Silver surges - gold rallies – surprises in store!

• Precious metal prices have risen in the first week of the new financial year, led by silver, which has increased by 5% in USD terms, and is now back trading above USD $30 per troy ounce (oz).

• Gold was also stronger, rising by 1% to USD $2,355oz, while in Australian dollar terms, the precious metal is trading above AUD $3,500oz.

• Equity markets were also bid, with the S&P 500 and ASX 200 both +1%, while oil continued its recent surge, +3% for the week and now +11% over the past month.

• Crypto assets remain mired in a corrective phase, with Bitcoin back below USD $60,000 per coin, having fallen by 5% for the week and -17% in the past month.

• Bond markets were relatively calm, as yields crept higher, with 10-year bonds in Australian now trading back near 4.50%.

Silver outperforms in bull markets
Gold and silver prices have rallied in the first few trading days of the new financial year, with silver leading the market higher with a +5% move in USD terms.

The move has pushed silver back above USD $30oz, with the market looking like it may be on the verge of breaking out to the upside, with other parts of the precious metal complex also rallying strongly.

Gold was also stronger, +1% for the week in USD terms and AUD terms, with the metal doing its best to break above resistance around the USD $2,350oz level.

Long time precious metal market watchers will be aware that silver has historically been the market leader in precious metal bull markets – with a history of outperformance relative to gold.

We would expect a similar result this time, with the surging industrial demand that we are seeing for silver a bonus factor that will provide additional support for this market going forward.

In precious metals related news this week we have seen:

• Bank of America research highlight the growing appetite for gold amongst investors, with younger investors taking a shine to the precious metal. Of high-net-worth investors under 40, nearly half owned gold or are interested in owning it.

• Saxo Bank noted that metals are establishing bullish formations, something that will encourage those that are long gold and silver, with the report noting that silver is ‘front running’ the other metals.

• Market commentator and renowned resources investor Rick Rule stated that the thinks precious metal markets are set to explode, with more and more investors likely to turn to gold and silver, with Rule noting these assets are under owned relative to market history.

• Analysts at Citi are also bullish on gold demand, expecting more investors to allocate to the precious metal, with Citi also noting that; “Gold investment demand in China and central banks has risen to 85% of mine supply during 1Q’24 and averaged more than 70% of mine supply over the past two years.”

These factors likely bode well for the market going forward.

Pod of Gold
My colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, recorded the latest Pod of Gold on 28th June, just prior to the end of the financial year.

Titled ‘Gold’s consolidation and the Impact of a Strong Dollar’, the podcast is a must listen for precious metal investors, with Nick discussing a range of topics, including:

• Gold's recent consolidation

• Market Positioning and Data

• Fed Rate Expectations

• Official Sector Gold Buying

• Japan's Economic Policies

• Emerging Stresses in Asian Currencies

• Price Targets for Gold

• Key takeaways

Chart of the week
The US Economic Surprise index is always worth keeping an eye on. The index does not track incoming data in absolute terms, but rather on how that data compares to what the market was forecasting.

The chart below, which was shared by @DavidInglesTV on X, shows the Bloomberg US Economic Surprise Index over the last ten years. When the index is green, it means economic data is coming in stronger than expected. When the index is red, it means data is coming in weaker than expected.

The chart shows very clearly that as H2 2024 gets underway, US economic data is coming in weaker relative to expectations at a rate that has not been seen since late 2015, and about in line with what we saw toward the end of 2018.

Precious metal market watchers will note that:

• Late 2015 was the very end of the 4-year cyclical bear market in gold (in USD terms) which saw gold fall from near USD $1,900oz to around USD $1,050oz in that period.

• Late 2018 was the beginning of a strong bull market move in gold that saw the precious metal rally by more than 70% in the subsequent two years.

History does not necessarily repeat, but it often rhymes.

A move of similar magnitude from current levels in the period ahead would see gold rally toward USD $4,000oz, which would likely translate to a local currency gold price of close to AUD $6,000oz.

No guarantees, but it also would not surprise to see a move of this magnitude occur.

Inside the Office
Turnover has soared in the first few trading days of the new financial year, with investors that were waiting for the calendar to tick over to July 1 busy deploying capital into the precious metal market.

We have seen this across all investment channels at ABC Bullion, with solid demand seen for both gold and silver this week.

This year we expect to see renewed demand from many corners of the market, including SMSF trustees, who will be looking for the diversification, inflation protection and growth that gold and silver can offer.

Pool allocated products will likely see a significant share of this demand, while for those preferring end physical products, cast bars are likely to remain the go-to choice, with 1-kilo ABC Bullion silver cast bars and 250-gram ABC Bullion gold cast bars amongst the most popular choices for this cohort of investors.

Investors with more modest budgets are likely to stick to 1oz ABC Bullion gold cast bars or even ½ oz ABC Bullion gold cast bars, 10oz ABC Bullion silver cast bars and silver coins, all of which offer great trade flexibility.

As we have seen for much of the last 18 months, we also expect to see healthy levels of two-way trade, with buybacks of precious metals becoming a much larger share of the market. This is entirely healthy and natural given the volume of precious metals bought by investors in preceding years, and the surge in prices that has occurred.

Jordan Eliseo
General Manager
ABC Bullion Australia

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