goals.

Jordan Eliseo
General Manager
ABC Bullion Australia

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