Silver leads the charge!

In this week's market update:

• Precious metal prices markets were mixed again this week, with gold easing marginally, while silver continued to push higher.

• While falling 1% for the week in USD terms, gold is still trading above USD $2,300oz, within reach of its all-time high.

• Silver pushed back above USD $31oz, +2% for the week, with the gold to silver ratio falling to 75, having sat at 87 a month ago.

• The move higher in precious metals occurred against a backdrop of falling equity prices, with the S&P 500 -1% for the week, while in Australia, the ASX 200 is -2%.

• Commodity markets were mixed, with oil registering a small gain.

• Bond markets also sold off, with yields on 10-year US treasuries again above 4.50%.

Precious metals on the move
It’s been another solid month for the precious metal market, led by silver, which looks like ending May up by more than 15% in both USD and AUD terms.

The move in silver has been particularly eye-catching given it has pushed the price above USD $30oz, a resistance level that dates back more almost 15 years. It has also coincided with a consolidation in the gold market, which is only +2% for the month so far, with silver’s dramatic outperformance an indicator that this bull market has genuine legs.

Fuelled by rising industrial demand, supply side constraints, and the return of strong investment demand, the rally in silver that we have seen in the last three months may just be the beginning.

The long-term outlook for gold also continues to strengthen, with its role as a wealth protector, portfolio diversifier, and foreign exchange reserve growing stronger by the day.

This can be seen in the chart below (courtesy of Gainesville Coins) which shows the composition of international reserve assets, and how those have evolved over the past 100 plus years.

The chart makes it clear how significant a role gold has played over this time, and that is role, or share of international reserves is again growing noticeably, after having ‘bottomed out’ around the turn of the century.

While charts like the one above mean little when it comes to the potential short-term gyrations in the gold (and silver) market, they do help illustrate the structural support underpinning gold, and by extension precious metal market, especially in a world of higher inflation and greater geopolitical uncertainty.

Gold’s role as a diversifier and source of stability in portfolios is also likely to be supported by monetary and investment factors. This was highlighted in a World Gold Council update from earlier May, which looked at the outlook for inflation and growth and noted that;

“The levels of inflation and growth deceleration we are seeing now are not as precarious as those experienced during the 1970s period of stagflation. But our analysis suggests that we do not need a repeat of those extreme conditions for stocks to be under pressure. Conversely, gold will likely respond positively to the combination of sticky inflation and less-than-stellar growth.

As we move from soft landing to higher-for-longer, and while the Fed is not in any rush to cut rates, the rest of the economic picture may provide more incentives for Western investors to join their Eastern counterparts in adding gold to their investment strategies.”

Chart of the Week
This week’s chart (s) of the week come courtesy of Jan David Meyer, a Senior Portfolio Manager, who published an interesting LinkedIn article looking at whether investors would be better investing in gold vs bonds and using the precious metal as a way of balancing out risk in an equities portfolio.

While the article doesn’t suggest bonds should be junked in their entirety, more than 50 years of data does now show that gold has outperformed a basket of US government bonds.

It also shows that a 60/40 portfolio of equities and gold (60% of the money in equities and 40% in gold) would have outperformed a 60/40 portfolio of equities and bonds by a full 1% per annum over more than 5 decades.

A big part of that is because gold has proved to be the very best asset one can hold in high inflation environments, with all other assets going backwards in real terms during such periods.

This can be seen in the chart below, which also shows that gold is one of the better assets to hold in deflationary scenarios (it can be expected to fall far less than other assets) and in reflationary environments.

Inside the Office
While gold has spent most of May consolidating the gains seen earlier in the year, silver has continued to push higher, with the price looking like it may soon test AUD $50oz, and breakout above price resistance that has lasted for more than a decade.

The spike in prices has led to a resurgence in silver demand, seen across pool allocated investments, cast bar products and silver coins, with the 10 year celebration of the launch of the Eureka seeing a huge pick up in demand for 1oz ABC Bullion Eureka silver coins.

Gold is also seeing strong buying, with smaller products like ½ ounce ABC Bullion cast bars and 37.5 gram Tael and Luong products selling well, while our signature 1oz ABC Bullion cast bars continues to lead the way.

Given how well gold and silver have performed this year, it is also no surprise that we continue to see elevated levels of client acquisition, with more and more Australian’s looking at ways to invest in gold and silver every day.

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.