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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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How big is the global gold market?

According to the World Gold Council, the best estimates suggest that by the end of 2019 more than 197,000 tonnes of gold had been mined across the course of human history. 

Despite the fact that gold has been valued and sought after by humans for millennia, the majority of this gold – roughly two thirds – has been mined in the past 70 years.

This gold is owned in a variety of forms which can be grouped into several major categories of gold demand. These include:

Jewellery
Physical bars and coins
Exchange Traded Fund (ETF) holdings 
Official holdings (central bank reserves) 
Fabrication (industrial demand)

These are highlighted in the chart below which indicates the percentage of total gold holdings held in each:

Source: World Gold Council, based on end 2019 data

The table below shows total global gold holdings held in the above categories by percentage, actual tonnes held and market value based on the 31 December 2019 LBMA AM gold price of USD 1,523.00 per ounce. 


Source: World Gold Council, Kitco, The Perth Mint

As demonstrated by the above data, the size of the gold market at the end of last year, based on the amount that has been mined and its end-December 2019 price, was more than USD 9.6 trillion. 

Whilst not all these holdings can be considered ‘near market’ gold (particularly gold that has been used in fabrication), even the gold held for private investment and as central bank reserves has a market value in excess of USD 3.7 trillion. 

Note that the above table does not include exposure through derivatives (either exchange traded or over the counter), with the World Gold Council estimating that by the end of 2018 some USD 400 billion in exposure was held through these investments. 

At over USD 9.5 trillion, the gold market is valued at more than five times the size of the entire Australian superannuation market as at the end of 2019. 

To put the size of the global gold market in further perspective, in the chart below we compare it to some of the largest sovereign bond markets in the world as measured by the Bank for International Settlement (BIS) general government debt securities outstanding.
 
We highlight the gold market in two ways. The column titled ‘GOLD’ shows the size of the entire gold market, including jewellery and gold that has been used for industrial purposes. 

We also focus on what we term monetary and investment gold, which is the metal held by private investors in bar, coin and ETF form, as well as official reserve holdings by central banks. This is noted as ‘INVESTMENT GOLD’ in the chart. 


Source: World Gold Council; BIS total credit statistics, end Q2 2019, The Perth Mint

As you can see, if gold were a sovereign bond market, it would either be the second or third largest on earth, depending on which way you chose to measure it. 

It is of course also worth noting that unlike the size of the government debt markets highlighted in the chart above, gold has no credit risk or long-term inflation risk. 

The issues surrounding risk in sovereign debt markets is something that the World Gold Council has also commented on. In a report titled Liquidity in the global gold market, it noted that “ever increasing debt markets driven by consistent fiscal deficits may benefit market participants from the perspective of market size; however, ultimately this also increases credit risk of the underlying bonds.”

The huge size of the gold market, the stability of the total gold supply and its total absence of credit or long-term inflation risk only add to the asset’s attractiveness as an investment. 

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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Silver outperforming as metals continue to rise in US dollars

Silver outperformed gold by 13.7% in May 2020. That’s a bullish sign for precious metal investors. 

Executive summary

• Gold and silver prices continued to rise in May, increasing by 1.02% and 14.70% respectively.

• The strong rally in silver saw the Gold to Silver ratio (GSR) fall back below 100.

• The Australian dollar (AUD) rallied by 1.40% vs the US dollar (USD) price. Gold closed the month below AUD 2,600 per ounce. 

• Investments into physical gold and ETF inflows remained strong, continuing a period of elevated demand.

Full monthly review – May 2020 

May 2020 was another positive month for precious metal investors, with gold rising by more than 1% in US dollar terms to finish the month trading at USD 1,728 per ounce. Silver had an even better month, increasing by nearly 15% in its largest monthly gain in almost four years to finish the month above USD 17.50 per ounce. 

The increase in precious metals occurred despite the continued rise in equity markets, with the S&P500 increasing by 4.53% in May 2020 to close the month back above 3,000 points. 

In this market update, we provide an overview of four trends for precious metal investors to follow:

• Silver’s recent outperformance relative to gold
• The rally in the Australian dollar
• Inflows into gold ETFs 
• Bond market warning signals for investors 

Silver is outperforming gold

Silver prices have continued to rise from the lows seen in March 2020, with the metal up almost 50% in the past two months. Whilst still lagging gold on a calendar year-to-date basis, the performance gap between the two metals has narrowed substantially.

This is reflected in a falling Gold to Silver ratio (GSR), which declined from a high of just over 120 in late March to 98 by the end of last month, a drop of almost 20%. 

Silver typically outperforms gold to the upside and underperforms gold to the downside. As such, the strong rally in silver since late March is a positive sign for precious metal bulls, suggesting there may be further upside for both metals in the weeks and months to come. 

Gold itself looks well supported, though we note it has fallen below USD 1,700 in the first few trading days of June. 

How high will the Australian dollar go?

In late March the Australian dollar fell to USD 0.557, having declined from its end-2019 reading of USD 0.700. From that low, the currency rebounded approximately 20% to end May 2020 at USD 0.665.  

The currency rebound has been driven by multiple factors including strong iron ore prices, the bounce in equity markets and growing investor optimism as governments outline a path out of the COVID-19 lockdown. General weakness in the US dollar, which has declined by roughly 5% against a basket of currencies since late March, has also contributed. 

The rally in Australian dollars has meant that gold prices in local currency terms has stagnated since late March 2020, though it did at one point trade above AUD 2,700 per ounce. Whilst this may frustrate existing investors, the pullback provides a better potential entry point for those looking to increase their exposure to gold.

Indeed in the first few days of June we’ve seen further upside in the Australian dollar, with the currency pushing up beyond USD 0.69. This has put downside pressure on the local price of gold, which is now trading below the AUD 2,500 level.  

Beyond this, we would not be surprised to see this Australian dollar rally stagnate, with downside risk in the months to come. Westpac Bank has a ‘fair value’ model for the Australian dollar which suggests the currency should be trading at USD 0.625. 

Were the currency to fall to this level, it would boost the Australian dollar gold price back above AUD 2,750 given an increase of approximately 5% from current levels. 

ETF demand is still strong

Whilst most clients at The Perth Mint prefer to buy their precious metals in physical form, gold ETFs are important to watch, as flows into and out of these products tend to be highly correlated to gold prices.
 
In May 2020, gold ETFs had another strong month of inflows, with more than 100 tonnes of metal being purchased through these products in the three weeks to 22 May (end May data is not yet available). 

Year to date, holdings have risen by 602 tonnes, making 2020 the second strongest calendar year on record for gold ETF demand, even though we are only five months into the year. 

The Perth Mint was again part of this trend, with holdings in its ASX-listed product, Perth Mint Gold (ASX:PMGOLD), rising by almost 4% in May. The product is now backed by more than 6 tonnes of gold and has a market value in excess of AUD 500 million. 

The bond market doesn’t trust the stock market rally 


One interesting development which precious metal investors should pay attention to is the movement, or lack thereof, in US government bond yields since the late March low in equity markets. 

Bond yields have barely budged in the past two months, despite the fact the S&P 500 has had one of its strongest rallies on record over this time period, gaining by more than 30% and reclaiming the 3,000 point mark at the end of last month. 

These performance trends can be seen in the chart below, which highlights US 10-year government bond yields (gold line) and the S&P 500 (red line) on a daily basis across the first five months of 2020.


  
Source: The Perth Mint, US Treasury, investing.com, yahoo finance

In the first three months of the year, equity prices crashed and bond yields fell (ie. bond prices rose) as fears over the spread of COVID-19 spurred investors to dump risky assets in favour of perceived safe havens. 

Across Q1 2020, the US 10-year government bond yield declined from 1.91% to 0.70%, something most market observers would see as natural occurrence given the unprecedented circumstances. 

What is more interesting is the fact that bond yields have not risen during the aforementioned equity market rally from late March onwards. If investors really were 100% convinced that we will find a smooth path out from the COVID-19 crisis, then one would have expected bond yields to increase (ie. prices to fall) over the past two months. Many would also argue that an equity rally of this speed and magnitude should have seen gold fall. 

However, bond yields have remained essentially flat whilst gold prices have risen by almost 20% since late March. This is a telling sign that investors are still concerned about the outlook for economic growth, the risk in equity markets or the potential for higher official inflation to rear its ugly head. 

Should any of those outcomes occur, it will provide ongoing support for precious metal markets. 


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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Chart of the month: Bond yields and foreign exchange rates

Bond yields and foreign exchange (FX) rates are important market drivers of precious metal prices and the returns investors can generate on these investments. 

In this blog post, we are going to look at movements in US and Australian 10-year government bond yields and in the AUDUSD FX rate across the past decade and how they are relevant to gold.

The below chart shows the movements in US (red line) and Australian government (black line) 10-year bond yields from 1999 to 2019.   


 Source: The Perth Mint, Reuters

As you can see, yields have fallen significantly, and are now 88% lower in Australia and 90% lower in the US relative to where they were in 1999. Most of these declines were experienced in the years after the Global Financial Crisis (GFC) hit. 

This fall in bond yields has been one of the factors that has driven the gold price from under USD 300 to more than USD 1,700 per ounce over this time period. Decreasing yields reduce the opportunity cost of investing in gold as the future returns investors can generate from bonds decline when yields fall. 

The second chart looks at both bond yields again, but instead of plotting them individually, it shows the differential, or the spread, between the two. This is the black line on the chart. The chart also displays movements in the AUDUSD over the same time period. 


 Source: The Perth Mint, Reuters

Note the correlation between fluctuations in the yield spread and the AUDUSD FX rate.  

Whenever the black line is rising, it means that the spread between 10-year yields in Australia and the US is growing (meaning bond yields in Australia are getting higher relative to those in the US). This has tended to correlate with a rising Australian dollar. 

Whenever the spread declines (meaning bond yields in Australia are getting closer to those in the US), you tend to see downward pressure on the FX rate, with the AUDUSD falling.
 
The chart displays two key trends over the past 20 years.

From 1999 to 2011 the bond spread increased as the gap between the yield on Australian government bonds relative to the yield available on US government bonds grew. The Australian dollar appreciated alongside this lift in spreads, rising from USD 0.64 in early 2000 to USD 1.10 by 2011.

Since 2011, bond spreads have declined from almost 3% to barely zero today. The Australian dollar has been in a downwards trend in comparison to the US dollar over this time period and is now back at almost the same level it was at the turn of the century.  

Indeed, at one point in early 2018, the spread between Australian and US 10-year government bonds went negative, meaning you earned more by lending to Washington rather than Canberra. 

From an Australian investor perspective there are two key takeaways.

The first is that very low bond yields (in both countries) are likely to be a feature of the financial landscape for a long time given that even 30-year bonds are yielding less than 1.50%. This is likely to support gold demand for years to come. 
 
The second relates to the AUDUSD exchange rate. If it were to follow the spread in yields going forward, then we could see further downside in our local currency as it continues to look expensive based on this metric. Whilst there are no guarantees, were this to happen, it would boost the Australian dollar price of gold. 

From a risk management perspective, many of the Australian investors we deal with at The Perth Mint are happy to have their exposure to gold unhedged in Australian dollars. This is because they see it as currency diversification for their overall wealth, given they typically earn their income in Australian dollars and have exposure to Australian real estate, shares and cash in their portfolio. 



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Why gold can be a low cost investment

Most analysis of gold as an investment looks at its ability to deliver strong long-term returns, its outperformance in low interest rate environments, its ability to protect against inflation, and its hedging qualities whenever stock markets fall.

Another important feature of gold that is worth investors considering is its cost. Note that in this context, when we refer to cost, we aren’t talking about the cost per troy ounce (which has risen by over 10% per annum to over AUD 2,700 per troy ounce in the 15 years to end March 2020), but instead the cost of storing the metal over time.

When looked at in this context, investors will see that gold is a very cost-effective asset class to include in their portfolios, with storage fees that are lower than the management costs of most other asset classes.

As an example, unallocated gold purchased through The Perth Mint has zero storage cost, meaning investors pay a fee to buy and a fee to sell their gold, but no other fee for the duration of their investment, even if they plan to hold it for decades.

By way of comparison, according to an article in Selecting Super, Rainmaker (a research house specialising in superannuation and financial services) estimates that the average Australian pays 1.23% per annum in management and administration fees for their superannuation investments.

Over a decade, the difference in these fees are profound, as you can see in the table below, which is based on a AUD 100,000 investment into either gold or superannuation. Note that the table assumes a 1% cost to buy and a 1% cost to sell gold but zero storage costs for the gold over the 10 years. It also assumes a zero buying and selling fee for superannuation (in practice there can be fees for this), but an annual charge of 1.23% on the superannuation assets.

The assumed gross rate of return for both investments is 8% per annum, with the total differential coming to almost AUD 20,000 over a 10-year period.

Source: The Perth Mint

Another way of looking at the cost-effectiveness of gold is by looking at the exchange traded fund (ETF) market. The following chart highlights the average management expense ratios (MER) for a range of ETFs offering exposure to alternative assets like foreign currency, infrastructure, commodities and global equities. It also shows the average MER of hedge funds based on a detailed survey from Ernst and Young, as well as the MER for PMGOLD, The Perth Mint’s ASX listed gold product.

The chart highlights the fact that at 0.15%, the MER of PMGOLD is very low, less than one third of ETFs as a whole, putting gold at the very low end of the spectrum from a cost perspective.

This is beneficial to the end investor who will get to keep more of the return generated by gold for themselves, rather than paying it away in product fees.

Gold’s low cost, as well as other non-performance related attributes like its high liquidity and accessibility, will continue to drive demand going forward, especially as market pricing suggests we will remain in a low real interest rate environment for years to come.

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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What managed money gold positions might be telling us

Investors who are looking to own precious metals like gold as long-term investments typically access the market in one of three main ways. They either buy physical bars and coins, invest through a depository account, or purchase an exchange traded fund via their stockbroker.

A fourth way to get gold exposure is through futures contracts. Futures contracts are used by many participants in the gold industry and in broader financial markets, with investors either buying gold futures (termed ‘going long’) or selling gold futures (termed ‘going short’).

Futures contracts like those traded on the Chicago Mercantile Exchange (CME), which operates the largest futures markets in the world, are worth 100 ounces of gold. At the end March 2020, the price of gold was USD 1,577.68 per ounce, meaning that each futures contract had a nominal value of USD157,768.

Participants in the gold futures market are typically not interested in taking physical possession of the metal, but instead are using gold to hedge price risk, or to speculate that the metal will increase or decrease in price, in the hope they make a profit from the expected move.

Every week, the Commodity Futures Trading Commission (CFTC) in the United States publishes a report which highlights activity in the futures market, as well as the total number of ‘long’ positions and ‘short’ positions in each commodity.

CFTC reports also break-down long and short positions between different investor types, from commercial entities who use futures to manage risk within their business (for example a mining company or jewellery fabricator), through to speculators, who are simply hoping to make money based on which direction they think the gold price will head.

It is this latter category of speculators, termed ‘managed money’, that is worth paying particular attention too. This is because whilst their activity has an impact on gold prices (as you’ll see below), they often get overextended at or near market inflection points.

This means that if you see a very large build-up in managed money long positions, it could be a warning sign that the gold market needs a breather, with potential for a short-term price correction. At the other end of the spectrum, when you see lots of investors speculating the price will fall, it’s an indicator (though not a guarantee) that the market may be close to bottoming.

What has been happening with managed money gold positions?

The chart below plots managed money gross long and gross short positions from late 2017 through to the end of March 2020. The blue bars represents gross long positions (i.e. the number of investors betting the price will rise), whilst the red bars represents gross short positions (i.e. the number of investors betting the price will fall).

The chart makes it clear that back in mid to late 2018, there was a sizable number of investors betting the price would fall, with the gross short positions numbering over 200,000 contracts. At the same time, there were less than 100,000 gross long positions, emphasising that more investors were betting the price would fall, rather than rise.

It is worth pointing out that back towards the end of Q3 2018, at a time when a record number of speculators thought the gold price would fall, it was trading just below USD 1,200 per ounce. It is almost 40% higher today. 

In the 18 or so months that have passed, the situation with managed money speculators has changed considerably, with gross short positions dropping from over 200,000 to below 20,000 contracts, whilst gross long positions rose from below 100,000 to above 250,000 contracts at one point.

In terms of the impact this has had on the market, consider that from September 2018 through to the end of February 2020, the gold price averaged USD 1,385 per ounce.

If all those speculators that were short gold unwound their positions at this price, it would have equated to just over USD 22 billion of gold buying. If all the speculators that went long gold over this period did it at that average price, it would represent buying of over USD 25 billion.

That is a lot of ‘gold buying’ with this activity playing a key role in the gold price rally over the period, which can see be seen on the black line in the chart above.

Since mid-February 2020, managed money speculators have cut their gross long positions by more than 40%. This means that a substantial amount of froth (or investor overexuberance) has come out of the market in the last two months.

That is a positive development for long-term gold bulls, though of course it does not guarantee prices will rise in the period ahead.

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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Monetary stimulus fuels gold rally

Executive summary

 •  The price of both gold and silver rose by over 8% in April, with gold ending the month above USD 1,700 per troy ounce.

 • In AUD terms, gold and silver rose by just over 1.50%, with the AUD rallying more than 6% in April, ending the month above USD 0.65.

 • Demand for Perth Mint products was strong, with continued inflows into ETFs, and multi-year highs seen for minted coin and bar sales.

 • Share markets rallied more than 10% in the United States and 9% in Australia, with gold again demonstrating its positive correlation to rising equity markets.

Full monthly review – April 2020

Precious metals rallied in April, with the price of both gold and silver increasing by just over 8% in USD terms. Gold finished the month back above USD 1,700 per troy ounce. In AUD terms, gold and silver rose by just over 1.50%, due to the more than 6% rally in the value of our local currency, which ended the month trading back above USD 0.65.

Continued uncertainty regarding the spread of Covid-19 and the negative impact it’s having on the economy (oil prices at one point during the month traded below zero) helped fuel demand for precious metals, with central bank balance sheet expansion another tailwind supporting higher prices.

The performance of precious metals in April occurred alongside a strong rally in equity markets, with the S&P 500 rising by 12.5% during April (it was up 30% from the lows seen in late March), one of its strongest calendar month returns on record.

The ASX 200 in Australia also delivered strong returns, rising by almost 9% in April, with the local bourse up more than 20% from the late March lows through to end April.

That gold has performed so well alongside a rise in equities will have confounded some investors and market commentators, as many see gold as a pure ‘risk-off’ asset, which they only expect to deliver positive returns during periods where equities sell off.

This belief is not supported by historical observation, with the following chart highlighting the average return of gold (in both USD and AUD terms) and the average price return of US and Australian equity markets during the months where equity markets rise, and the months when they fall.

Note that the chart is drawn from almost 50 years of market data, from 1971 to 2019 inclusive, with gold historically delivering positive returns in months where equities have risen.

This is one of the underappreciated qualities of gold in the context of a diversified portfolio, for gold is negatively correlated to equities when they fall, but positively correlated when equities rise. As such, the performance of gold in April, where it rallied alongside an increase in risk assets, very much aligns with historical observation.

Going forward, there is a good chance these trends will strengthen.

After all, the primary driver of the equity market rally since late March was not an improvement in economic fundamentals, but rather the extraordinary expansion of central bank balance sheets. This included the US Federal Reserve which increased its balance sheet by US 840 billion in April alone, with USD 2.4 trillion added to its balance sheet since the beginning of March.

This can be expected to support equities and other risk assets for as long as it continues, but one suspects it will also support gold, as investor concerns about the future purchasing power of fiat currencies continue to build, with gold a historical outperformer in periods of low to negative real interest rates.

Should the recent equity market rally run out of steam, then we’d expect gold to continue finding favour as a defensive asset (as it did during Q1 2020) with vast swathes of the fixed income market already set to generate negative real returns for another decade at a minimum.

The potential for higher inflation would likely increase investor appetite for gold, as it would further reduce real yields should it come to pass. Whilst many would argue that higher inflation is the least of our concerns in a world of cratering aggregate demand, it would be unwise to totally dismiss it as a threat.

Commodity shortages in certain parts of the economy, fragments supply chains, the emerging trend of deglobalization, as well as large scale fiscal and monetary stimulus are fertile breeding ground for a sustained uptick in consumer prices.

Indeed, Bloomberg recently ran an article titled: “Fears mount about inflation returning with a vengeance”, with many well-respected economists and commentators warning about this very threat.

Silver and gold stocks begin to outperform

The gold/silver ratio (GSR) fell during April, ending the month at just over 111. This continued silver’s outperformance in recent weeks, with the GSR ratio peaking at just over 121 on 19th March 2020. Subsequently, silver rallied by just over 25% in USD terms, strongly outperforming gold, with the yellow metal rising by 16% over the same time period.

These movements will be encouraging for many precious metal bulls, as silver’s outperformance, plus the strong rally in gold stocks (GDX, the ETF that tracks large-cap gold miners rallied by 70% from 13th March through to the end of April) suggesting that more capital is gravitating towards precious metals as an asset class.

Robust investment demand

Demand for gold among investors remained strong, with sales figures for The Perth Mint at or near their highest levels across a range of products. In April 2020, investors bought just over 120,000 troy ounces of gold in minted product form, which is three times the monthly average dating back to 2012. Demand for silver was also strong, with over 2.1 million troy ounces sold in minted product form, the highest monthly figure in almost five years.

In the gold ETF space, April saw continued inflows, with preliminary data suggesting almost 150 tonnes of gold had flowed into these products in the first three weeks of April alone. This continues an incredibly strong run for global gold ETF demand in 2020, with inflows in Q1 of 298 tonnes, the third highest calendar quarter on record. The Perth Mint saw this demand first hand, with holdings in our ASX listed product (ASX: PMGOLD) continuing to increase, with total holdings increasing by over 40% since the start of 2020.

Central banks also remained active in the gold space, with data from the World Gold Council suggesting they added 145 tonnes to their gold holdings in Q1 2020. Central bank acquisitions are expected to decline further as we progress through 2020, with Russia (which has added more than 1,900 tonnes to its gold reserves since 2005) stating that it will halt purchases of gold bullion for now.

Are investors too optimistic on gold?

The rally that has taken place in gold over the last 18 months, and the deteriorating economic conditions that has helped fuel it, has put the yellow metal back on many investors radar, with an increasing number of people seeing the yellow metal as a core asset to hold in their portfolios.

Despite this, we are a long way from seeing overexuberance amongst the broader investing public. This was demonstrated by a recent Gallup poll that asked American investors which asset class they thought was the best long-term investment, with respondents asked to pick between real estate, bonds, gold, stocks/mutual funds, or saving accounts/certificates of deposit.

The poll suggested that only 16% of Americans thought gold was the best long-term investment. This number has barely changed since 2016, even though gold has rallied over 50% since then.

It is also less than half the number of investors who chose gold as the best long-term investment back in 2011, when the price hit an all-time high above USD 1,900 per troy ounce.

The trends in which asset classes American investors trust most can be seen in the chart below, with the popularity of gold and real estate in 2020 practically mirror images of where they were nine years ago.

Many investors will see this as an encouraging sign. The last time gold was exceptionally popular, it almost perfectly coincided with a bull market top, with prices then falling by 45% in USD terms over the next four years from late 2011 to late 2015. 

Market commentators are also getting more bullish, with Bank of America, for example, releasing a report in April 2020 titled: “The Fed can’t print gold”, which forecast that the gold price could head as high as USD 3,000 per troy ounce within 18 months.

The Bank of America report noted that economic output was set to contract sharply, and that this contraction, combined with a large increase in fiscal deficits and the expansion of central bank balance sheets would see investors “aim for gold”.

Whilst that forecast is at the very bullish end of the forecasting spectrum, there seems little doubt that uncertainty is here to stay.

For as long as investors remain fearful about Covid-19 itself, the outlook for economic growth, or the potential for inflation to rise, we’d expect gold demand, and therefore gold prices, to remain supported.

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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