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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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Central bank gold holdings across the past decade

Topics [ market analysis gold market gold investment ]

As of September 2020, central banks collectively held just over 35,000 tonnes of gold. At a US dollar (USD) gold price of 1,909.35 per troy ounce*, these holdings were worth more than USD 2.15 trillion.

Since the Global Financial Crisis (GFC) hit just over a decade ago, central banks have added to their holdings each year as net buyers of gold. The chart below highlights net purchases on a calendar year basis from 2010 to 2019 and in the first six months of 2020.

Central bank net gold purchases (tonnes) – 2010 to 2020

 
Source: The Perth Mint, World Gold Council

Over this 10 and a half-year period, central banks have purchased more than 5,000 tonnes of gold. 2018 and 2019 were particularly strong years, with over 650 tonnes bought in each.

To put those figures into context, net purchases in 2018 and 2019 were higher than any previous calendar year purchase since the 1970s. 

Emerging market nations have been primarily responsible for the rise in central bank holdings, with Russia, China, Turkey, Kazakhstan, Poland, Mexico, India, Iraq, Thailand, the Philippines, Brazil, Jordan, Hungary and a handful of other nations building their gold reserves since 2010.  

Why do central banks own gold?


According to a 2020 survey by the World Gold Council, central banks hold gold as part of their reserve assets for many reasons, not least of which is its historical position as a premier monetary asset. 

Other reasons given include:

 • Gold is seen as a long-term store of value.

 • Gold is trusted as an asset that will perform well during times of crisis.

 • Gold has no default risk.

 • Gold is seen an effective portfolio diversifier.

 • Gold is a highly liquid asset.

 • Gold can be valuable collateral.

Will central banks continue to invest in gold?

Whilst there are no certainties, it seems that on aggregate central banks will continue to build their gold holdings in the years to come.

There are several reasons for this, including heightened geopolitical risks in the market today, and the lack of real yield available in both short- and long-term fixed income securities.

It is also worth noting that whilst developed market central banks have large gold holdings, both in terms of total tonnage and the share of reserve assets, emerging markets are still playing catch up. 

This can be seen in the table below, which shows the total amount of gold and share of reserve assets held by developed market central banks in the USA, Germany, France and Italy. These numbers are compared to those of Brazil, Russia, India and China (known as the BRIC nations). 

Source: The Perth Mint, World Gold Council

In terms of total tonnes of gold, at just over 1,200 tonnes on average, the BRIC nations hold barely a quarter of the average gold holdings of the USA, Germany, Italy and France. The disparity is even greater when one looks at gold holdings as a percentage of reserve assets. 

Given the geopolitical and monetary environment the world finds itself in today, the gap seen in the table above may well continue to narrow in the years ahead. 

Jordan Eliseo
Manager – Listed Products and Investment Research
The Perth Mint

23 September 2020

*LBMA PM gold price on 21 September.

References

Why the world’s central banks hold gold – in their own words, Bullion Star 
2020 Central Bank Gold Reserve Survey, World Gold Council



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AVAILABLE NOW - 2021 Year of the Ox bullion coins


As the first major mint in the world to celebrate the 12 animals of the ancient Chinese lunar calendar, we are pleased to continue Series III of the world-renowned Australian Lunar coin program in gold, silver and platinum.

Available from today, our 2021 coins welcome the Year of the Ox - an animal believed to inspire honesty, reliability and leadership qualities in all those born under its legendary influence.

Four ways to buy your 2021 Australian Lunar Bullion Coins

The following options exist for buyers of the 2021 Australian Lunar Bullion Coin Program:

1. Bullion Trading Room

Buy and pick up in-store from the Bullion Trading Room, 310 Hay Street, East Perth, seven days a week 9am and 5pm AWST. [Normal opening hours subject to alteration during COVID-19. Please check for current status.]

2. Bullion sales website

Eligible customers can register at perthmintbullion.com to order online from the comfort and convenience of their own home between 8.30am and 5pm AWST.

3. Bullion call centre

Order through a Customer Services Officer on 1300 201 112 or +61 8 9421 7218 between Monday and Friday between 8.30am and 5pm AWST.

4. Authorised distributors

Contact your local authorised Perth Mint distributor in Australia/New Zealand, Asia, United States, Canada or Europe.



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New USD record gold price in August

Topics [ market analysis gold investment Market update ]

Gold prices hit a record high above USD 2,000 per troy ounce in August 2020. Expensive financial markets, negative real yields and the ongoing threat from COVID-19 continues to drive demand as a growing number of investors include the precious metal in their portfolio.


Executive summary

•  The gold price in US dollars (USD) closed above 2,000 per troy ounce for the first time in history in early August 2020.

•  Despite the record high, gold ended the month trading at USD 1,967 per troy ounce, essentially unchanged for the month.

•  The Australian dollar (AUD) gold price finished August trading below AUD 2,700 per troy ounce, down 2% for the month due to continued strength in the AUD.

•  Risk assets continued to rally last month, with the S&P 500 hitting new all-time highs and recording its strongest return for August in more than 30 years. 

•  ETF gold holdings continued to rise, though the rates of acquisition slowed relative to demand seen earlier in the year.

Full monthly review – July 2020 

Gold prices hit an all-time high in nominal terms in August 2020, closing above USD 2,000 per ounce for the first time on 5 August. The precious metal was unable to maintain this momentum despite the continued decline in real yields, with gold finishing the month at USD 1,967 per troy ounce, essentially unchanged throughout August.

Silver continued to rally, ending August above USD 28 per troy ounce and recording a 16% increase for the month. From the lows seen in March this year, silver has now doubled in price in USD terms. This is reflected in the gold to silver ratio now having declined from more than 110 at the end of February 2020 to below 70 by the end of August.

While gold and silver have been receiving plenty of media attention, the real action in August was seen in equity markets as share prices of market darlings like Tesla soared. 

August 2020 also saw Apple become a USD 2 trillion company, doubling its valuation in barely two years as investors go all-in on technology stocks. Although some of the companies enjoying rapid price gains are true economic powerhouses, the broader froth in this sector, and the multiples of earnings investors are willing to pay, is reminiscent of the bubble in the NASDAQ seen almost 20 years ago. 

That NASDAQ bubble of course ultimately burst, with the peak in that cycle almost perfectly coinciding with the beginning of the now two decade-long secular bull market in gold. 

We discuss the equity market rally and the challenge it poses for investors below. We also examine other key developments in the economy, and in precious metals and investment markets, during August 2020. 


Federal Reserve announces strategy change at Jackson Hole

The highlight of the economic calendar in August was the annual economic policy symposium hosted by the Federal Reserve at Jackson Hole. 

This year, in a move widely anticipated by financial markets, Federal Reserve Chairman Jerome Powell updated the monetary policy framework of the Federal Reserve, releasing a new Statement on Longer-run Goals and Monetary Policy Strategy.

The key to this, in the eyes of the market at least, is the adoption of what is being called ‘average inflation targeting’. Going forward, The Federal Reserve will be happy to see inflation run at more than 2% per annum (which is still its preferred inflation rate over the long run), to make up for years where inflation rates have been less than 2%. 

This move helped drive a continued decline in the value of the USD, which fell another 1.44% (based on the USD index) in August following a 4% decline in July. 


Australian dollar continues to rally
 

The rally in the AUD continued during August, rising by almost 2%. 

Ending the month trading at more than USD 0.735, the AUD has now increased by over 30% since the lows in the middle of March, when it was trading closer to USD 0.55.

Had the currency remained at the levels seen in March, the AUD gold price would now be trading above 3,500 per troy ounce, which is almost AUD 800 per troy ounce higher than where it sits today.

While that may frustrate some investors that have already bought and who would like to see a higher price, it’s a good thing for any Australian investor still wanting to put some money into precious metals. 

All other things being equal, it means they can get more bang for their buck when converting AUD into gold, silver or platinum today, relative to what they would have been able to buy had the AUD not rallied in the past few months.

It is worth noting that it is not just the USD that the AUD has been appreciating against. The AUD also appreciated versus the trade weighted index by 1% in August and by more than 25% since mid-March.


ETF holdings continue to grow

Gold ETF holdings continued to increase in August, with inflows of 23 tonnes seen in the first three weeks of the month (full end August data not available at time of writing). That is an increase of 0.50% relative to where holdings were sitting at the end of July.

While this represents continued demand for the precious metal, it is also a notable slowdown from the pace of buying seen earlier in the year which saw average inflows of more than 128 tonnes a month in the first seven months of the year. 

Australian investors are again outperforming in terms of gold demand for ETFs relative to global peers, with Perth Mint Gold (ASX:PMGOLD) seeing holdings increase by more than 5.5% in August.

Strong demand is also being seen for minted bars and coins, with Perth Mint sales of minted gold products up 20% in August. Across the course of 2020 The Perth Mint has on average sold 64,000 ounces of minted gold per month, a 50% increase relative to the average monthly sales seen between 2012 and the end of 2019.

Risk assets rally, but caution warranted


While gold’s record-breaking rise above USD 2,000 per ounce in August attracted global media attention, the real rally occurred in the equity market, or more specifically the technology companies that dominate major indices like the S&P 500.

Indeed, the S&P 500 recorded its best August performance since 1984, with the US market now up more than 55% since the lows seen in March. 

Great news for stock market investors, this rally does pose a challenge for investors looking ahead, as it’s largely been driven by fiscal and monetary stimulus rather than a sustained improvement in economic fundamentals. 

The result of this is we now find ourselves in a situation where valuations for equity markets are at historically elevated levels, while traditionally ‘low-risk’ investments offer negative real returns. 

This challenge was neatly captured in a Bloomberg article in late August titled Low Rates Lead Investors to Look Beyond the Classic 60/40 Mix

The article noted that a 60/40 portfolio (60% stocks, 40% bonds) may struggle to deliver positive real returns in the years ahead as, “with bond yields so low and equity valuations so high, the strategy’s reputation for solid, steady returns is in serious doubt.”

We expect this situation to drive higher levels of gold demand in the years ahead and act to support prices. 

Unlike other alternative assets, physical gold can be low cost, is easily accessible for investors, and is generally seen as low risk on any metric other than short-term volatility.


Pension funds turning to gold

The increased demand that we are seeing for gold (and expect to continue to see) is not limited to retail investors with institutional investors beginning to see its appeal. 

Bloomberg reported last month that the USD 16 billion Ohio Police and Fire Pension Fund had approved a 5% allocation to gold to “help diversify its portfolio and hedge against the risk of inflation.” 

We suspect we will see more pension funds, as well as insurance companies, family offices and the like move to include a gold allocation in their portfolios in the years ahead.


Modern Monetary Theory is coming

The growing discussion around, and indeed support for, Modern Monetary Theory (MMT) can be expected to support gold demand in the years ahead. 

Last month the ABC ran a radio program with high profile journalist Alan Kohler discussing MMT. Titled It’s ok to print money, the segment examined the benefits of adopting MMT and its approach to monetary and fiscal policy. 

From our perspective, we think we are already living in a quasi-MMT economy and monetary environment, with central banks monetising large portions of budget deficits in 2020. 

As an example, according to a study by economist Gerard Minack, the US Federal Reserve increased its holdings of US Treasuries from June 2019 to June 2020 by USD 2.2 trillion. This almost perfectly matched the USD 2.1 trillion increase in the US Federal Budget deficit over the same period. 

As Minack noted: “This is in every way that matters pure monetisation.” 

This debt monetisation is one of the factors that has driven the increase in inflation expectations in the past few months. As an example, US 5-year, 5-year forward inflation expectation rates ended August 2020 at 1.91%, more than double the level it was sitting at in mid-March. 

For as long as we continue down this monetary policy path, concerns around higher levels of inflation will remain, helping gold find support from investors. 

Jordan Eliseo
Manager – Listed Products and Investment Research 
The Perth Mint
3 September 2020

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. 


References

Ohio pension fund adds gold allocation to hedge risk, inflation, Bloomberg Law

Low rates lead investors to look beyond the classic 60/40 mix, Bloomberg

It's ok to print money, ABC Melbourne 

5 Key Takeaways From Powell’s Jackson Hole Fed Speech, Bloomberg Opinion

Fed to overhaul approach for controlling inflation to better handle future downturns and reach full employment, Jerome Powell says, Market Insider


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How are spot prices determined?

Topics [ buy gold online invest in gold buy gold ]

It’s important that all investors understand how the value of their holdings is established. Most commonly marketplace trading hinges on what is known as the spot price.

The spot price is the current price in the marketplace at which a given asset, such as a security or a commodity, can be traded. 

While spot prices are specific to both time and place, in today’s global economy the spot price of most assets tends to be reasonably uniform worldwide when accounting for exchange rates. 

There are two key markets in which the prices of gold and silver are determined.

We discuss these below and explore what a ‘fair’ price means for bullion traders in their pursuit of the best return for their metal.  

1. Over-the-Counter (OTC)


The OTC market consists of traders dealing with other traders on a one-on-one basis. It operates much like the internet – it is a network of traders independently dealing with each other 24 hours a day. 

OTC is generally meant to refer to professional/corporate entities trading 400oz gold bars (and 1,000oz silver bars), usually for settlement in London. However, when you buy a coin from a bullion dealer, you are also doing an OTC deal.

OTC trading is done on the telephone or via a dealer's proprietary trading platform software. Just like your transaction with a coin dealer, the amount dealt and the spot price agreed is not public.

This means that it is often hard to ‘pin down’ the OTC spot price given the opaque nature of the market. Considering this, precious metal dealers commonly use a service like Reuters or Bloomberg as an indicator of where the spot price is. 

This spot price is updated by the bullion desks of the big banks and is, in effect, a bulletin board or forum where these banks can publish their prices. However, unlike a stock market, it is not a commitment to deal at those prices (but generally one can).

In comparison, the price on a public exchange such as the futures exchange is much easier to determine. 

2. Futures Exchanges

Futures markets are public, regulated exchanges where the price for delivery of gold or silver at various dates into the future is traded. The largest and most influential market is the US COMEX market.

Often the current (or nearest) future prices are quoted as a spot price of physical gold. This is technically incorrect as it is a price for gold or silver to settle in the future, whereas the ‘spot price’ is the current price in the market at which a given asset can be traded.

However, countries with futures exchanges dealers often base their price for immediate delivery of gold or silver off their local futures market. So, from a retail customer's point of view, a futures price is effectively the spot price.
 


Which market drives the gold price?

It is important to note that futures and spot prices are related to each other. As such they are kept in alignment by arbitrage traders who look at the relative costs of borrowing cash and gold (and other factors) and will sell futures and buy OTC spot (or vice versa) if they see too much divergence between the prices.

There has been some debate as to whether US futures markets or the London OTC spot markets drive the price. This analysis concludes that it is not fixed and changes over time, even though the London OTC market is much larger than COMEX in terms of ounces traded.

A bullion dealer's spot price

So how do bullion dealers selling to customers set their spot price? 

They do so by considering the following factors:

• The spot/futures price may change in the time between committing to a price with their customer and executing a deal with their OTC counterparty or futures market broker.

• OTC and futures markets are wholesale markets (trading in ‘lots’ of 1,000oz and 100oz of gold, respectively) whereas a dealer's retail customers will be buying in much smaller amounts. This means it may take some time before they have accumulated enough ounces to execute a deal, during which the OTC/futures price will change.

• The dealer may not be able to consider the Reuters or Bloomberg screen price when trying to lock in a price in the OTC market. This is especially possible when the market is moving quickly and bullion banks are not updating their prices into those information services quickly enough.

• For futures trading, the dealer will be charged brokerage fees. For both futures and OTC trading there is also general costs of employing dealers and settling trades.

The way bullion dealers manage the above factors is to add a margin (or buffer) to the spot or futures price they see quoted. 

How much they add and how often they will change their spot prices depends on how volatile the wholesale price is and how much buying or selling their clients are doing. This changes dynamically during the day and will also vary between each bullion dealer. 

Note that this spot price margin is in addition to any fabrication premium, which represents the cost of refining gold into a required purity and manufacturing it into various forms such as bars and coins.

How do you determine a ‘fair’ price?

The result of the ever-changing factors being considered is that you will find each bullion dealer quoting different spot prices. 

This can be confusing to first time investors who are used to, for example, a single price for a company's stock on a single exchange. It often leads to questions about whether they are being quoted a ‘fair’ price.

The only way to know if you are getting a fair price is to do what bullion dealers themselves must do, which is to shop around and see who is offering the best price at that time and take it. 

In doing so, you become part of the huge, opaque precious metal market ‘network’ of OTC traders. 

With more than 120 years’ experience in the industry, The Perth Mint has built a reputation as a trusted precious metals trader with clients in over 130 countries around the world. 

Gold buyers and sellers are welcome to visit us in-store at our bullion trading desk in East Perth, Australia or trade online via perthmintbullion.com

See our spot prices here. Please note as per above prices are dependent on myriad of factors including product and sales channels which may lead to differing prices.



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Perth Mint Gold: Monthly Holdings Report – August 2020

Topics [ Perth Mint Gold ]

Holdings of Perth Mint Gold (ASX: PMGOLD) continued to rise in August 2020, increasing by more than 12,000 ounces for the month. The product ended the month with holdings of 229,199 ounces (7.13 tonnes). 

Monthly flows into PMGOLD are displayed in the chart below. As you can see, holdings increased by more than 70% in the first eight months of 2020. 

  

Source: The Perth Mint, ASX, Reuters

The growth in the product seen in 2020 continues a strong period of demand for PMGOLD that dates back to September 2018, with total holdings increasing by more than 170% over this time period.

The value of PMGOLD holdings also continued to rise in August, ending the month with a market value of AUD 614.3 million. This figure is based on a last traded price of 26.80 per unit (AUD 2,680 per ounce) on the ASX on 31 August 2020. 

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


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Monthly Sales – August 2020

Topics [ Monthly sales figures ]

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

  - Gold (Au): 67,462 oz

  - Silver (Ag): 1,431,036 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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