Strong core stabilises gold!

In this week's market update:

• Gold prices were steady this week, with the precious metal last trading at USD $1,909.20 per troy ounce (oz).

• Silver continued to ease, falling by 2% to USD $22.60oz, with the gold to silver ratio (GSR) rising to 84.

• Equity and currency markets were uneventful, with the AUD rising by 1% to USD 0.644, while the S&P 500 was +1%.

• Oil continued to surge, with crude +4% and trading back above USD $90 per barrel.

• Yields for 10-year US treasuries also rose modestly as did breakeven inflation rates, as data from the USA showed consumer prices rising by 3.7% in the year to end August 2023.

Inflation battle isn’t won yet.

Gold has continued to trade above USD $1,900oz this week, with the precious metal essentially flat over the last month in both USD and AUD terms.

Silver has displayed similar performance trends, having eased back toward USD $25.50oz, with the current gold to silver ratio (GSR) of 84 suggesting silver remains undervalued on a historical basis, with significant potential for outperformance going forward.

The key news of the new week was the release of August inflation data in the United States, showing prices rose at an annual rate of 3.7%, up from just 3.2% in the year to the end July.

Energy is now a major challenge as oil is back above USD $90 per barrel. The disinflation from this sector of the inflation basket had been a major contributor in bringing inflation rates down over the last year. Now it is a headwind for the Federal Reserve in their attempts to bring inflation back to target.

Other inflation indicators also point to the ongoing challenge, with core inflation (which strips out food and energy) still above 4%, and median inflation is still at 5.7%. The movements in these inflation calculations can be seen in the chart shown below.  Produced by the Cleveland Federal Reserve , it shows annualised rates over time..

As many commentators have noted, while inflation rates fell rapidly from 8-9% down to the 3-4% range, it will likely prove far more problematic and time consumingtrying to get inflation further back toward 2%. That has significant implications for investment markets, with real yields far more likely to decline vs. rise from here.

That can’t help but be supportive for precious metal demand, especially if we see either a slowdown in the economy or an uptick in volatility (which can be expected given volatility readings are now back to levels seen before the pandemic) as we head into 2024.

We haven’t felt the pain……yet!

Earlier this week, I was delighted to attend the latest edition of Livewire Live, hosted by the team at Livewire Markets. Held at the amazing Art Gallery of New South Wales, the event had an all-star lineup of wealth managers, economists and market commentators sharing their views on the outlook for investment markets, inflation, public policy and the like.

I was able to watch most of the keynote presentations and panel sessions, with the standout for me being the final session of the day, where six speakers shared a shocking prediction for what will occur either directly in markets going forward, or in broader society, and the likely market impact.

One of those speakers was Chris Joye, who publishes regularly in the AFR and who has a very good record of predicting where the Australian housing market is headed. The key takeaway from him was investors should avoid illiquidity like the plague and focus on highly-liquid assets, given the tremendous optionality liquid assets offer investors looking to capitalise on future opportunities.

We couldn’t help but think of gold when hearing that, given:

• It is exceptionally liquid, with turnover typically more than USD $150bn per day.

• It has zero credit risk.

• It has a history of strong price rises, and strong relative outperformance in periods when risk assets (i.e., shares) tend to fall.

We also heard interesting comments that included the following observations.

• In Australia we are already in a per capita recession, with the retail sector particularly hard hit.

• Inflation will soon surprise to the downside – that may boost gold if it leads to sharp rate cuts.

• The accumulated savings argument – basically one that suggests households have plenty of cash to ride out this inflation wave, is basically over, with that money largely gone now, or sitting with households with a low propensity to spend.

• That more pain may be on the way for corporates, who’ve so far not felt the impact of rate rises given they had (quite cleverly one would argue) gorged on cheap debt while it was available at the height of the pandemic.

The final standout idea was one that suggested compulsory superannuation, which is expected to see funds under management rise to AUD $9 trillion in the next 20 years, will make Australia the wealthiest country on earth.

We are not so certain about it making us that wealthy, given we see just as big a risk that it ends up creating an asset bubble with enormous capital misallocation, there is no doubt about the rivers of money that will flow into the sector.

For those Australians intent on maximising that pool of money, precious metals are obviously one such asset class they can turn to, with its accessibility set to drive investment allocations to gold and silver from those running their own Self-Managed Superannuation Fund for years to come.
 
The Pod of Gold

In the last week of August, ABC Bullion attended the Australian Gold Conference at Crown Barangaroo.

I was honoured to participate in a panel session discussing the outlook for gold, as well as do a keynote talk titled ‘the battle for USD $2,000oz gold’, where I looked at the precious metal market today, how it compares to the first time gold traded near USD $2,000oz back in 2011, and why the difference between the two (summarised as exuberant in 2011 vs apathetic in 2023) sets us up for a potential roaring bull market in the years to come.

My colleague Nicholas Frappell, Global Head of Institutional Markets for ABC Refinery, also attended the conference, recording the latest edition of the Pod of Gold while he was there. Nick discusses a range of topics, including:

• Latest developments with the USD, and how that might impact precious metals.

• Managed money positioning, and the lack of bullishness from that segment of the market.

• The upside targets for gold looking ahead.

• Media coverage on the outlook for interest rates, and how that contrasts with the Fed.

• Trends in consumption data.

• The risks in being short China, the potential policy response from the CCP, and implications for the Australian dollar.

As always, The Pod of Gold is worth a listen in full.

Inside the office this week
 
The pullback in the AUD gold price seen this week, with the precious metal last trading at AUD $2,971oz, has brought out the buyers, with many investors looking to take advantage of this modest price weakness.
 
This has been seen across all channels at ABC Bullion, most notably through online trading, and through clients transacting in-store at our Global Flagship on 38 Martin Place. Buybacks of metal are also continuing at a strong level, as despite the recent dip, prices for gold in AUD remain near all-time highs, meaning most investors that are selling are doing so at a profit.
 
Back to purchases of precious metals, and product wise, the ABC Bullion gold cast bar range continues to lead the way, with regular investors preferring our signature 1oz ABC Bullion gold cast bar. Larger investors from SMSF trustees to Family Trusts tend to invest in either 1 kilo ABC Bullion gold cast bars, as well as 1 kilo ABC Bullion silver cast bars for those also wanting exposure to silver.
 
Speaking of silver, we are also seeing a huge uptick in demand for coins, with ABC Bullion running a special promotion on four of our most popular products, including the signature ABC Bullion 1oz Eureka silver coin, which remains the most cost-effective silver coin on the market today.

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.