About Perth Mint Bullion Blog

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.

PLEASE READ
Our Blog Disclaimer.

Our Comments Policy.
Our Copyright Policy.

GROUP PROFILE
Our Visions, Our Values.

Blog Archive

OLDER ARCHIVES »

Perth Mint Bullion BlogSubscribe
« Back to full list

Perth Mint sees record gold sales in Q1 as precious metal prices continue to ease

rows of gold coin blanks

Summary

• Perth Mint minted product sales for both gold and silver remained strong during March, with more than 130,000 troy ounces of gold and almost 1.6 million troy ounces of silver shipped to clients worldwide. These figures are 285% higher (gold) and 178% higher (silver) than average monthly sales dating back to 2012 

• Perth Mint Depository holdings of gold and silver remained flat during March, with total holdings for both metals 11% higher than they were one year ago.

• Perth Mint gold ETF holdings declined by 1.5% in March, mirroring outflows seen across the global gold ETF market, which have seen total holdings drop by almost 9% since all-time highs seen in October 2020.

Commentary

Gold and silver prices continued to weaken in March, with the precious metals falling by 11% (gold) and 9% (silver) in the first three months of 2021.

There have been multiple factors contributing to the sell-off, which has now seen the US dollar gold price pullback by almost 20% since it hit all-time highs in August 2020. These factors include a rally in the US dollar, an increase in real bond yields (US 10 year Treasuries moved from -1.06% at end December 2020 to -0.63% at end March 2021), soaring prices for cryptocurrencies with Bitcoin trading near USD 60,000, up ten times in the last year, and continued strength in equity markets with the S&P 500 topping 4,000 points in early April.

Manager, Listed Products and Investment Research, Jordan Eliseo says, “The pullback in prices has led to a spike in demand for minted products. In Q1 2021, The Perth Mint sold more than 330,000 troy ounces of gold, and more than 4.5 million troy ounces of silver. These figures represent the highest calendar quarter on record for gold, and the fourth highest calendar quarter on record for silver.”

Minted Products

The Perth Mint shipped more than 130,000 troy ounces of gold coins and minted bars in March 2021, and almost 1.6 million troy ounces of silver. The sales figures represent a continuation of a strong period of demand for Perth Mint minted products, with calendar quarter gold sales their highest on record.

General Manager Minted Products, Neil Vance, reported that coin production in March took up where February left off. “The market continues to take everything we can make at present,” he said, citing above average demand in key markets such as the United States and Germany. “Production remains concentrated on our most popular 1oz Kangaroo coins and while we just about satisfied demand for gold this month, interest in silver is outstripping our capacity to convert plentiful supplies into finished goods.”

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

Graph depicting Troy ounces of gold and silver sold as coins and minted bars between December 2018 and March 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 were largely flat in March 2021, ending the month at 1.854 million troy ounces (gold) and 37.8 million troy ounces (silver).

Despite the recent stagnation, total holdings of both gold and silver are up 11% in the last 12 months, with the emergence of COVID-19 and the fiscal and monetary policy response encouraging investors to add precious metal positions to their portfolios.

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

Graph depicting the total troy ounces of gold and silver held by clients in The Perth Mint Depository between June 2018 and March 2021

The Perth Mint Depository enables clients to invest in gold, silver and platinum, with The Perth Mint storing this metal in their central bank grade vaults. 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.

The Perth Mint Depository enables clients to invest in gold, silver and platinum, with The Perth Mint storing this metal in their central bank grade vaults. 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) fell by 1.5% in March 2021, with the outflows seeing total holdings in PMGOLD decline to 230,279 troy ounces, or just over 7.15 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 55,000 troy ounces (+32%) in the last 12 months.

Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD)
January 2015 to March 2021

graph depicting the monthly change in troy ounces held by clients in Perth Mint Gold between January 2015 and March 2021

Source: The Perth Mint, ASX, Reuters

The value of PMGOLD holdings also fell in March, ending the month just above AUD 510 million. Despite this decline, the value of gold holdings backing PMGOLD has risen by 13% in the last 12 months. 

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



Blog DisclaimerComments PolicyCopyright Policy

No silver shortage at The Perth Mint

Topics [ depository silver bullion coins silver prices silver market ]

Social media chatter about a shortage of silver should be treated with a healthy dose of scepticism.

While The Perth Mint is currently experiencing increased demand for its products and services, customers can still invest in leading Australian silver bullion coins and in pool allocated or unallocated silver via our Depository.

Like gold, unallocated silver remains fully backed by physical metal at the Mint.

The current scenario, in which some Perth Mint physical products are temporarily unavailable, does not equate to a shortage of metal at The Perth Mint, or in world wholesale markets.

What it actually reflects are constraints in production capacity here and at other bullion mints around the world to fabricate enough silver as finished bullion product.

To alleviate this situation for our clients, we have streamlined the number of bullion ranges we usually produce, freeing capacity to fully focus on our two most popular lines - 1oz Australian Kangaroo gold and 1oz Australian Kangaroo silver bullion coins.

The coins are available for sale from the Mint’s bullion website, our on-site retail store and leading distributors.

As one of the world’s largest refiners of gold and silver, The Perth Mint is ideally placed to service investors looking to acquire precious metals, as we have a steady stream coming into our refinery on a daily basis.

Likewise, depository clients can acquire silver via services offered by our Depository, including a Depository Program account, Depository Online and GoldPass. We remain committed to delivering allocated products as quickly as possible and are in the process of improving the conversion of unallocated to allocated amid current production constraints.

Accredited by all five of the world’s major global gold exchanges, The Perth Mint is the only precious metal operation in the world which has a unique government guarantee and is dedicated to providing ethically sourced gold and silver.



Blog DisclaimerComments PolicyCopyright Policy

Investing in gold or investing in stocks? What to consider when diversifying your investment portfolio

a gold line graph

When it comes to investing, the idea that you can forecast the market based on economic fundamentals no longer seems to apply.

How else can you explain the soaring US stock market when the country experienced its worst year for economic growth in 2020 since World War II?  When social media speculators are flexing their meme muscles on shares and commodities?  When valuations are even eclipsing those in the dotcom boom? 

It’s been called a bubble , a yawning disconnect from reality and prompted headlines from publications not known to clutch their pearls — including the US Federal Reserve    that the market can’t be seen as a proxy for real life any longer.

The Australian market has also shown a gap between what’s happening in the broader economy and where investors believe they can make returns.

For some investors, it might feel pretty familiar: high prices defying the market bears, while the bulls bank the rewards, right until the moment when reality and markets meet.

But for those who have been on this roundabout before, it’s a reminder of why a diversified portfolio can help investors sleep better at night — and it’s one of the reasons why precious metals have recovered their shine.

Why diversify your portfolio?

The case for diversifying a portfolio can be hard to make when a market is in full run. If a stock portfolio is making strong, consistent returns, diverting funds into asset classes that are performing less strongly can create the sense you are not maximising your investment.

But in general terms, the value of diversifying as a way to reduce the risk of having all your eggs in one basket outweighs the opportunity cost.

Diversifying can act as a hedge against major declines in one asset, by picking one that is either countercyclical or that offers steady sustained returns regardless of headwinds in other sectors.

At the same time, diversification can be a growth strategy with the right mix of assets. It’s a rare year that sees falls in all major asset classes and some defensive asset classes show positive returns — however small — year on year.

The most defensive asset classes are so low risk that they deliver low returns, however.

Is gold a defensive asset?

As the primary precious metal used in diversification strategies, gold is both a defensive asset and a growth asset.

After all, it shares many of the characteristics with defensive assets like bonds. It has no maturity date, like perpetual bonds, and physical gold is a zero credit risk instrument, as there’s no risk of default.

There is also a historical link between US interest rates and the gold price, particularly when interest rates are seen as a proxy for economic resilience.

When real interest rates are falling, gold tends to be higher. When real interest rates climb, gold tends to decline. With interest rates in the US low for more than a decade, the relationship between real interest rates and gold can become obscured, but the price in USD bottomed in 2015 when the Federal Reserve raised rates for the first time since the Global Financial Crisis.

Last year, the Fed was signalling it expected rates to remain static for years to come as the US tries to manage its way out of the COVID-19 slump until inflation climbs up to 2%.

Even when rates rise, gold often performs well, as this is often a signal that inflation is climbing.

As the World Gold Council puts it: investors measure the relative attractiveness of gold by how much they can earn elsewhere.

Gold is also used by investors to hedge against extreme inflation. Work by Oxford Economics shows in periods of inflation up to 3%, gold returns in USD average 5.6%. When inflation exceeds 3%, average returns are 15%.

Another argument is the use of gold as a safer hedge than cash for investors when governments are printing money.

Quantitative easing is when central banks increase the supply of money in an economy as a form of stimulus. While it’s a popular measure that has become entrenched in some countries since the GFC, it risks having an impact on inflation and devaluing currencies.

If the purchasing power of cash declines , gold provides additional comfort.

It is also an easy option for balancing foreign exchange risk. If an Australian investor with shares mostly in that currency buys unhedged gold, that can also provide portfolio protection in case the Australian dollar slides.

So as a defensive asset, gold has a lot of appeal, but it also can’t be discounted as a growth asset — particularly after topping major asset classes for returns in 2020.

Is gold a growth option for diversification?

The strength of gold as part of a diversified portfolio can be seen in its long-term returns. Over the past 20 years, gold has outpaced a host of other asset classes.

Long-term investors have seen the gold price rise  551% (USD terms) and 454% (AUD terms) over the 20 years to the end of 2020.

Only four of those years have seen a fall in price (in either currency).

In the shorter term, gold has matched or exceeded other Australian assets, but it has also shown excellent performance in years when other assets are under stress.


In 2008 when Australian equities fell 40%, gold climbed 31% in AUD terms, for example. In 2011, when the ASX200 was down 11%, gold was up by 9%.

That countercyclical performance explains the role gold plays in boosting returns in a diversified portfolio.

The World Gold Council has calculated the role of gold in the average US investment portfolio, looking at the investment performance over five, 10 and 20 years. On that analysis, holding gold for between 2% and 10% of a portfolio boosts risk-adjusted returns  over the long term.

Gold wasn’t being used just as a safe haven in the modelling either.

For a conservative portfolio, the modelling recommended  2.5% as the optimal gold holding. For a moderate portfolio, gold’s proportion grew to 5.6% and for an aggressive growth portfolio, nearly 10% was in gold.

How can you add gold to your investment portfolio?

The liquidity of gold makes it an easy asset class for investment — whether your preference is bullion bars and coins through to online options, exchange traded products or via a digital app.

The first starting point is to understand the options that work best for you.

You can find more information on the investment case for gold by downloading our SMSF Trustee Investment Whitepaper or explore your investment options here.


Sources:

[1] https://www.washingtonpost.com/business/2021/01/28/gdp-2020-economy-recession/
[2] https://www.bloomberg.com/news/articles/2021-02-02/moonshot-stocks-lose-167-billion-as-crowd-preaches-defiance

[3] https://www.ft.com/content/d424625f-6cff-4cd2-bb6a-ff95ec440899

[4] https://www.gmo.com/australia/research-library/waiting-for-the-last-dance/

[5] https://www.fa-mag.com/news/the-great-disconnect-59987.html

[6] https://www.federalreserve.gov/econres/notes/feds-notes/the-stock-market-real-economy-disconnect-a-closer-look-20201014.htm

[7] https://www.nytimes.com/2021/02/03/opinion/gamestop-stock-market-economy.html

[8] https://www.afr.com/wealth/personal-finance/disconnect-between-market-and-economy-20200612-p55245

[9] https://www.investors.com/research/gold-stocks-investing-price/

[10] https://www.gold.org/sites/default/files/documents/gold-investor-201307.pdf

[11] https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-2020-individual

[12] https://www.kitco.com/news/2021-01-27/Investors-should-move-out-of-record-cash-positions-and-into-gold-Brookville-Capital.html

[13] http://www.perthmintbullion.com/au/blog/blog/21-01-05/Gold_performance_over_the_last_20_years.aspx

[14] https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-2020-individual#chart7

[15] https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-2020-individual#chart8a


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.







Blog DisclaimerComments PolicyCopyright Policy

When will we hit peak gold?

gold nuggets

Dig up that Viking hoard, melt down your wedding ring, strip your phone for its components and empty the vaults — in fact, collect every ounce of gold ever mined and melt it down, and you would still fill only three Olympic swimming pools.

Gold is so scarce that all the gold ever produced would represent a busy afternoon’s work for a commodity like iron ore, but that rarity is essential to its value.

And yet it’s been a long time since a gold rush — there’s been a dearth of discoveries in recent years, and production outputs have been falling. 

In 2020, gold mine production reached 3,400 tonnes, four per cent lower than in 2019 and down from the highs of 2018, the year that gold production hit record highs. 

The world’s total annual gold supply of 4,633 tonnes, which includes recycled gold, was 4 per cent lower year-on-year, the largest annual fall since 2013. 

While December was a better quarter for some countries, including Australia, a combination of tougher environmental rules in some countries and ongoing lockdowns in others, have contributed to lower output.

So will gold production continue to climb on the back of a strong gold price, or have we seen the precious metal reach its peak?

“We know that 2020 was obviously a terrible year for production,” says Manager, Business Development & Industry Research at The Perth Mint, Cameron Alexander.

“COVID had a massive impact on mine closures and globally I think we saw over 100 gold producing mines that were shuttered, at least temporarily.

“I think we can expect to see quite a rebound this year in 2021 and again in 2022, but we are becoming used to seeing more steady growth not big jumps in production.”

When will the world hit ‘peak gold’?

When it comes to the future of gold production, experts talk about the concept of peak gold — when we have mined the most we can in any one year.


There are some who believe we have already crossed that threshold, potentially in 2018, when mine production hit 3,554 tonnes, about 1000 tonnes more than the previous decade’s peak 17 years earlier. 

But there have been multiple previous peaks followed by sharp declines, with productions each time climbing back up the charts. Past peaks, including 1912, 1940 and 1970, have seen production stall due to geopolitical challenges, wars and economic downturns.

Hopes of a stronger year for gold mining in 2020 were dashed when the pandemic hit gold production around the world, with outputs battered by lockdowns, although it will be a few months before final production figures are known.

Based on company reporting, Kitco estimates Q2 2020 was the worst quarter  for the world’s gold miners in seven years, while the Australian Department of Industry  estimates world gold mine production fell 3.4 per cent in the September quarter as well.

It estimates the world’s biggest producer, China, saw a 3 per cent fall in Q3, with environmental regulations limiting gold output, while Russia is estimated to have seen 13 per cent falls.

The World Gold Council estimates around 130 fewer tonnes of gold were produced in the first three quarters. 

At the same time, production showed strong recovery in major producers like the US (12 per cent) and Australia (4.8 per cent) and was expected to climb further in Q4 once larger mines reopened.

Looking ahead for the short term, Australia predicts an increase in world mine production in 2021 to roughly 3682 tonnes, which would be about 1 per cent higher than in 2019, with further 2 per cent growth in 2022.

The World Gold Council is similarly bullish, anticipating fewer stoppages due to coronavirus in 2021, as the vaccines are rolled out and as miners implement better and safer protocols to limit spread and disruption. 

“I think even if we do see COVID breakout again in some markets, most mines are better positioned in terms of their preparation for taking care of their staff and operations,” Mr Alexander says.

“So, I don’t think we will see the same kind of impact.”

Mr Alexander expects a substantial increase in production this year of 4-5 per cent over 2020’s poor performance, and ongoing growth in 2021, 2022, and 2023.

“It will be more modest at less than one per cent in those outlying years, but it is still growing,” he says.

“At this stage, there’s really no sign we are reaching peak gold.”

The search for the next gold rush

While the peak could be some years off, incremental rises remain more likely than a sharp jump in production.

In part that’s the result of another challenge that could derail the sector — a lack of gold to mine.

S&P Global Market Intelligence tracks ‘major’ gold discoveries over time, describing these as finds of deposits with at least 2 million ounces.

Between 1990 and 2019, there were 278 major gold discoveries that were considered potentially economic to mine. At a nominal price of $1200/oz, S&P suggests those discoveries have a collective worth of more than US$2000 billion, with other metals like copper able to be worked in the same deposits worth about $500 billion. 

But the discoveries haven’t been evenly paced.

The 1990s saw 132 deposits identified, an average 13 discoveries a year. 

By the first decade of the 2000s, that had fallen to 93 deposits, while in the past decade 25 discoveries in total have been counted, none in the past three years. 

The last big Australian discovery was in October 2013 at the Gruyere mine, 200 kilometres north-east of Laverton in WA's Great Victoria Desert. Gruyere reached commercial production  in 2019.

Before that, it was the 2005 discovery that led to the Tropicana mine  north-east of Kalgoorlie, with production taking eight years to begin.

There are hopes for new finds in the Pilbara but it is not yet clear how much gold is represented in the deposits. 

“There really haven’t been any substantial announced deposits for some time, but brownfield exploration is ongoing,” Mr Alexander says.

“If you look at Australia, for example, there is a lot of money being spent on exploration at the moment and while the gold price is at record levels, some of those things that we're finding now will come to fore in the next five to ten years. I think we are going to have some production fairly well supported going forward.”

What price makes gold mining viable?

Once the gold is found, of course, there is the matter of extraction.

With an average lead time of 10 years between discovery and production for gold, a dearth of discoveries from 2011 onwards will make it hard for Australian production to remain high at least in the short term. 

As discoveries become scarcer, the comparative cost of exploration rises, with the estimated unit discovery cost for gold doubling in the past decade. 

The World Gold Council’s forecast for the next 30 years suggests the gold price will need to remain at about $1500/ounce to justify production at the current levels.

Even among the 278 discoveries of the past 30 years, about 135 are not yet in production, S&P says, and the analysis company is bearish about many of those. 

Some face a long road to production at best, it says, while others face significant challenges that are likely to stop them progressing.

“With production from existing mines expected to begin decreasing in 2022, there is a need for more high-quality assets that can be developed in the medium term,” it concludes.

While the gold price is high, Mr Alexander expects some production that was shelved at lower prices to come back to the market.

“We are now sitting at such high prices, particularly in Aussie dollars, mines that were sitting derelict or on care and maintenance are being brought back on stream,” he says.

“These mines may be small, but they are more economic at current prices. It is also why we are seeing some consolidation among small producers. By consolidating you can reduce the cost of production on the smaller operations.

“We have also seen the margin that miners are getting in the past year is extraordinary, so they are reinvesting some of that into exploration.”

The other benefit of high prices is an expansion of areas that might be explored.

“There are countries like Egypt, where production has been traditionally small, which are now exploring areas that are under-explored,” he says.

“I think they have huge potential. South America is also seeing an enormous amount of exploration, as is Africa, and there are whole regions that have not typically been big gold producers now looking at what they can find.”

So that’s production, what of demand for gold?

The past year has been a rocky one for gold demand, with consumption of jewellery (which remains about 50 per cent of the market) down in the key markets of China and India. Central banks also sold gold for the first time in a decade, driven by Turkey, Uzbekistan and Russia. 

But with the 2020 blip put to one side, gold demand grew 11 per cent between 2010 and 2019. If it were not for recycled or scrap gold, representing about 25 per cent of gold supply, demand would far outweigh supply.  As the world’s middle class grows, demand for jewellery is expected to continue to climb, as will the value of gold in savings and investment.

Mr Alexander says that even if production tapers off, the permanence of gold — virtually all ‘above ground’ stocks can be reused over and over — means it can continue to meet consumer, investor and industrial demand.

In other words, production could cease but the world would still not run out of gold.

“We are likely to continue to see production at around the 3300-tonne mark per year but even if that comes off a little bit, it is not going to have a huge impact on what is available to the market,” he says.

“There is a lot of gold sitting in vaults around the world that can be drawn down over time.”

Sources:

[1] https://minerals.org.au/sites/default/files/Rush_Australias_21st_Century_Gold_Industry_FINAL.PDF
[2] https://www.gold.org/goldhub/data/gold-supply-and-demand-statistics
[3] https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2020
[4] https://www.gold.org/goldhub/data/demand-an
[5] https://www.kitco.com/news/2021-01-08/Global-gold-production-in-Q2-2020-was-lowest-in-seven-years.html
[6] https://publications.industry.gov.au/publications/resourcesandenergyquarterlydecember2020/documents/Resources-and-Energy-Quarterly-Dec-2020-Gold.pdf
[7] https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q3-2020
[8] https://www.gold.org/goldhub/research/outlook-2021
[9] http://go.snl.com/rs/spglobal/images/Strategies%20for%20Gold%20Reserves%20Replacement%20-%20Abstract.pdf
[10] https://www.australianmining.com.au/news/major-gold-discoveries-plummet-in-the-past-decade/
[11] https://careers.goldfields.com.au/australian-locations/gruyere-joint-venture/
[12] https://www.australianmining.com.au/news/gruyere-gold-mine-reaches-commercial-production/
[13] http://www.tropicanajv.com.au/IRM/content/default.aspx
[14] https://www.abc.net.au/news/rural/2020-03-19/de-grey-pilbara-gold-discovery-turns-investors-heads/12060490
[15] http://documents1.worldbank.org/curated/en/573121473944783883/pdf/WPS7823.pdf
[16] http://minexconsulting.com/wp-content/uploads/2019/04/NewGenGold-2013-R-Schodde-paper.pdf
[17] https://www.gold.org/goldhub/research/gold-2048-next-30-years-gold
[18] https://www.spglobal.com/marketintelligence/en/news-insights/blog/a-decade-of-underperformance-for-gold-discoveries
[19] https://www.bnnbloomberg.ca/central-banks-sell-gold-for-first-time-in-decade-as-virus-bites-1.1514599

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 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.



Blog DisclaimerComments PolicyCopyright Policy

What do you need to know about adding gold to your SMSF?

a stack of different sized Perth Mint gold bars.

Interest in including gold as part of the superannuation investment is growing, but there are some key questions to ask to understand which options might be right for you.

Compulsory superannuation turns 30 this year, a milestone that means most working Australians should be building a solid nest egg for their retirement. 

But those past 30 years haven’t been all clear sailing. The All Ordinaries has been negative in eight calendar years in the past three decades[1], while the younger S&P ASX200 has had four negative years [2] in the past 10. 

In contrast, the AUD price of gold has had two negative calendar years in the past decade, helping to explain why there’s renewed focus on bullion as part of a superannuation portfolio. 

Why gold? 

For millennia, gold has been highly sought-after – initially because of its inherent value as a currency, in jewellery and as a safe investment during times of strife. 

Increasingly it is also viewed as a safe option for superannuation funds and managed funds at times when other asset classes have faltered. 

The past two years have seen surging interest in gold among exchange-traded fund investors [3],  even before the pandemic caused markets to become jittery. 

As a hedge against market uncertainty and risk it is a long-term performer, and in a period of low real interest rates and negative yielding debt, gold’s safe haven reputation has been reinforced. 

Investors who wish to explore gold as an option for superannuation can consider posing these questions to a financial adviser before making a commitment. 

Is gold the right option for my investment?

An investment in physical gold does not pay a dividend like a blue-chip ASX stock so potential investors should be aware that growth comes from an appreciation in the price of spot gold — and therefore the value of their gold investment. 

But historically it has been an excellent hedge against inflation because the gold price tends to rise when the cost-of-living increases [4].

Investors also flock to gold when faced with uncertainty and confusion – the turbulence in US politics, global trade wars and the COVID-19 pandemic are just three reasons why today’s gold price is so strong.

No two super funds are the same but shares and property are largely the financial vehicles of choice for most growth-focused retirement investments, be they self-managed or through an institution, because they offer diversity, liquidity (in the case of shares) and annual income in the way of dividends or rental payments.

Depending on risk appetite, funds will also have varying levels of investment in cash, fixed income, infrastructure, unlisted equities and ‘other’. 

Physical gold – that is, actual gold compared with investments in gold mining companies – falls into the ‘other’ category, which makes it an attractive option for further safely diversifying a self-managed superannuation fund.

The data is not definitive, but it is believed that less than 0.1% of all Australian superannuation assets [5] are currently invested in physical gold. This may be because it is not widely seen as a growth asset that compounds in the way that blue-chip shares can.

Manager, Listed Products and Investment Research at The Perth Mint, Jordan Eliseo, says the role of gold and other precious metals in a portfolio depends on risk appetite and their preferred investment balance. 

“Some investors look to put five to 10 per cent, and sometimes up to 20 per cent of their portfolio into gold and precious metals,” he says.

“But it depends on a range of factors, including what else they own in their portfolio.”

How long should I hold my investment?

Independent advice should be sought from a licensed financial adviser before making any investment. However, generally speaking, gold is considered a long-term asset. 

Looking at gold’s historical performance, in years where the growth of managed funds has stalled or declined, the value of the precious metal has been strong. It’s a pattern of growth that many have come to accept as a given – gold’s value grows when shares falter.

Even better, in years where super funds have grown, the value of gold hasn’t necessarily declined. In fact, of the 10 years between 2000 and 2019 during which super funds grew by 9 per cent or more, gold outperformed them in five. 

“Gold is positively correlated to stock markets when they rise, so the price tends to rise alongside the stock market, but it's negatively correlated to the stock market when the stock market falls,” he says. 

“Now, it doesn’t go up by as much as stocks when stocks are going up, so you make money, but you just don't make as much money as if you were completely in shares.

“The price also tends to rise when the stock market's going down. 

“Now, it doesn't go up as much in a strong market, but the beauty of gold is that when the market declines, gold has historically still performed.”

How would I buy physical gold?

There are different ways of buying physical gold for a SMSF, but a depository solution is considered best practice, because of the reporting and audit obligations for SMSFs.[6] 

So before a purchase is made, consideration needs to be given to storage and appropriate insurance.  

The Perth Mint’s Depository service allows investors to easily buy bullion – of different sizes and values, to suit the individual investor – and have it safely stored in the mint's high-security vaults in Australia, all covered by a guarantee from the Government of Western Australia.

Allocated storage allows you to purchase The Perth Mint’s physical bullion products, which the mint segregates in its high-security vaulting facilities under your name[7]. The Perth Mint charges a fee for keeping allocated gold secure in its vault. The gold remains readily available for inspection, pick-up or delivery — unlike unallocated gold, which is essentially a purchase into the mint’s pool of working metal. 

Unallocated storage is the most popular option among The Perth Mint’s depository clients because there are no ongoing storage fees[8]. But there are also no specific bars or coins recorded against individual clients because the metal backing their account is pooled. It is not possible for a client to view these types of gold holdings.

Should investors wish to purchase and store gold in an external location such as in their home or in a bank safe, The Perth Mint suggests the investor takes out adequate insurance, mainly against theft. Insurance must be in the name of the SMSF and not a personal policy, such as a home and contents policy [9].

What if I don’t want physical gold?

An alternative to physical bullion is investing in a right to gold, through our ASX-listed product PMGOLD. The product is backed by physical bullion, and each unit represents 1/100th of an ounce at gold.

As the gold price moves, so does PMGOLD, and if you decide you would rather change to physical bullion, it can be redeemed for any of The Perth Mint’s bullion bars.

Another significant advantage for SMSF trustees is PMGOLD which can be bought and sold through a stockbroker or share trading account with the same ease and convenience as investing in shares.

Are there any tax implications for investment?

Australia does not have any import or export restrictions on precious metals, including gold, so clients are free to move their investment in and out of the country [10].

The purchase of gold, as well as silver and platinum, is exempt from Australia’s 10 per cent GST if it meets certain conditions, including: 

• A purity of 99.5 per cent or higher

• Capable of being traded on the international bullion market

• Bearing a mark of a recognised manufacturer identifying and guaranteeing the fineness and quality of the gold

The Perth Mint's bullion coins and bars meet the above definition, which is why purchasing privately minted bars and coins carries a greater investment risk. 

Where do I start?

The Perth Mint provides a comprehensive guide to getting started with gold in your SMSF, which also strongly recommends that you seek personal financial advice before investing in gold [11]. 

If it is the right fit for your super investment, The Perth Mint has a range of investment options including online and offline depository accounts, which many investors use to access gold for their own SMSFs.

The Perth Mint’s Depository program gives clients direct access to experienced bullion dealers who can quote a competitive live spot price to buy or sell precious metal.

If you believe physical gold will not sit comfortably within your SMSF but you want to make sure you have exposure to a millennia-strong history of strong investment returns, ask The Perth Mint about our other, non-physical gold investment products.


Sources

[1] https://stooq.com/q/d/?s=%5eaor
[2] https://www2.asx.com.au/about/market-statistics/historical-market-statistics
[3] https://www.perthmint.com/documents/Invest/SMSF%20Whitepaper%202020.PDF
[4] https://www.investopedia.com/articles/basics/08/reasons-to-own-gold.asp
[5] http://www.perthmintbullion.com/au/blog/blog/19-12-16/Gold_and_superannuation.aspx
[6] http://www.perthmintbullion.com/au/blog/blog/19-04-10/Why_how_now_SMSF_trustees_are_turning_to_gold.aspx
[7] https://www.perthmint.com/storage/help/faq-storage-options.html#what-is-allocated-storage
[8] https://www.perthmint.com/storage/help/faq-storage-options.html#what-is-unallocated-storage
[9] https://www.walshaccountants.com/superannuation-your-pot-of-gold/
[10] https://www.youtube.com/watch?v=CzVDLAmoUkQ
[11]https://www.perthmint.com/documents/Invest/SMSF%20Whitepaper%202020.PDF


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 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.



Blog DisclaimerComments PolicyCopyright Policy

Invest in the gold mine or invest in gold?

small grains of gold

Gold is on track to become Australia’s third largest export commodity in 2021. And with the price of the precious metal remaining strong, investors continue to back gold stocks heavily. But is it smarter to invest in the gold mine or directly in gold?

For centuries, gold has been the safe haven investment of choice.

In times of uncertainty or fear, when the world confronts geopolitical conflict, economic and market volatility — during a worldwide pandemic, for example — buying gold as a physical asset holds great appeal.

It was a clear pattern in 2020, when a flight to gold saw its price rise more than 25 per cent, and the forecast for 2021 is another strong year.

But the prospects for gold mining are also looking more positive in 2021, with production tipped to increase by as much as 8.0 per cent in 2021, according to Australian Government estimates, and by 2.0 per cent in 2022.[1]

So, what should you consider when weighing up your investment choices?

Are there advantages to opting for paper gold — which might include stocks in gold mining companies, Exchange Traded Funds, certificates, futures, options or CFD trading — instead of a physical store of the precious metal?

Weighing up the risks and the prospects

When it comes to building a balanced or diversified portfolio, most investors are conscious of weighing the risks associated with returns.

As with all investments, lower risk options offer greater security, higher risk options potentially promise stronger returns.

“It's important to understand your goals and your risk profile,” says Jordan Eliseo, Manager, Listed Products and Investment Research at The Perth Mint.

“Different investors will have very different priorities and they need to seek advice on what matters to them.”

In general terms, physical gold traditionally tends to be a more stable option for a portfolio, less subject to market risks than stocks, and investors have the comfort of a physical store of wealth in gold bullion or gold coins.

When it comes to insuring against falls elsewhere in the portfolio, it becomes an attractive investment choice.

And gold has delivered when it comes to returns.

During times of heightened market volatility and political and economic uncertainty, physical gold has proven to be a sound performer and a solid counterweight to uncertainty and market risk.

Over the past 10 years, the AUD gold price has seen an average annual increase of 10.9 per cent.[2]

Conversely, gold stocks and trading options tend to respond to higher prices more slowly, and traditionally perform best when the gold price has enjoyed sustained improvement over several quarters.

“Gold tends to be a far more stable, simple and ultimately, over the long run, safer investment,” Mr Eliseo says.

“Gold mining companies can be very profitable, but they are typically higher risk, and there are far more moving parts for an investor to consider just as investing in any company does.

“Gold is much more about wealth protection and relatively steady, long-term growth, whereas the gold mining equity side can be more rewarding sometimes, but also a riskier place to be.”

Investing in gold mining

In the past decade, investors have enjoyed relatively strong returns from a range of gold investments. In the wake of the 2008 global financial crisis, financial institutions across the world began to build up healthy reserves of gold as a hedge against market turmoil, and investors returned to gold stocks as the gold price gradually strengthened.

As the gold price continues to remain high, investors have also backed smaller cap exploration companies along with the trusted names in gold mining.

Gold exploration expenditure in Australia reached a record high of nearly $1.2 billion in 2019-2020,  with almost 70 per cent of this total spent in Western Australia.

And in addition to new greenfield projects, companies have also begun returning to some historic brownfield mines to boost production and maximise returns.

With more than 75 operating gold mines, Australia is home to some of the world’s biggest and most successful mining companies. But as with all stocks, investor due diligence is critical.

While, in general, gold stocks can be related to the price of physical gold, Mr Eliseo warns they are also subject to market forces and other risks, making them potentially a more volatile proposition.

And the fates of individual companies can also be materially impacted by the quality of management and will always remain subject to the vagaries of the stock market.

“The value of a mining company is not just about discoveries,” he says.

“Does the company run efficiently? What are their average grades? What are the production costs? There are so many risk factors that have to be considered.

“If you get it right, and you buy the right exploration stock that literally hits a goldmine, then you're going to make many times what you would have made in gold.

“But if you get it wrong, that company might go bankrupt, or drop 90% of its value and never recover. Gold just doesn't have those kind of risk factors.”

ETFs on trend

While some investors may opt to take a stake in individual gold miners, there has also been increasing demand for Exchange Traded Funds (ETFs), managed funds that either track gold stocks or the gold price itself.

ETFs usually offer low-cost diversified investment opportunities for investors, and can be bought and sold at short notice, making them flexible for trading and hedging.

ETF demand for gold hit record highs [3] in 2020, accounting for two-thirds of investment demand [4] in the first three quarters, a new record according to the World Gold Council.

They trade at a unit price on the stock exchange like ordinary shares and can be a cost-effective and simple way for investors to gain exposure to an asset class like gold and diversify their portfolio.

How to buy gold in a bullish market

If investing directly in bullion is the path you choose, what is the best way to invest in gold? [5] 

Traditionally, investing in physical gold meant buying either bullion coins or bullion bars.

Gold coins have long been a popular investment choice, with the value store in both the physical weight of the coin and its value as a collectible.  In addition to the enjoyment of acquiring and curating a unique and personal collection, coins offer an affordable option for investors looking for direct exposure to the gold market.

Cast gold bars, which have a rough texture and are made in a mould, and minted gold bars, which have a clean and shiny finish and are produced from rolled cast bars, are also popular choices for investors.

Secure vaulting is obviously essential, particularly for large investments in physical gold in the form of minted or cast bars. The Perth Mint’s network of vaults is the largest and most secure in the southern hemisphere, capable of storing tonnes of precious metals.

Given its security, a unique government guarantee that backs the value of all stored precious metals, and WA’s safe geopolitical environment, the Mint currently cares for more than AUD 5.7 billion of gold and silver, on behalf of over 30,000 clients in over 120 countries.[6]

Digital delivery

To compete with other convenient forms of investing, digital platforms have emerged to make investing directly in physical gold easier than ever, enabling investors to buy and trade in gold at the click of a button.

GoldPass is Perth Mint’s investment platform that allows investors to securely buy and sell physical gold via digital certificates, allowing instantaneous transfer of gold to other GoldPass users.

Trading apps such as GoldPass have made it possible for investors to quickly redeem their metals for cash, providing a more liquid and tradeable option than previously available for investors in bullion or coins.

Mr Eliseo says GoldPass also gives an investor the capacity to transact gold in either Australian or US Dollars, making it an excellent option for global investors or those wishing to gain exposure to gold in USD terms.

“We have seen a clear trend by new and younger investors looking for digital trading options for gold, and the convenience fits exactly with their expectations of how they want to trade,” he says.

“Security and peace of mind are still critical but investors also increasingly want immediacy, convenience and accessibility.”

Invest in the Mint itself

A further option for investors is to consider Perth Mint Gold  (ASX CODE: PMGOLD), which is a right to gold created by The Perth Mint, so investors can purchase Government-backed gold via the ASX. It’s an option that suits investors who want their gold investment to be managed within their stockbroking account,

The right can be physically redeemable for bullion bars, unlike many gold exchange products.

It is also highly liquid, with PMGOLD tracking the international spot price of gold by maintaining bid and offer prices and volume on the ASX at all times, in accordance with ASX rules.

“PMGOLD has been by far one of our fastest growing products, mostly driven by self-managed superannuation funds,” Mr Eliseo says.

“Trading online digitally is totally within the remit of SMSF investors and from that perspective, PMGOLD is the easiest product for them to use.”

Why settle for one option?

Before settling on one asset at the expense of another, Mr Eliseo says the importance of a diversified portfolio should not be underestimated.

Instead, he says balancing an interest in mining stocks — or other Australian equities — with gold in a digital or physical form has much to recommend it.

“I don’t think people who are looking at investments should see them as one or the other,” he says.

“It’s like say, should you buy a house or buy shares in the bank? They might have similar elements but they are totally different investments.

“There’s room for both in a portfolio, and they should not be seen as interchangeable assets.”

As 2021 shapes up to be another strong year for gold assets, the options for investing in gold — whether in bullion bars or coins, digital certificates, exchange traded products, rights or shares — have made it easier than ever to gain exposure to the asset class. Whichever path you choose, gold is not to be ignored.

Sources

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 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.



Blog DisclaimerComments PolicyCopyright Policy

Confirm
No
Yes