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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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Gold's role in diagnosing disease

Precious metals have and will continue to play a vital role in helping to protect humans from serious disease.

In fact, gold has several known medical applications. While many of us are aware of its long history of use in dentistry, less well-known is its role, in injectable form, as a treatment for rheumatoid arthritis. Doctors are also experimenting with gold nanoparticles to target the delivery of drugs in the fight against certain cancers.

Similarly minute particles of gold are at the heart of lateral flow assays (LFAs) - simple to use, disposable diagnostic devices that can test for biomarkers in samples such as saliva, blood and urine.

Capable of delivering instantaneous diagnosis directly to patients without recourse to time-consuming and costly laboratory analysis, millions have been used worldwide in recent decades to screen for diseases such as malaria, HIV and many others.

According to an article by consultant Trevor Keel for the World Gold Council, the speed and low cost of these devices could be critical in the global response to COVID-19 (Coronavirus), a pandemic unprecedented since the Spanish flu of 1918-20.



Given the nature of the current pandemic, quick and accurate diagnosis is absolutely critical to help understand, track and tackle the outbreak,” he said.

Among the many diagnostics which are either commercially available or in development, “increasing numbers of first-generation biomarker LFAs are being registered and evaluated, many of which are gold-based.”

Encouragingly, authorities worldwide appear to be accelerating the route to market for these new COVID-19 diagnostics, Mr Keel said.

Silver also has its role to play in combating serious diseases like Coronavirus, with its germ-killing qualities having been recognised for thousands of years. 

Known to have helped prevent the spread of disease-causing pathogens across history, silver kills microorganisms by releasing ions (charged atoms or molecules) that interfere with the bad cells’ DNA in a lethal manner – an attribute that could be useful in the fight against Coronavirus and other modern day bacterial infections. 

Indeed, you may already be using silver to safeguard your health during these uncertain times. With soap and sanitiser declared the best possible defence against the deadly Coronavirus, you might find yourself using a hand sanitiser that includes ‘colloidal’ silver – tiny particles of silver suspended in liquid. 

Trusted to help protect livelihoods – and lives – for generations, these precious metals are continuing to prove their value in more ways than one. 


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Monthly Sales – June 2020

Total ounces of gold and silver sold by The Perth Mint in June 2020 as coins and minted bars:

  - Gold (Au): 44,371 oz

  - Silver (Ag): 1,573,752 oz

NB This chart shows total monthly ounces of gold and silver shipped as minted products by The Perth Mint to wholesale and retail customers worldwide. It excludes sales of cast bars and other Group activities including sales of allocated/unallocated precious metal for storage by the Depository.



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Monthly Sales – May 2020

Topics [ Monthly Sales ]

Total ounces of gold and silver sold by The Perth Mint in May 2020 as coins and minted bars:

  - Gold (Au): 63,393 oz

 - Silver (Ag): 997,171 oz

NB This chart shows total monthly ounces of gold and silver shipped as minted products by The Perth Mint to wholesale and retail customers worldwide. It excludes sales of cast bars and other Group activities including sales of allocated/unallocated precious metal for storage by the Depository.



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Gold during the GFC vs COVID-19: Is it really just a repeat performance?

Topics [ market analysis financial crisis silver investing gold market gold investment silver market ]

Gold prices have continued their positive market run in Q2 2020, with the yellow metal trading above USD 1,700 per troy ounce.

The spread of COVID-19 and the economic fallout from steps taken to contain it have been major drivers of gold’s upward move as risk-conscious investors take steps to diversify their portfolios.

The last time the market experienced such huge global economic impact was during the 2008 Global Financial Crisis (GFC) when gold’s upward trajectory seemed to mirror what we’ve seen so far in 2020. 

This has led to speculation that gold’s current behaviour is essentially a repeat of its performance during the GFC. 

While there are certainly similarities between the gold market during both crises, there are also significant differences.

We explore these below.

Key similarities between COVID-19 and the GFC

1. Gold price movements 

Gold prices were strong leading into the GFC, suffered a correction as a liquidity crunch saw investors desperate to raise cash, and then rebounded. 

A similar dynamic is at play today. Gold prices shot higher after a dip in March 2020, down from record highs as the crisis escalated around the world. 

2. Demand for the precious metal

There is no denying a surge in demand for gold in recent months, with The Perth Mint recording its highest ever month for sales in April 2020. 

Sales also peaked during the GFC, with General Manager Minted Products, Neil Vance, commenting to The Canberra Times that “we have seen sales in the last two months that we haven’t seen since the Global Financial Crisis in 2008 and 2009.” 

3. Managed money activity 


Managed money, a means of investment whereby investors rely on the decisions of professional investment managers rather than their own, has seen a similar movement in activity during the two crises.

Managed money long positions rose from around 65,000 contracts to more than 200,000 contracts at the beginning of the GFC. Following the announcement of quantitative easing (QE) packages they dropped to below 63,000 before increasing over the subsequent 12 months to more than 225,000 contracts as spectators helped push the gold price up by more than 45%. 

Ahead of the global economic shutdown caused by COVID-19, managed money long positions rose strongly from just 80,000 contracts in November 2018 to almost 280,000 by late February 2020. Over the past three months they have again been pared back, dropping to just over 140,000 by 12 May 2020. 

4. Equity valuations

The Shiller CAPE price-to-earnings ratio shows that equities peaked at a price earnings multiple of around 30 in 2007.
 
Today, despite the sharp sell-off seen during the first quarter of 2020, the latest estimates suggest multiples are still sitting around 30. This is roughly the same valuation point seen before the more than 50% decline in equities during the GFC. 

History demonstrated that investors who hedged against the risk of a sharply falling equity market during the GFC strongly outperformed those who didn’t. 

There are no guarantees as to what the future holds, but there seems little reason to think those hedges are not needed in today’s COVID-19 environment. 

Differences between COVID-19 and the GFC

1. Health crisis complicates path forward

The nature of the COVID-19 threat itself indicates the potential for a different market outcome for gold to that seen in the aftermath of the GFC.

The GFC was a result of capital misallocation, excessive debt and over-reliance on the financial system itself. 

Challenging though it was, there was no public health threat complicating the policy response or the path out of the crisis. 

The as-yet unresolved health hazard has forced a policy response which has led to the economic fallout - but there is no way to legislate or print a vaccine into existence. There’s no denying the road forward is significantly more uncertain. 

2. Debt levels 

Total levels of debt, specially government debt, is another major difference. According to an April 2020 update from the Institute of International Finance (IIF), global debt levels have now topped USD 255 trillion and are sitting at more than 322% of GDP. 

That is some 40% higher than when the GFC hit. 

There’s no doubt public balance sheets are in a more overextended starting position today relative to a decade ago. 

3. Lower yields 

Yields are much lower now relative to the GFC. 

Across 2007 and 2008, US 10-year treasury yields averaged 4.10%. On 15 May 2020 the US 10-year yield was sitting at just 0.64%, a decline of almost 85%.

Cash rates, too, are the lowest they’ve ever been. Even during the worst of the GFC, the cash rate in Australia never dropped below 3%. Today’s cash rate is 0.25% and implied yields suggest there will be more easing to come. In the US, markets are now pricing in the arrival of negative interest rates by early 2021. 

At a portfolio level, the negative real yields on cash and vast swathes of the sovereign debt market combined with richly priced equity markets means prospective returns for diversified investors are far lower today than they’ve been in the past. 

This backdrop, combined with the fact that the opportunity cost of investing in gold is significantly lower in 2020 relative to the GFC environment, suggests gold should be well supported for some time to come. 

4. Monetary and fiscal policy more expansive

The fiscal response to COVID-19 is dwarfing what was deployed during the GFC. 

According to the statistics in this article, the fiscal deficit of all the nations highlighted (when weighted by each nation’s 2009 output) was 4.34% of GDP. The same measurement gives us a projected fiscal deficit of 7.34% of GDP in response to COVID-19. 

Government attitude to emergency monetary policy has also differed, with QE packages and zero interest rate policy (ZIRP) now standard elements of the monetary policy response kit. During the GFC, these stimuli were treated as extreme measures, to be used with caution and removed as quickly as possible.

Indeed, in the aftermath of the GFC, it took almost seven years for The Federal Reserve balance sheet to grow by USD 3.5 trillion to a pre-COVID-19 high of USD 4.52 trillion. This time around The Federal Reserve has added more than USD 3 trillion to its balance sheet in just over three months. 

5. Supply chain issues and trade uncertainty

Trade tensions and supply chain issues playing out in what may well prove to be a fragile geopolitical environment in the years ahead are another important distinction between the COVID-19 crisis and the GFC. 

In time, this will flow through to either lower company profits, higher inflation, or a combination of the two. These trends can be expected to support gold demand going forward. 

6. Commodity prices are much cheaper

Leading into the GFC, commodity prices were high, having outperformed stock prices for most of the early 2000s. The situation today couldn’t be more different. 

Even before COVID-19 hit, commodity prices were at the lower end of their historical range, having fallen approximately 75% from their record levels seen a decade earlier. 

Relative to stocks, they have never been cheaper. The S&P Goldman Sachs Commodity Index to S&P 500 ratio are comfortably below 1 today. When the GFC hit the ratio was more than 8, as shown in the chart below. 

 
Source: The Perth Mint, Reuters, au.investing.com 

Any investor who believes in ‘mean reversion’ will look at a chart like this and be encouraged by the potential for commodities to outperform in the decade ahead. 

7. Social impacts

Most investors are at least somewhat concerned at what the ‘post’ GFC world looks like, given it is characterised by ever-widening wealth inequality and political fragmentation.

COVID-19 has shone an even harsher light on the gap between the haves and the have-nots. This unease has fed higher gold demand. 

Summary

There are broad similarities in the performance trajectory of gold through both the GFC and COVID-19 crises and the market response in terms of demand for the precious metal.

However the differences in the macroeconomic, market and monetary sphere suggest wider implications for the asset’s future movements. 

The result is that the path toward economic recovery and the outlook for diversified investors is significantly more challenging today than it was just over a decade ago. 

This suggests that the outlook for gold is even more positive today, with demand likely to be more sustained as we navigate the uncharted territory of COVID-19. 

The article above was adapted from a more detailed analysis by The Perth Mint titled Gold: GFC vs COVID-19 and the inflation myth which was recently published on Livewire. For an in-depth study of the factors impacting gold during COVID-19 and the GFC, read it now.

The Perth Mint offers a range of precious metals storage solutions for investors who want the convenience and security of offshore storage. For further information please see perthmint.com/storage/


Disclaimer:
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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Perth Mint Gold: Monthly holdings report – May 2020


Holdings of Perth Mint Gold (ASX:PMGOLD) continued to rise in May 2020, hitting a new all-time high of 195,147 ounces (6.07 tonnes). Inflows of almost 7,000 ounces were recorded for the month. 

Monthly flows into PMGOLD can be seen in the chart below, with holdings increasing by 45% in the first five months of 2020. 


  

Source: The Perth Mint, ASX, Reuters

This continues a period of strong demand for PMGOLD that dates back to September 2018, with total holdings increasing by more than 110,000 ounces over this time period.

By the end of May 2020, the value of PMGOLD holdings had topped AUD 500 million for the first time despite a mild pullback in the Australian dollar gold price, which ended the month trading just below AUD 2,600 per troy ounce. 

To learn more about investing in PMGOLD, simply download our PMGOLD Factsheet.


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What are SMSF trustees saying about gold?

Recently the Australian Shareholders Association (ASA) invited The Perth Mint to host a webinar for its members entitled Gold - Where to next? The webinar looked at recent performance trends in gold, the outlook for investment demand, the potential short-term headwinds and tailwinds driving the gold price, and the key reasons investors, including SMSF trustees, are including a gold allocation in their portfolios.

During the course of the webinar, we asked trustees two questions relating to the outlook for investment markets. The first of those was whether or not they were concerned about the potential for further equity market volatility, with more than 90% of respondents stating that they were concerned.

This is relevant for future gold demand, as market data from 1971 to 2019 reveals that gold has typically been the highest performing asset in the months, quarters and years that equities suffered declines in value. It also happens to be positively correlated to rising equity markets. The chart below highlights this, showing the average returns for gold and equities in the months where equities rise, and the months where equities fall. 


Source: The Perth Mint, Reuters

The second question related to interest rates, and how concerned respondents were about the current cash rate of 0.25%, and the outlook for rates in the years ahead, with Australian 10-year government bond yields below 1%. More than 60% of respondents stated that this was a concern for them. 

The anxiety regarding low interest rates will likely help drive gold demand in the future. Market history tells us that gold has been an outperformer in periods of low real interest rates, delivering annual average gains of more than 20% in nominal terms between 1971 and 2019 in the years when real interest rates were 2% or less. 

At the end of the webinar there were plenty of questions from attendees looking for further information not only for the investment case for gold, but also the practicalities of incorporating the precious metal into their portfolio.

We’ve included some of those questions, and our answers, below.

Is supply of gold from miners growing faster than demand?

Over the 10 years to the end of 2019, gold demand has averaged just over 4,400 tonnes, whilst gold mine production averaged just over 3,200 tonnes, so gold mine supply is not outgrowing demand. 

More importantly, it is critical for investors to appreciate that whilst gold production on an annual basis can and does change (it rose by 24% between 2010 and 2019) this newly mined gold is only a small fraction of the existing stockpile of gold. 

That stockpile has been built over thousands of years as human beings have found gold, mined gold, refined gold, and then either worn it as a display of wealth as jewellery, or held it as investment in bar or coin form.  

The table below illustrates how small an impact annual mine production has on the total gold stock, by highlighting the total above ground gold stock on a yearly basis over the last decade (the increase in this number effectively represents annual gold production) and the percentage increase in the total gold stock on a yearly basis over this timeframe. 

Source: The Perth Mint, World Gold Council

As you can see, the total supply of gold increases at an incredibly stable rate over time. 

Given that the price of any asset is determined by its supply and its demand, this understanding of gold’s stable total supply should make it clear to investors that the gold price is almost exclusively demand driven. 

How much gold should an investor have in their portfolio?

The percentage of a portfolio that an investor chooses to allocate to gold (or any asset class for that matter) is a personal one, and can be driven by multiple factors including but not limited to their age, their employment status, their income requirements, their existing asset allocation and their tolerance for short-term volatility. 

Some investors will have zero allocation, whilst others, including diversified managed funds like The Cor Capital Fund, will have up to 25% of their portfolio in gold. Describing gold as “liquid bricks and mortar” this fund has noted in various publications that they "love the negative correlation of gold to stocks when stocks fall” and have confidence in their gold allocation due to “the price history we can study over hundreds of years relative to other commodities and currencies.” 

Whilst The Perth Mint can’t provide advice on what allocation gold investors should have in their portfolio, many of our SMSF trustee customers often allocate 5-10% of their portfolio into precious metals. 

What is the best method for buying gold and how much does it cost to store gold?

Much like equity investors have multiple vehicles through which they can gain their exposure (direct shares, managed funds, ETFs or LICs for example), one can invest in gold in multiple formats, with no one approach that is best for all investors.

Physical bars and coins are the traditional method, and remain popular, especially for those who like to feel tangible wealth in their hands, though these products typically come with higher trading fees due to the fabrication costs of manufacturing them. 

One cost-effective way to obtain exposure to gold is to use a gold Exchange Traded Product, like Perth Mint GOLD (ASX: PMGOLD), which has a management fee of just 0.15%. 

Another option that is popular with SMSF trustees is to use a Perth Mint depository account, which allows you to trade 24/7, with The Perth Mint providing custody of the metal you own. Trading costs are typically 0.95% for trades between AUD 10,000 and AUD 100,000, with the rate declining as the size of the trade grows. 

Storage costs for depository accounts are either 1% per annum for allocated bars (that is bars you have direct legal title too), or we also offer unallocated gold (you don’t have title to a specific bar in this case, rather a claim on gold being used in the value chain of the business of The Perth Mint) which has no storage costs at all. 

Why hasn’t silver performed as well as gold recently?

Whilst gold is seen as a safe-haven asset and monetary commodity, silver is seen as a quasi-industrial commodity, with almost 60% of its demand driven by industrial use including photography and silverware. 

As such, silver often tends to sell off during periods of heightened concern about global growth, with the economic fallout from the steps taken to contain Covid-19 (which saw the Goldman Sachs Commodity Index fall 40% in the first three months of the year), also hitting silver, which fell by 20% over the same time period.

Gold on the other hand rose during Q1 2020, up 4% in USD terms and almost 20% in AUD terms, as it benefitted from flight to safety investor flows as equity markets tumbled over this time period. 

Are Australian investors better to invest in gold hedged in USD rather than unhedged in AUD?


Investing in gold unhedged in AUD gives investors exposure to two factors:

1. the movement in the USD gold price; and
2. the movement in the AUDUSD FX rate.

Whilst this brings with it another risk factor for Australian investors with precious metal exposure, it also adds another potential source of return, as any fall in the value of the AUD vs. the USD will boost the AUD price of gold. 

Many of the Australian investors we deal with at The Perth Mint are happy to have their exposure to gold unhedged in AUD, as they see it as currency diversification for their overall wealth, given they typically earn their income in AUD as well as have exposure to Australian real estate, shares and cash in their portfolio. 

Ultimately though, it is the individual investor who needs to choose whether they want that currency exposure or not. 

Are gold miners a better investment than gold?

This is a great question and one we’ve been asked many times over the years. Just like buying shares in Australia’s big banks is not the same as buying an investment property (even though the majority of bank lending is directed toward residential property these days), gold and gold miners are different investments. 

Whilst they both can play a valuable role in an investment portfolio, it is important to realise they have different characteristics and qualities.

Gold is an exceptionally liquid asset (turnover in the gold market is typically more than USD $150 billion per day), has zero credit risk, and has a long track record of protecting wealth in periods where equity markets sell off.  Gold is also a very simple investment, however, it doesn’t provide an income stream. 

Gold miners on the other hand can pay dividends, and can see their profits grow substantially in periods of rising gold prices, depending on a handful of factors including their ability to:

1. maintain or grow production.
2. maintain or grow the margins they make on their production.

As such, there are many other risk factors to consider when investing in gold miners, with movements in gold mining company share prices typically being more volatile than movements in the gold price itself. 

In terms of how the market views these distinct assets, it tends to treat gold itself as a defensive asset, due to its historical outperformance in periods of low real interest rates, its ability to hedge equity market risk, its high liquidity and lack of credit risk. 

Gold equities are typically considered to be growth assets, and fit within the equity component of a portfolio, due to the higher risk/higher return characteristics they typically display.

Again, whilst it’s not for The Perth Mint to advise, diversified investors may wish to choose both in their portfolio.  


Disclaimer:

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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