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Wall Street Bets on silver squeeze as gold eases

wall st sign

Precious metal markets were mixed in January, with gold down marginally, while silver rose. While long-term drivers remain supportive, the current euphoria in financial markets, an increase in bond yields, and rising optimism regarding a huge economic stimulus package from Washington, have acted as short-term headwinds for precious metals, which remain in a consolidation phase. 

Summary of market movers:

The USD gold price fell marginally in January, ending the month at USD 1,863.80 per troy ounce (/oz) 

Silver ended the month above USD 27/oz, rising by more than 3%, with the gold to silver (GSR) ratio finishing January at 68

Risk assets continued to rally, with equities and cryptocurrencies hitting all-time highs 

A mania in meme-stocks and rumours of a short squeeze in silver captured market attention in late January, with volatility surging in select company share prices 

The announcement of an additional AUD 100 billion in Quantitative Easing (QE) from the Reserve Bank of Australia (RBA), and a decline in iron prices may mark a top in the Australian dollar, which traded as high as USD 0.78 in January 

Full report - January 2021

The price of gold eased marginally in January, falling by 1.26% to end the month at USD 1863.80/oz. Silver fared better, rising by 3.5% to USD 27.42/oz, with the GSR falling to 68 by the end of last month, after starting the year at 71. 

Multiple factors contributed to the soft start to the year for gold, including the change in the White House, and Democratic Party wins in the Georgia Senate election runoff, which raised hopes of a circa USD 2 trillion economic stimulus package.

This was enough to see yields on US treasury securities rise by almost 25% (from +0.93% to +1.15% on the US 10 year) by mid-January. Real yields increased as well, though are still negative, with these moves in the bond market coinciding with an approximately 6%, or USD 110/oz fall in the USD gold price intra-month. 

The chart below highlights this, showing movements in the USD gold price (gold line) and the real yield on a US 10-year treasury (black line), across the course of January. Note that yields are inverted on the chart, that is, a falling in the black line means real yields are rising, and vice-versa.

line graph

Source: The Perth Mint, World Gold Council, US Treasury

The other factor holding gold back in January was the continued euphoria building in financial markets, with the Citigroup Panic/Euphoria model hitting all-time highs in January 2021. 

Furthermore, a range of metrics from stock market capitalization to GDP ratios, to price/earnings and price/sales ratios for the S&P 500 suggest the US stock market is now as or more expensive than it has ever been, with investment legend Jeremy Grantham warning investors last month that markets have now “matured into a fully-fledged epic bubble”. 

Signs of excess, which are no doubt temporarily limiting the safe haven appeal of precious metals, weren’t limited to traditional asset classes. Cryptocurrencies also hit all-time highs, with Bitcoin trading above USD 40,000 per coin in early January, though it did pullback as the month unfolded. 

Wall Street Bets, Gamestop and the silver squeeze

The most eye-catching development in financial markets in the first few weeks of 2021 was the rise of Wall Street Bets (WSB), a reddit sub-thread of retail investors that discuss investment opportunities in financial markets. 

Over the course of January and early February, a number of people that were members of WSB encouraged the broader group to aggressively buy shares and call options on listed companies that hedge funds were shorting, meaning the hedge funds would benefit if the stock prices fell. 

The idea was that by aggressively buying shares and options, the WSB could force a “short squeeze” and a “gamma squeeze” (note we have links at the bottom of this article for those who’d like to read more about these terms) combined. 

This would see financial institutions that were either short the shares in those companies, or who had sold call options over those companies need to aggressively buy stock as well, to manage their risk.

And for a few short days, the strategy “worked” spectacularly. 

The most high-profile company caught up in this was GameStop (ticker: GME), which over the course of January rose from below USD 20 per share to more than USD 450 per share (based on intraday pricing). A very select group of people purportedly made millions from the price spike in GME through the use of derivatives.  

Sensing an opportunity to make vast gains in a short period of time, as well as get one up on hedge fund and institutional investors, the WSB group has supposedly grown to more than seven million members. In many ways this should not have been unexpected, given the tailwinds that have driven this phenomenon, including:

Many people with excess time on their hands due to COVID-19 lockdowns and higher unemployment 

“Free” money from government stimulus checks

“Free” trading on certain investment platforms 

Rising inequality and frustration with “elites”, particularly those in financial markets 

Toward the end of last month, the attention of the WSB community turned to precious metals, with an attempt to create a silver squeeze generating lots of attention in financial markets and the news media.

Whilst there are a number of reasons to remain confident in the outlook for silver in the months and year ahead, the silver squeeze narrative is at best a distraction, and at worst a risk for investors, at least in the short-term.

Firstly, it needs to be stated that liquidity in the global silver market, and precious metal markets generally, is an order of magnitude more significant than liquidity in any of the individual stocks caught up in the recent WSB mania. That makes it a much harder market for anyone to “squeeze”, especially retail investors with smaller amounts of investment capital. 

Secondly, whilst some investors have bought into a narrative of commercial banks being short silver, they are typically only looking at futures market data, which is public information updated on a regular basis, to draw that inference.

Those investors, and certain sections of the precious metal community that relentlessly promote this narrative are completely ignoring the fact there is a large over-the-counter (OTC) market in precious metals. Given this fact, whilst certain financial institutions might be short silver (or gold) futures, they may well, and indeed are most likely long those precious metals in the OTC market at any given time.

Thirdly, it is worth pointing out that whilst there may be shortages of silver in specific form (i.e. small bars and coins) and in specific locations, that in no way evidences a shortage of silver itself. 

Fourthly, it is worth pointing out that at present, managed money positions in the silver market are net long, with data as at 26 January showing a gross long position of 67,430 contracts and a gross short position of 23,110 contracts. 

This means that on balance speculators are betting prices will rise rather than fall. That rather destroys the WSB narrative of hurting hedge funds by buying silver, given the hedge fund community would benefit from a rising silver price. 

As a final comment on this phenomenon, while undoubtedly some of the WSB community will have purchased silver (either in bar, coin, ETF or derivative form) in the last week or so, we also think there is a good chance most of the increased buying has actually been driven by existing silver investors. 

It also looks like the price spike in companies like GME is well and truly over, with the share price closing just above USD 92 on Wednesday 3 February, down more than 80% from the highs seen during this phenomenon. 

Is the Australian dollar topping out?

The AUD rose by 40% from just below USD 0.56 to almost USD 0.78 between late March 2020 and early January 2021, with the move driven by a range of factors, including a strong bounce in commodity prices over this time period.  

The broader ‘risk-on’ appetite which has dominated financial markets since governments and central banks began to deploy record levels of stimulus in response to COVID-19 has also helped the AUD, which is treated as a proxy for risk, and is highly correlated to moves in emerging markets.

Whilst some forecasters think the AUD will head to USD 0.80 or higher, there are some signs the currency will instead weaken, with the RBA decision to increase its QE programme by AUD 100 billion helping push the currency lower so far this week.

To add to this, iron ore prices (which had effectively doubled from lows seen last month) are also beginning to fall, with declining profitability in Chinese steel mills, declines in demand, and a robust supply profile suggesting further risk to the downside.

Should that eventuate, it would serve as a headwind for the AUD, and possibly help put a floor under precious metal prices for Australian investors. 


Moving forward, there are some risks to the outlook for precious metals. ETF inflows have slowed (for gold) considerably, as has central bank buying, though both are still positive, whilst consumer demand in key markets like China, India and other parts of Asia and the Middle East will take some time to recover fully.

The potential for the USD to rally after a more than 13% decline over most of 2020 could also be a short-term headwind for precious metals, with the dollar index up 2% since early January. 

Finally, silver’s correction in the past 48 hours despite the silver squeeze and WSB narrative also suggests the precious metal market may consolidate for a while longer, even if the longer-term strategic case for investing in these metals remains undiminished.

The x-factor for gold, and indeed for financial markets as a whole, is COVID-19. While everyone hopes that we have seen the worst and that 2021 marks the beginning of a ‘post COVID’ world, there are no guarantees.

Mutations are beginning to develop, while meaningful parts of the global economy remain locked down. Even the best-case scenario, which would see a successful rollout of vaccines around the world, represents an enormous logistical and political challenge, with global economic output unlikely to catch up to its pre COVID-19 trajectory for years.

Markets are pricing in a best-case scenario right now. If the situation deteriorates, expect risk assets to suffer, policy makers to deploy even more stimulus, and safe haven assets like gold to catch a bid.

Combined, these potential tailwinds indicate that precious metal prices are likely to remain biased to the upside for some time to come. Most importantly, from a portfolio management perspective, assets like gold in particular continue to offer unique diversification benefits to investors, which should see investment flows supported going forward.

Jordan Eliseo
Manager – Listed Products and Investment Research 
The Perth Mint
4th February 2021


Past performance does not guarantee future results.The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances. All data, including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article. 

Further information

Short Squeeze

Gamma Squeeze

Silver gross short position

Silver gross long position

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Why have silver prices spiked now?

stacked silver coins with a line graph above

The price of silver spiked in the first week of February to an eight-year high of more than AUD 38 per troy ounce.

As seasoned silver watchers know, gold’s little brother is prone to such rapid movements – both up and down again with lightning speed. Many investors will recall its extreme volatility exactly a decade ago. 

Silver peaked at a 31-year high in March 2011 as the cost per ounce approached 50 dollars in USD terms and more than AUD 43 per ounce. The main driver was safe haven demand caused by the financial shock at the downgrading of the US sovereign debt rating.

But the furore was relatively short-lived. Since 2015 silver has averaged nearer AUD 20 per ounce.

Another reason for silver’s volatility is that as well as its historical role as a jewellery and monetary metal, it is also an industrial metal. In fact, more than 60% of demand for silver can be industrial. 

When the world economy recovers from COVID-19 demand for silver could increase sharply. Applications are widespread throughout the solar, automotive, electronics, soldering and other sectors, including medicine and purification.

For some investors, this potential upside may already be factored into their precious metal investment strategy. 

But February’s spike in silver prices was in fact driven by something else entirely.

To help understand the sudden movement, let’s quickly recap what just happened to the price of GameStop stock on Wall Street.

A large online community of small retail investors in the US decided to ‘game’ a number of wealthy hedge funds who were ‘shorting’ the company’s stock.

Shorting is a risky method employed by sophisticated investors to make money from falling share prices.

In simplistic terms, they borrow shares in a failing company and sell them in anticipation of further declines. If the price does indeed fall, they buy them back at a cheaper price - returning the shares to the owners while pocketing a nice profit in the process.

Except that in the case of GameStop, the band of rebellious investors bid the stock price upwards – by an astonishing 700% in a matter of days – squeezing the short sellers who suffered losses estimated in the billions of dollars.

Silver, it appears, has become the next target for this group of online investors, many of whom are driven by the desire to get even with banks and institutional investors whom, according to their personal beliefs, have manipulated markets for years.

Driven by chatter in their online echo-chambers, it is not just bars and coins that shot up in value. ETF and shares in silver producing companies also felt the effects.

At the time of writing, however, the push already seems to be dwindling. Silver is currently hovering at around AUD 35 per ounce.

While the extraordinary action in the US in relation to GameStop has financial authorities scrambling for a response, it is unlikely the attempt to short squeeze silver will have nearly such significant effects.

The Perth Mint has definitely seen a spike in demand for silver products, which is unsurprising given the level of attention the asset class is currently generating.

“Moving forward, there remain a lot of reasons to expect that the silver price will rise, and that it will continue to be a good investment,” said The Perth Mint’s Manager – Listed Products and Investment Research, Jordan Eliseo.

“Nevertheless, there is some risk, and investors should be cautious in believing one can permanently profit from a supposed short-squeeze in any asset, including silver.”

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Strong start to 2021 marked by leap in silver coin sales

an array of Perth Mint silver kangaroo coins


Perth Mint silver coin sales rose by 23% in January, with more than 1.1 million troy ounces sold. The strong sales figures also represented a 32% increase relative to long-run average monthly silver sales 

The Perth Mint also sold 76,103 troy ounces of gold minted product in January. This number was essentially unchanged over the previous month, though does represent an increase of almost 60% relative to sales one year ago. 

Perth Mint Depository holdings of gold and silver rose by 1% in January, continuing a period of inflows that saw holdings increase by 20% (gold) and 15% (silver) in the past 12 months. 

Perth Mint gold ETF holdings rose marginally, ending January just below 237,000 troy ounces. 

Minted Products

The Perth Mint shipped 1,162,884 troy ounces of silver coins in January 2021, an increase of 23.48% relative to sales in December 2020. Meanwhile, shipments of gold minted products were relatively unchanged in January, down just 0.92% to 76,103 troy ounces compared to the previous month.

General Manager Minted Products, Neil Vance, said maintenance issues that previously restricted manufacturing capacity had unwound during the month. “January was a better month for coin production at The Perth Mint. Even so, we are still selling everything that we can currently make in silver,” he said.

“We also focussed on re-building stocks of our main gold bullion coins following strong sales in November and December,” he added. 

Troy ounces of gold and silver sold as coins and minted bars December 2018 to January 2021

line graph depicting Troy ounces of gold and silver sold as coins and minted bars December 2018 to January 2021

The Perth Mint manufactures and markets the Australian Precious Metal Coin and Minted Bar program. Trusted worldwide for their purity and weight, the coins include annual releases of the renowned Australian Kangaroo, Kookaburra, Koala and Lunar series. For more product information visit perthmintbullion.com

The Perth Mint Depository

Holdings of both gold and silver in The Perth Mint Depository rose by 1% in January 2021, ending the month at 1.865 million troy ounces (gold) and 37.5 million troy ounces (silver).

Since June 2019, total holdings of gold and silver have risen by 37% and 19% respectively, as investors continue to build their precious metal portfolios. 

Total troy ounces of gold and silver held by clients in The Perth Mint Depository December 2018 to January 2021

Total troy ounces of gold and silver held by clients in The Perth Mint Depository  December 2018 to January 2021

The Perth Mint Depository enables clients to invest in gold, silver and platinum without the need to take physical delivery of their metal. Operated via a secure online portal, a Depository Online Account allows investors to buy, store and sell their metal 24/7. For further information visit perthmint.com/storage.

Perth Mint Gold (ASX: PMGOLD)

Holdings of Perth Mint Gold (ASX: PMGOLD) increased marginally during January 2021, increasing by almost 1,000 troy ounces for the month. The inflows saw total holdings in PMGOLD hit 236,786 troy ounces, or just over 7.34 tonnes. 

Monthly flows for PMGOLD and the yearly change in total troy ounces can be seen in the chart below, with holdings rising by more than 70% in the last twelve months. 

Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD) December 2018 to January 2021

line chart depicting Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD) December 2018 to January 2021
Source: The Perth Mint, ASX, Reuters

The value of PMGOLD holdings declined marginally to end January at just over AUD 577 million. The fall was due to the small decline in the AUD gold price over the month.  

Despite the small decline seen in January, the value of gold holdings backing PMGOLD has risen by almost 80% in the last 12 months.  

Manager Listed Products and Investment Research, Jordan Eliseo says, “Investors continued to allocate money to precious metals in January, with The Perth Mint seeing continued inflows into depository products and ETFs, albeit at a more moderate pace relative to the demand seen in 2020.”

Looking forward to the rest of 2021, Mr Eliseo said there a multiple tailwinds supporting investor demand for precious metals including the ongoing threat posed by COVID-19. 

“The global pandemic is still causing significant dislocation in the global economy. Accommodative monetary policy is another factor supporting gold and silver, with investors looking beyond traditional defensive assets given continued negative real yields on cash and many government bonds,” he added.

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Gold for financial advisors

Precious metal prices enjoyed another solid year in 2020, with the price of gold rising by more than 20% in US dollar (USD) terms, and approximately 14% in  Australian dollar (AUD) terms.

The solid price increases, coupled with the unprecedented economic challenge posed by COVID-19, and the fiscal and monetary policy response to the pandemic, saw a huge uplift in investment demand for gold.

This was best seen through the rise of gold ETF holdings, which increased by more than 30% globally in 2020. Financial intermediaries working on behalf of Australian investors were very much at the forefront of this demand, with Perth Mint Gold (ASX:PMGOLD), for example, seeing inflows of approximately 70% in 2020, helping make the ETF one of the fastest growing products on the ASX.

Looking ahead, there remain no shortage of challenges for the global economy, which will obviously impact the investment environment. Some of these challenges include:

    • Potential mutations of the COVID-19 virus and the logistical challenge of distributing vaccines globally

    • Signs of excessive speculation in financial markets, from Bitcoin to Special Purpose Acquisition Vehicles (SPACs), to record levels of call option buying

    • Record low real yields in many sovereign debt markets

    • Questions regarding the evolution of fiscal and monetary policy, with developed market governments and central banks sovereigns having already deployed unprecedented levels of stimulus in the last 12 months
Given this backdrop, there remain solid reasons to look at incorporating an allocation to gold in a well-diversified portfolio. 

Some of these include: 

1. Outperformance when real interest rates are low

One factor motivating financial intermediaries to look at incorporating an allocation to gold in client portfolios is the ultra-low interest rate environment, which at this stage looks set to be a feature of the financial landscape for the next decade at least.

As a zero-yielding asset, the opportunity cost of investing in gold is significantly reduced, if not entirely eliminated in environments where real interest rates on cash and term deposits are negative in real terms. 

Historically, gold has thrived in such environments, delivering average nominal gains of more than 20% per annum in years where real interest rates are 2% or lower.

2. Strong track record of protecting portfolios when equities sell off

Gold has historically been the best performing single asset class in environments where equity markets sell off sharply, with allocations to the precious metal helping to mitigate overall portfolio drawdowns. 

This can be seen in the chart below, which shows the performance of gold and of the Australian equity market, in the five worst calendar years for equities between 1971 and 2020, as well as an average across the five years. 

Gold and equities annual returns (%) in five worst calendar years for equities – 1971 to 2020

Source: The Perth Mint, The World Gold Council, Reuters 

Whilst the above chart uses calendar year data, analysis of the interplay between gold and equities on a monthly or quarterly basis demonstrates the same findings. 

Gold’s historical ability to protect portfolio drawdowns may prove particularly attractive to investors in the years to come, given traditional defensive assets like cash and bonds offer such low, and in many cases negative, real returns.  

3. Strong long-term returns

Over the last 15 years, the price of gold in Australian dollars has increased by almost 9% per annum, rising from less than AUD 700 to more than AUD 2,400 per troy ounce.

The precious metal has also outperformed most traditional asset classes and diversified investment strategies over this time period, as seen in the table below.

Australian asset class returns (% per annum) to end 2020

Source: The Perth Mint, World Gold Council

4. Protection against any fall in the Australian dollar

Gold, if bought in unhedged form, provides portfolio protection in the event that the AUD falls. For most Australian investors, this provides useful currency diversification, given the majority of their assets are domiciled in AUD, even if it means their gold position won’t perform as well in environments where the AUD is rising.

5. Simple and low-cost to incorporate into a portfolio

Gold is one of the lowest cost asset classes an adviser can include in a client portfolio, both from the perspective of management fees, and trading spreads.

Analysis of all the ETPs trading on the ASX shows that the average management expense ratio (MER) of the more than 200 products available to retail investors was 0.50%, whilst the average trading spread in December 2020 was 0.25%.

By comparison, Perth Mint Gold (ASX:PMGOLD) has a MER of just 0.15%, and had trading spreads of just 0.08% in December 2020, with both of these costs less than one-third of the average costs for the broader ETF industry. 

How to invest in gold

The Perth Mint offers a full suite of precious metal investment solutions, from traditional bars and coins, through to depository accounts and listed products. 

Most financial intermediaries typically look to invest in Perth Mint Gold (ASX:PMGOLD), which tracks the price of gold in Australian dollars. 

More information 

To access more information on the investment case for gold, download our SMSF Trustee Investment Whitepaper 

To find out more about Perth Mint Gold (ASX: PMGOLD), download our latest investment factsheet

To find out more about the various investment options The Perth Mint provides, visit our website


Past performance does not guarantee future results.The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. You should consider seeking independent financial advice to check how the information in this brochure relates to your unique circumstances.  All data including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article.

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Going loco on gold – what are loco swaps?

a camera with the city lights upside down in the lens

One of the most liquid assets on the planet, gold is bought and sold in staggering amounts each day in trading hubs around the world.

In 2020 during the height of the COVID-19 pandemic the daily gold exchange topped previous records to reach 251 million ounces of gold, worth USD 490 billion.

With so much physical metal changing hands each day, the location of where it is being traded is important as there are costs involved with moving it from one place to another.

Below we explore the concept of location swaps and how gold’s location is tied to the spot price.

What is loco?

Loco is short for location. For gold and silver bullion investors who prefer to trade in physical metal, it is important to consider location, as a physical commodity costs money to move it between locations.

Those used to trade shares, bonds and other ‘virtual’ or digital only products can sometimes overlook the implications and risks of dealing in something that is physical.

In the industry, ‘spot price’ is really shorthand for ‘the price of gold located in London’. Why London? Because that is where, historically, gold was traded. It is where the major bullion banks have head offices and where some pretty big vaults – and a fair amount of physical gold – is located. 

Thus, the price quoted on information services like Reuters and Bloomberg is for gold located in London, or in industry jargon, ‘loco London’. 
If you are buying or selling with a dealer which has trading accounts with bullion banks, the spot price they are quoting is effectively a loco London price. This is essentially gold’s ‘base’ price.

If you deal in gold in other locations, for example loco Perth, the price is different to gold’s loco London price because it costs money to freight gold between locations. The question is, who pays this difference? Simply put, supply and demand.

For example, Australian mines produce a lot more gold than domestic buyers want, so loco Perth supply is higher than demand. Therefore, miners can’t sell it all to Perth buyers and will therefore have to freight it to London if they want to sell the excess at the loco London spot price. 

Loco swaps and discount prices

In fact, miners don't often ship the gold they sell to London. Instead they do a ‘loco swap’ with the loco Perth gold price at a discount to the loco London gold price, the discount being equal to the cost of getting the gold to London.

Simply put, loco swaps are a way to move gold or silver to another location without physically shipping it. It is a transaction where two parties agree to exchange (swap) gold they have in different locations (locos) with each other.

This means that the loco discount or premium needs to be transferred between the swap parties in addition to the metal itself. 

It also means that each location can trade at a premium or discount to London depending upon local supply and demand at that time. 

As a result, loco discounts/premiums are not fixed and change over time as local supply/demand changes. 

Loco premiums

Normally the supply/demand situation is stable, which is another way of saying that the physical flows around the globe are stable. 
In extenuating circumstances, such as during a global pandemic when demand can outpace supply, there may be disparities in a location which can impact loco premiums.

Generally loco discounts/premiums are small and are often included into fabrication premiums. This can therefore give investors the impression that there is one global spot price for gold. 

This is misleading because when markets change and there is sustained buying or selling imbalances in a location, the discount/premium can start to become quite large. 

The result may be that the spot price in that location starts to diverge from the loco London price.

Common loco swaps

The Perth Mint records loco swap trades as linked buy and sell trades. For example, a mining company swapping its Perth gold for London gold would be entered as (assuming a gold price of USD 1,900 and a loco Perth discount of USD 1.00):
Table depicting loco swaps
While there are two separate trades, on settlement the USD trade values are netted against each other and the mining company pays The Perth Mint USD 100.00. 

The metal values however are settled independently as they are for different locos - The Perth Mint would deposit 100oz into the mining company's London metal account and withdraw 100oz from its metal account with The Perth Mint.

The most common type of loco swap The Perth Mint performs is with mining companies. This is because many mining companies trade their gold or silver in the over the counter (OTC) market in London with bullion banks or have other contractual obligations to deliver metal. 

Miners could ask for The Perth Mint to refine their gold and ship it to London, but from the point of view of the industry as whole, however, this is not always efficient. 

For example, with a demand in China for 99.99% kilo bars it would not make much sense for:

1. an Australian miner to ship 99.5% pure 400oz bars to London;
2. a bullion bank to then ship those bars to a refinery;
3. a refinery to reprocess those bars into 99.99% kilo bars; and finally
4. a refinery to ship the kilo bars to China for sale.

It is therefore more efficient (and cheaper) for all parties if The Perth Mint keeps the miner's gold, refines it directly to 99.99% purity and then ships the kilo bars to China.

Taking Australian gold to the world

As the only London Bullion Market Association (LBMA) accredited refiner for gold and silver in Australia, The Perth Mint produces a range of bullion investment products for distribution to markets around the world. 
Trusted globally for more than 120 years, we are committed to our mission of transforming and taking Australian precious metals to the world and thereby supporting and promoting international markets.

Learn more about our pure gold, silver and platinum bullion coins and bars on our bullion website.


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Precious metals rally ends 2020 on a high


Precious metal markets capped a strong year with further price increases in December. Silver led the way with a 20% rally, whilst gold rose by 7% in USD terms, to finish the year trading just below USD 1,900 per troy ounce. Gold again outperformed the majority of mainstream asset classes in 2020, with the impact of COVID-19, and the monetary and fiscal policy response to the crises driving demand for precious metals over the year.

Summary of market movers:
The gold price rallied 7% in USD and 3% in AUD terms in December, with the precious metal rising by 25% (USD terms) and 14% (AUD terms) for 2020.

Silver had an even stronger move, increasing by 20% in USD terms in December. Across the entire year, it was up by almost 50% in USD terms.

Silver’s outperformance saw the Gold to Silver ratio (GSR) end the year 71, having fallen from 85 at the end of 2019. 

The Australian dollar (AUD) continued to rise during December, ending the year at USD 0.77. It was up 10% for the year, and almost 40% from the mid- March 2020 low, when it traded down toward USD 0.55.

Share markets also finished the year on a positive note, with the ASX up 1% whilst the S&P 500 was up by more than 3.5%.

Real yields continued to fall during December, with 10 year US Treasury 10 bonds falling from -0.93% to -1.06%. They had started the year at +0.08%  

The USD index also declined in December, falling by 2% to end the year down 7%, having fallen almost 13% since its mid-March high. 

Full report - December 2020 

Precious metal prices ended 2020 on a high, with the USD price of gold and silver rising by 7% and 20% respectively during December. The rally capped a strong year, with precious metals outperforming the vast majority of asset classes. 

From a return perspective, silver outperformed gold, though was substantially more volatile across the year, falling below USD 15 per troy ounce in March, with the GSR topping 110 at the time. 

The strong finish to the year will encourage precious metal bulls that the textbook correction that we saw in gold between mid-August and end November has run its course. 

The strong start to 2021 seen for gold and silver (both are up by more than 3% in the first few days of trading), will only reinforce this belief, with our view on the outlook shared in more detail below.  

A year for the record books 

Whilst most people will be happy to see the back of 2020, it is certainly a year we will never forget, given the emergence of COVID-19, and the impact it had on the economy and in our daily lives. 

In financial markets, COVID-19 and the response to the economic slowdown from fiscal and monetary policymakers was profound, seen through a number of events that transpired across the course of the year. These include:

  • The plunge in equity markets during Q1 2020, which saw the ASX fall by more than 30% in barely a month, one of its sharpest sell offs in history. 
  • The price of oil trading below zero in April 2020, with futures contracts at one-point trading at USD -37.63 per barrel as storage facilities reached capacity limitations, and COVID-19’s impact on demand wreaked havoc across the energy complex.

  • The price of gold hitting all-time highs in nominal terms in August 2020. At one point the precious metal traded above USD 2,050 per troy ounce, whilst in AUD terms, gold was trading at more than AUD 2,800 per troy ounce. The market has had a healthy correction since.

  • The rally in Bitcoin (BTC) and other cryptocurrencies also caught the markets attention. After selling off alongside equities and falling down toward USD 5,000 per coin in Q1, BTC staged a huge rally, and finished the year trading near USD 30,000 per coin. Other crypto's like Ethereum actually outperformed BTC across the year, with investor interest in this space picking up notably

  • A surge in equity markets post the March lows, which culminated in one of the best ever single month returns in November, when the MSCI world rallied by more than 12.50%. 

  • An explosion in central bank balance sheets, which collectively increased by more than USD 8 trillion over the course of 2020. In April 2020, asset purchases by the four largest central banks totalled USD 1.5 trillion, six times the amount purchased at the height of the Global Financial Crisis. 

  • The relentless trend lower in real bond yields, which fell by more than 1.10% (US 10-year Treasuries) to end the year below -1%. 

Amazingly, despite the chaos caused by COVID-19, the majority of asset markets delivered positive returns across calendar year 2020, further evidence that this has so far proved to be a recession unlike any other. 

Outlook for 2021

After a strong price run that has seen gold rise by 59% since September 2018, there are some potential headwinds for the precious metal. 

The first of these is the fate of the USD. Since March of last year, the US dollar has fallen by more than 12% (DXY index), with speculative positioning stretched by the end of 2020. 

If this USD losing streak comes to an end soon, the gold price may pullback in the short-term, though for Australian dollar investors it would likely be less of an issue as the AUD would also be under pressure in these circumstances. 

Continued strength in equity markets could also be a short-term headwind, as it may reduce investor desire to hold portfolio hedges like gold.

Despite these risks, there are numerous tailwinds that could push gold higher including:

Rising inflation expectations

The US five year forward inflation expectation rate ended 2020 at 2.03%. That is higher than the end of 2019, and an increase of more than 1.10% since inflation expectations plunged during March 2020.  

Record low yields

By the end of 2020 only 15% of all global bond markets had a yield above 2%, with most government bonds already yielding less than inflation. 

Outlook for monetary policy: 

Central Banks have been clear that more monetary stimulus will be forthcoming in 2021 and beyond, with cash rates unlikely to move higher for years to come. 

Gold stands to benefit from this backdrop of already low to negative real yields and potentially higher inflation, especially given it has historically increased by approximately 20% per annum in AUD terms in years where real cash rates were 2% or lower, like they are today. 

The fallout from COVID-19 remains an X factor for gold, and indeed for financial markets as a whole. Whilst everyone hopes that we have seen the worst, and that 2021 marks the beginning of a ‘post COVID’ world, there are no guarantees. 

Mutations are beginning to develop, whilst meaningful parts of the global economy remain locked down. Even the best-case scenario, which would see a successful rollout of vaccines around the world, represents an enormous logistical (not to mention political) challenge, with global economic output unlikely to catch up to its pre COVID-19 trajectory for years. 

Markets are pricing in a best-case scenario right now. If the situation deteriorates, expect risk assets to suffer, policy makers to deploy even more stimulus, and safe haven assets like gold to catch a bid. 

The above tailwinds indicate that demand for gold, and therefore gold prices are likely to remain well supported as we move through 2021. 

Jordan Eliseo
Manager – Listed Products and Investment Research 
The Perth Mint
7 January 2021

Past performance does not guarantee future results.
The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances. All data, including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article. 

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