Where to next for the gold price!

In this week's market update:

• Precious metal prices continued to rally this week, with gold +1% over the period and now firmly trading above USD $2,500 per troy ounce (oz).

• Silver was even stronger, with a +2% move in USD terms, and is again closing in on the important USD $30oz price point, with the gold to silver ratio (GSR) steady at 86.

• Returns for Australian dollar investors were more modest, with gold flat and silver +1%, owing to another push higher in the AUD, which is now trading at USD $0.68.

• Other markets were flat across the week, with equities in both the United States and Australia flat, though tech and AI bellwether NVIDIA has fallen by 7%, after releasing earnings.

• Commodity prices firmed, with oil +4% and now back above USD $75 a barrel, while cryptocurrencies were a touch softer, with Bitcoin -1% and back below USD $60,000.

Will gold hit USD $3,000oz this year?

Precious metal markets continued to rally this week, with markets looking ahead to the coming monetary pivot from the US Federal Reserve (The Fed), which was all but confirmed by Fed Chair Jerome Powell at the just completed Jackson Hole symposium.

That gold and silver would continue to find buying interest in such a scenario is no surprise given lower rates reduce the opportunity cost of buying precious metals, while there are rising doubts about the strength of the US stock market, with the NVIDIA share price taking a hit this week, despite surpassing expectations on the earnings front.

Should uncertainty regarding the stock market continue to grow, gold will be a natural beneficiary as investors look to balance portfolios and mitigate risk.

In other precious metal related news this week;

• The Financial Times had a discussion on the recent rally in the gold price, which looked at all the various drivers of the precious metal, and which ones are most important in the current market environment. The Financial Times also carried an article about why the current gold rush has staying power, which is further evidence that the price action in precious metals has made them front page news again, even if not all segments of the investment community are adding gold to their portfolios at this stage.

• Frank Holmes, CEO and Chief Investment Officer at US Global Funds and a long-term gold advocate, recently spoke to Investing News Network, where he highlighted why it would be pretty simple for gold to reach USD $3,000oz in the next twelve months. He is also optimistic on the outlook for silver, which he defined as “very inexpensive” noting that in his view it should be trading closer to USD $100oz.

• The USD $3,000oz price point was also a talking point in an article published on FX Leaders, which looked at the potential impact of a move to easier monetary policy by the US Federal Reserve, which we are almost certain to see in September.

• The Jerusalem Post also carried an interesting article looking at the gold market today, and compared it to 1979 and 2011, which ended up being major tops in the gold market. Comparing the current market to those prior periods in history, the article noted that; “The main difference in gold's massive move upward now compared to the two previous rises is obvious — no significant or cataclysmic event is causing the move up. Sure, inflation is real, but nowhere near the levels seen in 1979, and there are not many people out there right now calling for the entire financial system to collapse. Both drops from the peak in 1979 and 2011 were relatively quick and violent, giving retail investors little time to react, but because of the more laid-back nature of gold's rise this time around, that is unlikely to reoccur. While short-term corrections are always possible, there is little to suggest gold will not continue its momentum this time as the Federal Reserve hints at easing monetary policy.”

We concur with that last sentence in particular, noting that given the evolving market dynamics, it would not surprise to see gold continue to push meaningfully higher in the years ahead, despite the day-to-day gyrations and pullbacks that we will see along the way.

Chart of the Week

ABC Bullion were honoured to participate in the just concluded 2024 Australian Gold Conference, which took place at Crown Towers in Sydney.

I was asked to speak at the conference on the upcoming US election, the pending monetary pivot from the US Federal Reserve and how those might impact gold.

To provide context to the outlook, I included the below table (not a chart this week) which contrasted the market dynamics on display in the market back in 2011, vs the dynamics in 2023, when many market participants were unconvinced gold could or would sustainably push above the USD $2,000oz price point.

The table highlights that while the gold price was in a similar position price wise, the backdrop could not have been more different, with gold requiring almost everything to be working in its favour in 2011 when it first reached USD $2,000oz, whereas by 2023 it was able to trade at a similar price, despite the fact it faced several headwinds.

Source: ABC Bullion

The above data points are still relevant today, even though the gold price has rallied by circa 25% in the twelve months since they were first presented, as despite the price strength:

• There have been minimal inflows into gold funds up until recently.

• Risk assets are still performing well (gold and equities are almost neck and neck over the past twelve months)

• Many investors are still apathetic about the outlook for gold or are outright convinced it will not sustain current bull market momentum.

We have been around markets, both gold and otherwise, for long enough to know that at the actual top of the precious metal bull market, the landscape will look vastly different in terms of inflows, relative performance, and exuberance.

Inside the Office

Turnover in precious metals markets remains at elevated levels, with the recent surge in gold and silver prices encouraging trade from investors on both sides of the market.

While gold will always dominate total demand for metals by the dollar value traded, silver is also seeing an uptick in investment demand, with a USD price that for now is holding below USD $30oz and AUD $44oz attracting buyers.

We are seeing that across our full product range, with high net worth investors and SMSF trustees typically allocating to pooled products and our signature 1 kilo ABC Bullion silver cast bar, while we have also been pleased to see our recently launched Untamed Landscape range lead silver coin sales in August.

For gold itself, we continue to see a shift toward smaller denomination products, including our 100-gram gold bar, even amongst higher net worth investors, with the preference for these products driven by forward thinking investors who are factoring in the greater flexibility that comes with eventual divestment.

Buybacks, which have been at or near record volumes for much of the last year, also remain at extremely healthy levels, a trend we expect to remain in play with prices near current levels.

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.