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Monthly Sales – May 2020

Topics [ Monthly Sales ]

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

  - Gold (Au): 63,393 oz

 - Silver (Ag): 997,171 oz

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

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

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

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

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

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

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

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

We explore these below.

Key similarities between COVID-19 and the GFC

1. Gold price movements 

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

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

2. Demand for the precious metal

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

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

3. Managed money activity 

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

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

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

4. Equity valuations

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

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

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

Differences between COVID-19 and the GFC

1. Health crisis complicates path forward

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

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

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

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

2. Debt levels 

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

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

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

3. Lower yields 

Yields are much lower now relative to the GFC. 

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

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

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

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

4. Monetary and fiscal policy more expansive

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

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

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

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

5. Supply chain issues and trade uncertainty

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

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

6. Commodity prices are much cheaper

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

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

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

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

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

7. Social impacts

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

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


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

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

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

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

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

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

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. 

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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Perth Mint Gold: Monthly holdings report – May 2020

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

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


Source: The Perth Mint, ASX, Reuters

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

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

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

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