Special report: Gold hits new all-time high as markets rally

In this week's market update:

• Precious metal prices surged last week, with gold hitting a new all-time high, rising to more than USD $2,500 per troy ounce (oz).

• Silver was also bid higher, with the precious metal rallying by 3% and now trading back near USD $29oz.

• Prices in Australian dollars also increased, though a rally in the AUD capped gains for local investors, with gold trading above AUD $3,750oz while silver is above AUD $43oz.

• The move in precious metals was mirrored across mainstream risk assets, with equities rallying strongly. This was seen in both the United States and Australia, with the S&P 500 and ASX 200 +4% and +2% respectively last week.

Massive monetary shift coming

Precious metal prices rallied strongly last week, with gold charging to a new all-time high when it topped USD $2,500z. Silver also rallied, +3% for the week, with the gold to silver ratio falling to 87.

The increase in precious metal markets was also seen in higher risk asset classes, with equity markets around the world also rallying, led by the tech-heavy NASDAQ, which is up by 5% in the last week.

The NASDAQ index has now recovered almost all the losses that were inflicted in the early part of August (it fell 8% at the start of the month and was down over 13% from the highs seen in early July) when the Bank of Japan rattled markets with its decision to hike rates and adjust its bond buying programme.

Market confidence has been boosted by the near certainty that interest rate cuts in the United States are less than a month away. At one stage, markets were almost evenly split between those expecting a 0.25% reduction vs a 0.50% reduction in the US Federal Funds rate, though stronger than expected retail sales data released overnight suggests the Fed will likely kick off this monetary easing cycle with a modest reduction.

That gold and silver would rally on heightened expectations of monetary easing is entirely logical, given the shift to looser policy is both a sign of a slowdown in economic activity, and will lower the real return on cash and many other floating rate investments.

In other precious metal related news:

• JP Morgan continue to see more upside in precious metal prices, forecasting an increase to USD $2,500oz in Q4, with their analysts noting; “Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025.”

• Thailand continues to see robust physical gold demand, with a 22% year on year increase in bar and coin investment. While the total tonnage of gold bought in Thailand is modest compared to other nations, it is a sign of gold’s growing popularity amongst risk conscious investors and households.

• Gold’s performance during bear markets in risk assets is one of the key attractions of holding the precious metal in a portfolio, with its ability to minimise overall portfolio drawdowns one of its strongest selling points for diversified investors. This point was emphasised in a recent article looking at calendar year performance in 2007, 2020 and 2022 (all year’s equities took a big hit), with gold coming to the fore each time.

The outlook for silver is also robust, with Bank of America noting in a recent update that deficits in the physical market are making a big impact. This is something we addressed in our recent ABC Bullion market exclusive; “The Case for Silver: A Sterling Investment” which noted that prices had almost doubled since the market went into deficit back in 2019.

Chart of the Week

Given the focus on the likely cut in interest rates that we will see in the United States in September, its an appropriate time to view the markets perception of current monetary policy settings, and how that may impact precious metals going forward.

The chart below, which comes from the Bank of America Global Fund Manager Survey, does an excellent job of this, showing the percentage of surveyed fund managers that think global monetary policy is too restrictive.

As the chart highlights, the current percentage of fund managers that do think policy is too restrictive is now at its highest level since 2008, with other peaks in this data series occurring back in April 2001, in October 2008 and in March of 2020.

Those all proved to be excellent buying opportunities in precious metal markets, with the table below showing the average 1-year and 3-year return for both and silver in the periods that followed prior peaks in this survey.

If history is any guide, both gold and silver prices will be going much higher in the years ahead.

Inside the Office

Turnover in precious metal markets has picked up notably in recent weeks, which we are seeing first-hand across all investment channels at ABC Bullion.

Investors continue to gravitate toward both gold and silver for time honoured reasons, with clients frequently commenting on their concerns about the risks evident in both share and property markets, as well as concerns real returns on cash are about the decline, given it increasingly looks a monetary easing cycle has commenced globally.

Product wise, gold continues to lead the way, with lower denomination products including our signature 1oz ABC Bullion gold cast bars in strong demand, while the 10oz ABC Bullion silver cast bar is seeing lots of buying interest amongst those with a preference for silver, which typically outperforms gold in precious metal bull markets.

We have also been pleased to see huge appetite for the new Untamed Landscapes range we recently launched, with silver investors buying up large quantities of the Crocodile coins, which are the first release in this five-coin series that celebrates the rich fauna of Oceania.

Jordan Eliseo
General Manager
ABC Bullion Australia

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