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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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The Perth Mint announces early release of iconic Australian Kangaroo silver bullion coin

Topics [ Australian Kangaroo buy silver bullion online buy silver coins ]

We are pleased to announce that the 2020 silver kangaroo bullion coin is available for sale from The Perth Mint today, Friday 20 September. 

While the Australian Kangaroo gold bullion coin has been released annually since 1989, it was not introduced in silver until 2015. In the four years since, The Perth Mint has sold more than 26 million 1oz silver bullion coins worldwide. 

In keeping with tradition, this year’s silver issue depicts a representation of Stuart Devlin’s red kangaroo, a much-admired portrayal created for the Mint by the Queen’s former goldsmith in 1989.
 

The Perth Mint's 2020 Australian Kangaroo 1oz Silver Bullion Coin is now available.

Originally slated for release on 4 November 2019, the 2020 Australian Kangaroo 1oz Silver Bullion Coin has been introduced early due to strong demand for remaining stocks of the 2019 release which are now almost exhausted.

The 2020 Australian Kangaroo gold and platinum bullion range will be available for purchase from the previously-announced release date.


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Who owns the world's gold?

Topics [ gold market gold analysis gold trading gold ]

USD 9.3 trillion: That’s the estimated market value of all the gold ever mined, just over 190,000 tonnes, based on an end of August 2019 gold price of USD 1,528.40 per troy ounce.
(Source: LBMA PM Gold Price

The owners of this gold fall into four broad categories:

Jewellery Buyers - This is the largest category of demand, accounting for almost 50% of gold ownership. Jewellery demand is predominantly driven by rising real incomes in Asia and the Middle East, where gold is seen as a form of wearable wealth.

Central Banks - Central banks own gold as part of their foreign exchange reserves. Collectively, central banks around the world own more than 30,000 tonnes of gold.

Investors - Investors buy gold in physical bar and coin form, as well as through depository services, such as those offered by The Perth Mint, and via Exchange Traded Products. It is estimated that in excess of 40,000 tonnes of gold are held by private investors worldwide.

Industrial Users - Gold is used in a range of industries from medicine and electronics to space technology. Industrial users are estimated to own more than 25,000 tonnes of gold.



Who buys gold now?

The annual GFMS Gold Survey offers a great insight into gold demand trends. In 2018, purchases of gold were as follows:

  • Jewellery demand was 2,129 tonnes
  • Bar and coin demand was 1024 tonnes
  • Central banks made net purchases of 536 tonnes
  • Industrial fabricators purchased 391 tonnes
  • Net flows into gold ETFs totalled 59 tonnes


Demand across the first eight months of 2019 has been driven by central banks, which continue to diversify away from the US dollar. This trend was perhaps best summarised by an August 27 Bloomberg article, Central Banks Just Love Gold and It’s Going to Stay That Way. The article focused on a report by Australian and New Zealand Banking Group (ANZ) which estimates net buying of gold by central banks will be more than 650 tonnes this year.

There is also increasing demand for gold ETFs which have built total holdings back towards 2013 levels.



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Why do investors turn to gold in low interest rate environments?

Topics [ gold market buy gold ]

Much of the developed world, including Australia, has experienced low interest rates since 2009 when monetary authorities introduced cuts to stimulate economic growth following the global financial crisis. 

In Australia, interest rates reached a record low this year when the reserve bank reduced its cash rate to just 1.00% in July. 

The decision to leave this rate unchanged in August and September on the back of continued uncertainty about the world economy has suggested interest rates will remain low for the foreseeable future.

Indeed, market predictors expect the Reserve Bank of Australia (RBA) to cut rates further to just 0.75% before the end of 2019.

What does this mean for investors?

In today’s low interest rate environment one of the most topical issues for many investors is what to do with their cash holdings. 

With 56% of Australian investors holding cash, according to Australian Tax Office data, this issue will have been brought into sharp focus for many. 

Given the latest set of Australian inflation data suggests prices across the nation are rising at 1.60% per annum, much of the money sitting in cash is losing value once real interest rates are considered. 

Real cash rates are calculated by subtracting the official inflation figure from the RBA cash rate. As an example, with the RBA cash rate at 1%, and annual inflation currently at 1.60% per annum, the real cash rate is -0.6%. 

Moreover, the fact that 10 to 15-year Australian government bonds yield between 1.25% and 1.50% suggests this period of low returns on cash or cash-like assets may well continue for another decade or more. 

In such an environment many investors are considering gold as a safe haven thanks to the asset’s historical outperformance when interest rates are low. 

Real cash rates and gold

More than 45 years of market history tells us gold has typically delivered strong returns when real rates have been low. 

In Australia between 1971 and 2018 there have been 27 years when real cash rates were 2% or higher and 21 years when they were 2% or lower. 

The table below highlights the returns on cash and gold, in both nominal and real terms, during these periods. 

Real cash rates between 1971 and 2018




Source: The Perth Mint, Australian Bureau of Statistics 

As can be seen, in environments where the real cash rate was above 2%, gold rose in nominal terms by an average of 4.32%. It therefore underperformed cash, which during these times rose by an average of more than 9%. 

However, in years when the real cash rate was below 2%, the price of gold rose by more than 20% in nominal terms and by almost 14% in real terms. Additionally, it rose during 18 of the 21 years when the real cash rate was below 2%. 

Gold has not only performed strongly in absolute terms when real cash rates have been low, but on a relative basis as well. The yellow metal outperformed both stocks and bonds during the years when real cash rates were below 2%. 

This can be seen in the graph below, which plots the nominal and real returns for Australian stocks, bonds and gold during years when real cash rates were below 2%. 

Australian asset class returns when real rates are below 2%



Source: The Perth Mint, Australian Bureau of Statistics

It should be no surprise that gold would perform so well during periods when real cash rates have been low for two key reasons: 

1. Low or even negative real cash rates are typically only implemented as a form of monetary stimulus when the economy is weak or softening. In such environments it’s natural that investors adopt a more defensive approach by seeking out safe haven assets such as gold. 

2. If the real rates one can earn from cash or short-term bonds are low, or even negative, the opportunity cost of investing in gold is significantly reduced.

It therefore makes sense that historically no other single, easily accessible traditional asset has delivered higher returns than gold in environments where real cash interest rates have been low. 


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The centenary of the first London gold price

Topics [ gold market investment buy gold ]

12 September 2019 marks the centenary of the first gold price, or what is now known as the LBMA Gold Price. To mark this momentous occasion LBMA are planning a series of celebratory events during 2019. This article first appeared in Alchemist magazine as the first of four from Alered Connelly, PR Officer at LBMA, which draw on his academic analysis of the gold price over the last 100 years.

A brief history

On 12 September 1919, the Bank of England made arrangements with NM Rothschild & Sons for the formation of a free gold market and the establishment of a daily gold price. 

The first “fixing” took place at 11am when the price of gold was settled at £4 18 s 9d by the five founding members: NM Rothschild & Sons (chair), Mocatta & Goldsmid, Pixley & Abell, Samuel Montagu & Co. and Sharps Wilkins. The bids were made by telephone for the first few days, but it was then decided to hold a formal meeting at New Court, the London offices of NM Rothschild & Sons. 

The original members of the Fixing were all historically linked with the gold market in London. Mocatta & Goldsmid dated back to the early origins of the market in the late 1600s, when it became silver broker to the Bank of England, at a time when London was usurping Amsterdam as the international centre for the gold market. 

In the late 18th century and early 19th century, Mayer Amschel Rothschild rose to become one of Europe’s most powerful bankers and it was his third son, Nathan Mayer Rothschild, who founded NM Rothschild & Sons in London in 1811. As gold began to pour into London from the gold rushes, first from California and then Australia, Pixley & Abell was set up in 1852, swiftly followed by Samuel Montagu in 1853. 

In the intervening years, mergers have seen Pixley & Abell and Sharps & Wilkins in 1957 form Sharps Pixley, which is still in existence to this day, and Samuel Montagu become part of the private banking service of HSBC. 

As we reflect on the last 100 years of the gold price, we equally look forward to the next 100 years. Today, it continues to be set in London and remains the international benchmark price for the gold market. However, over the years it has evolved and modernised. One of the most significant changes was on 1 April, 1968 when the price changed from sterling to dollars and took place twice a day. 


More recently in 2015 responsibility for the administration and governance of the price was transferred to an independent administrator, ICE Benchmark Administration who have also established an external oversight committee to assist them in ensuring the effective governance of what is a transparent, trusted and tradable process. 

The auction provides the opportunity to buy or sell precious metals via a transparent electronic platform. Everyone can see the same, publicly available information at the same time - providing a level playing field to all participants. The administrator monitors the benchmark settings before during and after the process to ensure its integrity. 

The tradable reference price is used by miners, refiners, central banks, investors, traders and fabricators around the globe. The auction is centrally cleared which allows a broad range of firms to become Direct Participants. Currently there are now 13 direct participants rather than just the original five, including Chinese banks. 




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Precious metal prices continue to climb

Topics [ invest in gold ]


August 2019 update

August was another solid month for precious metal investors, with the price of gold rising by just over 7.5% in USD terms. The Australian dollar gold price closed the month above AUD 2,250.00 per troy ounce, up more than 9% for the month.

Silver investors fared even better, with the price rising by almost 13% in USD terms, while silver priced in Australian dollars closed the month above AUD 27.00 per troy ounce. 

The strong performance for August continues what has been a positive year for precious metals bulls, with gold and silver up 36% and 26% respectively. The precious metals have strongly outperformed risk assets such as shares, with the ASX 200 and S&P 500 up just 4% and 1% respectively over the same time.

What’s driving the gold price?

The drivers of the gold price over the past year are now well established.

First is safe haven buying as recession fears around the world intensify. The uncertainty has been driven by the continued escalation of the US-China trade war and the recent inversion of the US yield curve.  Historically a very reliable recession indicator, an inverted yield curve occurs when long-term interest rates are lower than short-term interest rates.

The continued plunge in global bond yields is also driving demand for gold. In August, the market value of negative yielding debt rose beyond USD 17 trillion, with 30% of all investment grade securities now having yields below zero.

Given gold now has a higher yield than all these negative yielding bonds (and carries no credit risk) it is no surprise that it has benefitted from the rapid decline in global bond yields. In Australia, for example, the 10-year government bond yield has dropped by 65% over the past year.

Central banks also continue to be active in the gold market, buying more than 220 tonnes of gold in Q2 2019. That is a 47% increase on Q2 2018, with central banks on track to purchase more than 650 tonnes this year, according to recent research released by ANZ Bank.

What happens next?


After such a large rally in the gold price over the past year, a period of consolidation would not be unusual. No market goes up (or down) in a straight line, with some volatility along the way to be expected, especially in the short term.

Two indicators worth monitoring are managed money positioning in the futures market and the gold to silver ratio (GSR).

Below we share our thoughts on what these indicators are telling us and share two charts that help illustrate current conditions in precious metals markets.

Managed money positioning in effect represents the bets that shorter term traders such as hedge funds have made in the gold futures market. Managed money participants can and will bet that the gold price is going up or down based on their view of the market.

The chart below shows gross long positions (blue shaded area) and gross short positions (red shaded area) from 2009 to today. These positions effectively represent how many bets have been made that the price will rise (longs) and how many bets have been made the price will fall (shorts). You can also see movements in the gold price in USD terms over the same time period on the chart.

The chart is telling us that over the past year those betting the gold price will fall have drastically wound back their positioning, reducing them from almost 200,000 futures contracts to barely 20,000 today.

On the long side, those betting that the price will rise have significantly increased their exposure. Gross long exposure is now back at levels seen in the aftermath of the Brexit vote and the 2016 US Presidential election. 

Managed money participants are bullish on gold, some would say exuberantly so, and their actions have been a major contributor to the rise in the gold price of gold over the past 12 months.

The second indicator we mentioned, the GSR, can be seen in the chart below. It highlights movements in the GSR (the crimson line on the chart) from December 1999 to the end of August 2018, as well as a long-run average (black line). The chart also shows the movement in the USD price of gold over the same time period (gold line). 



As you can see the GSR is currently falling, approaching 80:1, which means silver is outperforming gold. Many will interpret this as a signal that the current precious metals bull market has longer to run as previous periods of silver outperformance (2002 to 2006 and late 2008 to 2011) coincided with strong rises in the price of precious metals.

Outlook for gold still bright


Though we are cautious about the outlook for prices in the short-term, we remain confident in the outlook for gold in the years ahead. Going forward we expect investment demand for gold to be supported by many factors including:

Despite their recent volatility, many share markets are still trading at or near all-time highs. Given gold has a long track record of outperforming when share markets decline, we expect demand to be bolstered by investors seeking a hedge against equity market declines.

Continued recession fears are not likely to abate any time soon, with recent global manufacturing data from JP Morgan indicating a global slowdown is underway. This will continue to boost safe haven demand for gold.

Cash rates are still likely to fall in the coming months, with markets expecting another rate cut by the US Federal Reserve in September. In Australia, markets expect the local cash rate to be cut to just 0.50% by May 2020. Low rates can be expected to support gold demand given they reduce the opportunity cost of investing in the yellow metal.

Add all these factors together and it is easy to understand why astute investors are likely to continue incorporating an allocation to gold as part of a diversified portfolio in the years ahead.

Jordan Eliseo
Senior Investment Manager
The Perth Mint
9 September 2019

Sources

JP Morgan Global Manufacturing
https://www.markiteconomics.com/Public/Home/PressRelease/cd5ff69a25e34fb29f365f8c87d5ed5d

Central Banks and Gold
https://centralbankgold.org/gold-reserve-asset
https://www.bloomberg.com/news/articles/2019-08-27/central-bankers-new-found-love-of-gold-seen-bolstering-demand

Negative Yields
https://www.livewiremarkets.com/wires/the-bizarre-world-of-negative-interest-rates
https://www.bloomberg.com/graphics/negative-yield-bonds/

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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Mouse leads the pack in new Australian Lunar Bullion Series III

The Perth Mint is proud to launch its third Australian Lunar Bullion Coin Series with the release of superbly crafted precious metal coins honouring the first animal in the Chinese zodiac, the mouse. Available from today, this prestigious series incorporates a new initiative with the release of the first ever platinum lunar coin.

Dating back to 1995, the Australian Lunar Bullion Coin Series was the first major coin program to celebrate the ancient Chinese lunar calendar. Mimicked many times, it retains its reputation as the highest quality lunar coin offering in the world.

This is reflected in the success of the Australian Lunar Bullion Series II, which sold out each of its 1oz gold and silver denominations. Available each year in limited mintages, this achievement represented a total of 3.6 million ounces of pure silver and 360,000oz of pure gold acquired by investors between 2008 and 2019.

With the program’s enduring popularity this feat is expected to be repeated with the release of 2020 Year of the Mouse 1oz gold, silver and now, for the first time, platinum lunar bullion coins.



The 2020-dated coins feature naturalistic portrayals of mice foraging among stalks of wheat on the gold and platinum coins, and on husks of corn on the silver coins. Both charming designs incorporate the Chinese character for ‘mouse’ in a contemporary style.

Also available in several alternative weights, the Australian Lunar Bullion Coin Series III delivers an expanding range of options for the modern investor while upholding its reputation for unsurpassed quality, outstanding value and complete assurance.

Buyers of 2020 Year of the Mouse 1oz bullion coins are urged to act quickly to secure the limited releases of 30,000 gold, 300,000 silver and just 5,000 platinum.



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