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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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Metals rally as Federal Reserve eases again

Summary

Precious metal prices rallied in October, led by silver which rose by more than 6.5% in US dollar terms
Gains for Australian investors were moderate due to the increase in the AUD
Global gold ETF holdings continued to grow, rising by more than 2% for the month
New research highlights long-term demand for gold will be supported by low-to-negative yields on fixed income investments

Risks in equity markets and pessimism among US company CEOs support role of gold as a risk hedge in current market environment


Full monthly review - October 2019

October was a positive month for US gold and silver prices with the precious metals rising 2.77% and 6.65% respectively. Returns for Australian dollar (AUD) investors were also favourable, with silver up by 4.34% and gold 0.61% in local currency terms.

The more modest returns seen by Australian investors can be attributed to the increase in value of the AUD which closed the month trading just below USD 0.69. This occurred despite the widely anticipated interest rate cut by the Reserve Bank of Australia, which reduced the local cash rate to a new all-time low of just 0.75% in early October. Long-term government bond yields in Australia rose across the month which contributed to the rise in the AUD.

The AUD wasn’t the only currency to gain during October. The USD lost more than 2% of its value against several key currencies, as measured by the USD index. 

The weakness in the dollar was driven by a number of factors including ongoing trade tensions between the United States and China, and the 0.25% interest rate cut delivered by the US Federal Reserve in late October. This brought the US federal funds rate target range down to 1.50–1.75%.

ETF flows positive

October saw another positive month for global gold ETF flows, with preliminary estimates based on Reuters data suggesting global gold ETFs increased holdings by more than 2%. 

As has been the case for much of the last 12 months, demand in Australia was particularly strong. This is evidenced through the growth of The Perth Mint’s own ASX-listed gold product (ticker: PMGOLD) which saw a more than 4% increase in the size of its holdings in October alone. 

The product has grown by 40% in the past year, more than double the global average, as Australian investors allocate capital to precious metals.

Long-term drivers in place

One of the likely long-term drivers for gold will be the extremely limited-to-negative real returns available in traditionally safe, fixed-income assets such as government bonds. 

In the early 1980s, investors in the United States and Australia could earn yields of more than 15% by investing in longer-term government bonds. Returns have been falling ever since, driven by one of the greatest bond bull markets in recorded human history. 

The movement in the United States bond market across the past four decades has been so extreme that, according to a late October 2019 research report from the World Gold Council (WGC), the bond market now has:

More than USD 13 trillion in negative yielding debt globally
Negative real yields for the vast majority of developed market sovereign debt
Negative nominal yields for 26% of developed market sovereign debt

Titled Investment update: It may be time to replace bonds with gold, the WGC report noted that considering the yield environment investors face today, institutional asset managers may benefit from increasing the gold allocations within their portfolios. Specifically, the WGC stated that “for a hypothetical average pension fund portfolio, the optimal allocation (to gold) with the maximum risk-adjusted return increases from 4.2% to 6.6%”.

The research also highlighted gold’s historically strong performance in low real interest rate environments, with WGC findings indicating that gold priced in USD has on average delivered annual gains of 15% when real rates were below zero. 

This WGC data aligns with research undertaken by The Perth Mint as presented at the recent investor seminar ‘Gold: Why, How, Now’.

The below chart shows the annual average nominal return for gold priced in Australian dollars, as well as Australian stocks and bonds, in years where Australian real interest rates were below 2% between 1971 and 2018. 


Annual average performance (%) when real interest rates below 2%
1971 to 2018

Annual average performance when real interest rates below 2% 1971 to 2018

Source: The Perth Mint, SMSF Whitepaper July 2019

As the chart highlights, gold not only delivered strong average annual gains of more than 20%, but it also comfortably outperformed stocks and bonds in these years.

Based on data from leading superannuation company Chant West, the chart below shows the average performance of Conservative, Growth and All Growth superannuation strategies in calendar quarters that saw these portfolio values decline. The research covers data gathered between the early 1990s and June 2019. 

The chart also highlights the average performance of bonds and gold in those same quarters.

Performance (%) during quarters where superannuation strategies declined

Performance during quarters where superannuation strategies declined

Source: The Perth Mint, Chant West

The data found an average performance gap of 9.65% between gold and the superannuation strategy that declined in value, and 2.63% between gold and bonds, evidence of the benefits gold can bring to an institutionally managed portfolio. 

Gold has two additional attributes worth mentioning in the context of the above findings. Unlike the bond market, gold has no credit or long-term inflation risk. Both of these risks impact fixed income investments to one degree or another. 

These qualities unique to gold are likely to become more relevant to institutional asset managers in the years to come, especially if official consumer price inflation readings –  which today are at the lower end of their historical ranges across much of the developed world – end up rising back toward their long-term averages. 

Taken as a whole, the findings contained in the charts and WGC research discussed above bode well for institutional gold demand in the years ahead. 

Economic and market risk factors still present

Gold is expected to continue to find favour among investors looking to hedge against equity market and economic risk. While the S&P 500 hit new all-time highs in late October and remains supported by monetary tailwinds, there is no shortage of risk factors for investors to navigate. Examples of this include:


A recent Bank of America Merrill Lynch update which suggested long-term profit growth forecasts have tumbled in the US
Recent CEO Confidence surveys indicating a pessimistic outlook, with CEO confidence plunging to levels that coincided with the beginning of the last four recessions in the US.
A plethora of profitless IPOs entering the market, with research suggesting more than 80% of IPOs in 2018 were for companies that were losing money. That’s the highest number since the tech bubble in 1999–2000.


In addition to the above, the seemingly unstoppable rise of stock buybacks in the US are on track to top USD 900 billion in 2019 according to current estimates. 

These buybacks, of which USD 5 trillion took place between 2009 to 2018, have been an important driver of earnings per share growth and the rise in the stock market across the past 10 years. 

Going forward however they represent a barrier to growth. Every dollar paid back to shareholders through buybacks, as well as through dividend payments, is a dollar that companies by definition cannot invest in their own enterprise. 

Short term, these factors do little to protect gold investors from the volatility inherent in highly liquid assets however medium-to-long term they may enhance the case for gold in a well-diversified 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.

Articles referenced

Record buybacks of US stock
https://www.livewiremarkets.com/wires/the-unintended-consequences-of-ultra-low-interest-rates

S&P 500 hits all-time highs
https://edition.cnn.com/2019/10/28/investing/sp-500-dow-stock-market-today/index.html

The outlook gap – chart of CEO confidence
https://blog.evergreengavekal.com/the-outlook-gap/

Bank of America Merrill Lynch chart on profit expectations
https://www.zerohedge.com/markets/gold-bonds-stocks-rally-dollar-dives-trade-hope-fedspeak

Profitless IPOs
https://stansberryresearch.com/articles/the-ipo-frenzy-rolls-on-2/



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Perth Mint Gold (ticker: PMGOLD) hits four tonnes in holdings

Topics [ PMGold Perth Mint Gold ]

This year has been a prosperous time for gold investors, with prices rising by almost 30% in the 12 months to end October 2019. The price also topped AUD 2,000 per troy ounce for the first time ever.

The increase in the gold price, which has been driven by multiple factors including three interest rate cuts by the Reserve Bank of Australia, has led to a notable rise in demand for gold across The Perth Mint’s range of investment products.

This includes The Perth Mint’s ASX listed gold product, ticker: PMGOLD. On Monday 4 November, PMGOLD reached 4 tonnes in total gold holdings, with the market value of the product now in excess of AUD 275 million. This is a direct result of the huge inflows we’ve seen into the product this year and the rise in the gold price.

Designed to track the price of gold in Australian dollars, PMGOLD can be bought and sold like a regular share, which makes it highly accessible to any Australian investor with a brokerage account. Each unit of PMGOLD represents 1/100th of a troy ounce of gold, with the physical gold which backs the product stored at The Perth Mint.

Unique in the market, PMGOLD offers a number of features making it particularly attractive to Australian investors. These include:

 • A management fee of only 0.15%, making it the lowest cost gold product on the ASX;

 • A government guarantee on the gold backing each unit, making it a trusted investment option; and

 • A redemption process whereby investments in PMGOLD may be exchanged for physical Perth Mint gold products such as bars and coins, which are deliverable upon request anywhere in Australia.

If you already trade shares, PMGOLD is a very easy way to incorporate gold into your portfolio. You can find out more about PMGOLD by downloading the latest fact sheet here.

Perth Mint research makes case for gold

Supporting the case for precious metal investment today is the historical outperformance of gold in low real interest rate environments.

Exclusive research conducted by The Perth Mint, which looks at the performance of various Australian asset classes between 1971 and 2018 found that gold outperformed both stocks and bonds in years where real interest rates were 2% or lower, with an annual average return of just over 20%.

These findings are highly relevant for all Australian investors given real interest rates are already negative today, with yields on longer term government bonds indicating we may be in low interest rate environment for at least another decade.

You can read this research in full here

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 releases 2020 Australian Kangaroo gold bullion coins featuring new design

Topics [ Australian Kangaroo gold bullion coins ]

The Australian Kangaroo is a world-renowned bullion coin series trusted by investors for more than three decades.

A key reason the coins are so highly regarded is because The Perth Mint operates under an explicit guarantee from the Government of Western Australia which covers fully all our offerings and obligations.

As a result, investors are assured of the purity and precise weight of every coin issued.

New design for 2020 gold coins

Unique among the world’s leading gold bullion coin programs, the Australian Kangaroo Gold Bullion Coin Series offers new designs annually. The 2020 releases portray two kangaroos among native grass trees on the highly popular 1oz denomination and limited edition 1/2oz, 1/4oz and 1/10oz versions.

The latter coins, often referred to as ‘fractionals’, enable investors to acquire affordable amounts of gold and, when required, sell convenient portions of their overall physical gold holdings.

At the opposite end of the spectrum, the series includes the well-known ‘Red Kangaroo’ 1 kilo coin, a highly cost-effective offering for larger buyers.

Struck from 99.99% pure gold and issued as Australian legal tender, the 2020 Series is available from today through The Perth Mint and our international network of authorised bullion distributors.

Buyers wishing to purchase direct from the Mint are invited to attend our Bullion Trading Room in East Perth or telephone the Bullion Call Centre on 1300 201 112 or +61 8 9421 7218.

Registered clients (or those wishing to register to buy online) should visit the Mint’s bullion sales site.



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Monthly Sales – October 2019

Topics [ Monthly sales figures ]

Total ounces of gold and silver sold by The Perth Mint in October 2019 as coins and minted bars:

  - Gold (Au): 32,469 oz

  - Silver (Ag): 1,394,615 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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