About Perth Mint Bullion Blog

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.

PLEASE READ
Our Blog Disclaimer.

Our Comments Policy.
Our Copyright Policy.

GROUP PROFILE
Our Visions, Our Values.

Blog Archive

OLDER ARCHIVES »

Perth Mint Bullion BlogSubscribe

Bargain hunters scoop up bullion as gold and silver sales rise

Summary

• The Perth Mint sold 98,753 troy ounces of gold and 1,789,926 troy ounces of silver in minted product form during September.

• The Perth Mint’s ASX listed ETF, ASX:PMGOLD, saw holdings rise by just under 2,000 troy ounces for the month.

• The Perth Mint Depository holdings of gold rose by 2% during September, whilst holdings of silver were flat.

Manager, Listed Products and Investment Research, Jordan Eliseo said: “Precious metal prices fell sharply during September, with gold and silver falling by 4% and 10.5% respectively in USD terms. A stronger US dollar, a rise in bond yields, and an increased likelihood of a taper from the US Federal Reserve, all contributed to the sell-off, with sentiment towards the sector also being hit.

Minted Products

The Perth Mint saw a large increase in sales last month, selling 98,753 troy ounces of gold and 1,789,926 troy ounces of silver in minted product form.

The table below highlights how these numbers compare to sales seen one month, three months and one year ago, and against monthly average sales dating back to mid 2012.

Current month sales of gold and silver sold as coins and minted bars
Change relative to prior periods


Gold in particular saw a notable increase in demand, with sales for both precious metals remaining comfortably above long-term averages, demonstrating the continued support for precious metal investment in the market today.

Troy ounces of gold and silver sold as coins and minted bars
December 2018 to September 2021


According to General Manager Minted Products, Neil Vance, higher demand for Australian bullion coins reflected the price dips in both gold and silver during September. However, sales of Perth Mint product were given a secondary boost by the release of a new series celebrating the 2022 Year of the Tiger. “The launch of the Australian Lunar annual coin series every September is eagerly anticipated by the market, and thanks to a stockpile of these new coins we were well positioned to satisfy initial demand,” he explained.

The Perth Mint manufactures and markets the Australian Precious Metal Coin and Minted Bar program. Trusted worldwide for their purity and weight, the coins include annual releases of the renowned Australian Kangaroo, Kookaburra, Koala and Lunar series. For more product information visit perthmintbullion.com.

The Perth Mint Depository

Total gold holdings in The Perth Mint Depository rose by 2% during September, while holdings of silver were static. Over the 12 months to end September, total holdings of gold and silver have increased by 6% and 2% respectively, with the total value of these holdings sitting just below AUD 6 billion.


Total troy ounces of gold and silver held by clients in The Perth Mint Depository
June 2018 to September 2021


The Perth Mint Depository enables clients to invest in gold, silver and platinum, with The Perth Mint storing this metal in its central bank grade vaults. Operated via a secure online portal, a Depository Online Account allows investors to buy, store and sell their metal 24/7. For further information visit perthmint.com/storage.

Perth Mint Gold (ASX:PMGOLD)

Total holdings in Perth Mint Gold (ASX:PMGOLD) rose by almost 2,000 troy ounces in September, with investors taking advantage of lower gold prices to add to their positions. The increase brings total holdings in the product to 234,548.9 troy ounces (7.30 tonnes) of gold.

Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD)
January 2015 to September 2021

Source: The Perth Mint, ASX, World Gold Council

With gold prices falling by just over 2% in AUD terms during September, the total value of PMGOLD fell to AUD 567 million, despite the increase in total holdings. 

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



Blog DisclaimerComments PolicyCopyright Policy

Inflation fails to boost gold as precious metals fall


Precious metal prices suffered one of their largest monthly falls on record, with gold (-4.0%), silver (-10.5%), and platinum (-3.8%) falling sharply in US dollar terms. Rising real yields, a strong US dollar, expectations of a taper from the US Federal Reserve, and fallout from the Evergrande crisis in China, all contributed to the move, with gold now down close to 15% since the peak in August last year.

Summary of market moves

• Gold prices fell sharply during September, with the precious metal at one point falling toward USD 1,700 per troy ounce and ending the month down 4% in US dollar terms.

• Silver was hit even harder, falling by more than 10%, with the price dropping toward USD 21 per troy ounce.

• A declining Australian dollar, which ended September down almost 2% versus the US dollar mitigated losses for Australian investors, and saw gold finish the month just above AUD 2,400 per troy ounce. 

• The pullback in gold has now seen the precious metal fall 15% since the highs in August 2020, with some now going so far as to question whether the precious metal has lost its status as a trusted inflation hedge.

Full report – September 2021

Precious metals were particularly volatile during September with gold (-4.0%), silver (-10.5%), and platinum (-3.8%) all falling sharply in US dollar terms, despite a rally to close out the month.

The declines in gold and silver, which saw the metals finish September just below USD 1,750 and just over USD 21.50 per troy ounce respectively, were among the sharpest monthly falls seen in the last three years, a period in which the two precious metals have increased by close to 50%.

Volatility was not confined to the precious metals space, with equities, commodities and fixed income markets also seeing large moves, driven by continued uncertainty regarding COVID-19, the challenges facing Evergrande and the broader Chinese property market, and expectations of tapering from the US Federal Reserve.

Focusing in on the precious metal space, several factors contributed to the weak price action, including:

• Higher real and nominal rates: 10-year treasury yields climbed above 1.50% in nominal terms, while in real terms they also increased from -1.03% to -0.85% in September.

• Continued appetite for risk assets: Despite the pullback seen in equities during the month, investors still have a strong appetite for risk assets, with the S&P 500 for example up by more than 15% this year.

• US dollar strength: The US dollar continued to march higher in September, with the Dollar Index (DXY) up almost 2% to trade above 94, the highest level seen in this calendar year.

• Fund positioning:  Speculative investors cut back their long exposure in the gold futures market, with gross longs down by 12.5% from just over 136,000 contracts at the end of August, to just below 119,000 contracts by late September. Short positions, meanwhile, increased by 60% from 54,878 to 88,062 contracts over the month.

Given this backdrop, it’s no surprise that sentiment towards precious metals has also soured, with a range of bearish headlines dominating the news in the last month.

These include “How gold let me down, and other investing mistakes this year”, an article quoting high profile special purpose acquisition company (SPAC) investor Chamath Palihapitiya, who proclaimed Bitcoin has effectively replaced gold, and countless articles suggesting precious metals will see more short-term downside.

While there is nothing wrong with the articles per se, and in the short-term there are still bearish forces at work, the very fact gold is getting such bad press right now could be seen as an indicator that prices are close to bottoming.

Nowhere is this more evident than in the recent commentary surrounding gold and its status as a trusted inflation hedge, which many are beginning to doubt, given the correction in the gold price has occurred alongside a period of much higher consumer price inflation (CPI) readings in the United States.

We explore in detail below.

Gold and inflation: what you need to know

• Gold has fallen despite the rise in inflation during 2021.

• Gold has performed strongly across longer periods of higher inflation.

• Gold doesn’t need high rates of inflation to perform well.

• Gold is likely to benefit going forward if the inflation spike lasts longer than expected.

Ask most investors about gold and irrespective of whether or not they have exposure to the precious metal, most will acknowledge that it’s a store of value over the long-term, and that it’s a good inflation hedge.

The belief that gold helps to protect against inflation is understandable, given the precious metal has maintained its purchasing power across the centuries, something truly appreciated by those whose fiat currencies lost most if not all of their value.

In more modern times, gold has also served to protect wealth through periods of higher inflation, most notably throughout the 1970s, with the following table highlighting average annual returns for gold in high (>3% p.a.) and low (<3% p.a.) inflation environments across the past 50 years.

 Average annual US dollar spot price performance of gold (%)


Despite this track record, a close to 15% correction in the USD price of gold since August last year, which has occurred despite consumer price inflation (CPI) rates rising to more than 5% p.a. at present, has many questioning whether the precious metal has lost its status as a trusted inflation hedge.

Why hasn’t gold moved higher with inflation in 2021?

Apart from the fact that gold rallied by approximately 70% between Q3 2018 and Q3 2020, there are several factors that have held the precious metal back in 2021.

These include a firmer US dollar, with the dollar index (DXY) up around 4% this year. Meanwhile, equities have enjoyed one of their strongest runs on record, with the S&P 500 almost doubling since the March 2020 low, supported by inflows into global equity funds in the first half of 2021 that were on track to exceed the total value of inflows seen in the prior 20 years combined.

There is also the fact that the overwhelming belief in the market today is that the recent spike in inflation is likely to prove transitory, with headline CPI increases being driven higher by a small subsection of the inflation basket.

Whether this proves right or wrong remains to be seen, though the chart below, which plots annual changes in headline CPI, as well as median and trimmed mean CPI, helps explain why the market is willing to give to the transitory narrative the benefit of the doubt for now.

 US inflation indicators


Source: Cleveland Federal Reserve

Gold made a huge move in 2020

Perhaps a bigger part of the reason gold has disappointed investors in 2021 is that it made such a big move in the first nine months of last year.

This can be seen in the table below, which shows a handful of key variables at the end of 2019 and each quarter of 2020.

Market indicators during 2020

Source: Federal Reserve, World Gold Council, Cleveland Federal Reserve, US Treasury, St Louis Federal Reserve

Looking at the table we can see that:

The Federal Reserve balance sheet increased by more than USD 3 trillion across the first six months of 2020.

Real yields on 10-year US treasuries fell by more than 1% in the first three quarters of 2020.

• 10-year breakeven inflation rates bottomed out in Q1 2020, well ahead of short-term CPI numbers.

Given this backdrop, it is no surprise the gold price was up by more than 30% at one point in 2020, even though the official year on year change in headline inflation was below 2%.

So, while its true gold hasn’t been a very good inflation hedge in 2021, that’s coming off the back of a year that the precious metal recorded one of its strongest gains on record.

Ultimately, perhaps what the data is telling us is that if you have to wait for the official statistician to tell you inflation has arrived, then you’ll pay a much higher price to buy inflation protecting assets.

Gold doesn’t need high inflation to prosper

It’s important to note that while high inflation is typically conducive to higher gold prices, the precious metal doesn’t need high rates of inflation to prosper.

This is evidenced in the chart below, which shows the USD gold price, annual changes in CPI, and average inflation rates across the past five decades.

Gold and US inflation data since 1970


Source: World Gold Council, St Louis Federal Reserve

The chart makes it clear that gold rose very strongly in the first decade of the new millennium, even though inflation rates were declining relative to rates of price growth seen in the 1980s and 1990s.

The table below provides more detail on this, highlighting annualised inflation rates and gold price returns over each of the last five decades. 


Gold and US inflation data by decade 

       

Source: World Gold Council, St Louis Federal Reserve

Be it stock market volatility, geopolitical uncertainty, recessions or global pandemics, there are clearly a range of other factors that can and do influence gold at various points in the investment cycle.

Gold and the inflation backdrop today

An argument can be made that the market’s view of inflation today looks somewhat similar to just over 10 years ago, in the period leading into the Global Financial Crisis (GFC). 

This can be seen in the following chart, which shows the gold price, as well as the percentage gap between current inflation rates and the 10-year breakeven inflation rate expected by the market.

Source: Cleveland Federal Reserve, St Louis Federal Reserve, World Gold Council

The chart highlights that at present, there is an almost 3% gap between current annual CPI (+5.25%) and the 10-year breakeven inflation rate (2.35%). This has not been seen since Q3 2008.

Interestingly, gold prices fell by approximately 20% back then, from just below USD 1,000 per troy ounce, to just below USD 750 per troy ounce. As we all know, the precious metal then went on to rally for the next three years, with the market ultimately topping out more than 150% higher at close to USD 1,900 per troy ounce in 2011.

This time around we’ve seen a similar pullback, with gold dropping by approximately 18% between August 2020 and the low from this cycle seen in April 2021, when gold temporarily traded back below USD 1,700 per troy ounce.

And while no one can be certain if history will repeat or even just rhyme, there is a range of factors suggesting gold could be well supported going forward, including:

• Central bank and fiscal largesse: The post GFC environment was characterised by central banks reluctantly adopting QE, ZIRP and other forms of unconventional monetary policy, and promising to walk it back at the first opportunity. Despite talk of the Fed tapering in late 2021, the post COVID-19 environment sees central banks largely reticent to abandon expanded stimulatory measures, with a much greater focus on full employment, an embrace of average inflation targeting, and the adoption of MMP (modern monetary practice) through the de facto monetisation of federal deficits.

• Trimmed mean inflation rising: While headline inflation rates may ease, there is clearly an increase in underlying pricing pressure building, with the trimmed mean inflation measure now comfortably above 3% per annum.

• Supply side shocks: Whether it’s a shortage of fuel in the UK and across Europe, industry shutdowns in China, or continued bottlenecks in global supply chains, issues on the supply side look like they’ll add some upward price pressure well into 2022.

It’s also critically important to note that the market expects the recent spike in inflation to be transitory and has largely priced this in already. As such, even if headline CPI rates decline in the months ahead, they’re unlikely to hurt precious metals. If the recent inflation spike proves not to be as transitory as currently expected, then there is a good chance we’ll see a surprise to the upside when it comes to the gold price going forward.

Combine this with a current environment that sees sentiment toward gold near all-time lows, and we have the potential makings of a market bottom playing out in front of us right now.


Disclaimer:
Any opinions expressed in this article are subject to change without notice. The information in this article and the links provided are for general information only and do not contain all information that may be material to you making an investment decision. The Perth Mint is not a financial adviser and nothing in this article constitutes financial, investment, legal, tax or other advice.  Before making an investment decision you should consider whether it is suitable for you in light of your investment profile, objectives, financial circumstances and the merits and risks involved. 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 have not been independently verified by The Perth Mint and we do not guarantee their accuracy or completeness. The Perth Mint does not accept any liability, including without limitation any liability due to any fault, negligence, default or lack of care on the part of The Perth Mint., for any loss arising from the use of, reliance on, or otherwise in connection with the information contained in this article.



Blog DisclaimerComments PolicyCopyright Policy

Why gold isn’t just a boomer investment

When people think of gold, they often assume it’s a “Boomer” investment, popular only with people who are 50+ years of age, and either approaching  retirement, or already enjoying their golden years.

While there is some truth to this, with SMSF trustees for example leading the charge into gold investments in the past few years, there has also been a notable uptick in gold demand from millennial Australians, with demand coming from males and females alike.

Several factors have contributed to this rise, including:

Record low cash rates which are encouraging investors and savers to move money (which is losing real value once you take inflation into account) out of their bank accounts and into other assets like gold.

The launch of investment apps and trading platforms, many of which are millennial focused and offer access to gold as part of their investment menu.

Greater engagement in superannuation by younger Australians, as they realise that for most people in their demographic, it will be the largest financial asset they build over their working lives.

• COVID-19 related lockdowns, which, despite the obvious negative effects, have as a general rule given people more time to spend on engaging in their investments and in financial markets.

The ease of accessing gold as an investment, which has increased through the launch of ETFs and savings and trading apps has helped grow the gold market amongst millennial investors.

Perth Mint data highlights this, with GoldPass, our mobile based trading and savings app seeing its user base double in the last twelve months.

Meanwhile, back in 2015, our ASX listed ETF Perth Mint Gold (ASX:PMGOLD) had just 5% of its investor base holding 100 shares or less. By 2020, this had grown to 15% of all investors, a good portion of which are millennial investors.

The uptick in gold demand from a younger demographic, and the use of gold ETFs to access the asset class aligns with financial market industry trends.

Recently published research from State Street suggests 47% of new investors in ETFs are now millennials, up from just 24% in 2001, with State Streets head of SPDR ETF Asia Pacific distribution, Meaghan Victor, stating: “Better financial education and improvements in technology have helped make ETFs more accessible to younger Australians. Millennials are the ETF generation of the 2020s.”

The gender gap is also narrowing when it comes to investments in these vehicles. Back in 2001, just 10% of ETF investors were female, a number that has increased to 25% today, with estimates suggesting gender parity in ETF adoption could be reached within five years.

This can’t help but be positive for gold demand over time, if for no other reason than the ETF market itself is set to continue growing. In the last three years, the ETF market has grown from AUD 42 billion to AUD 116 billion, with some analysts expecting it will hit AUD 225 billion in the next three years.

The table below shows the market value and percentage of the ETF market dedicated to gold investments, and how large they may become in the next three years if they maintain their current market share.


Source: ASX

*August 24 based on industry forecasts

More than AUD 3 billion of money could find its way into gold ETFs in the coming years, with much of the inflows driven by millennial investors, a growing proportion of which are female.

If anything, these numbers may end up understating the level of gold demand we’ll see in years to come. While the precious metal has spent most of the last year in a consolidation phase, expensive financial markets, low to negative yields on assets like bonds, and the threat of rising inflation may well see investors increase their exposure to gold as a percentage of their total portfolio going forward.

Survey data, including this research piece from The World Gold Council, looks at potential asset allocation plans for institutional investors in the next few years, suggesting this is exactly what will happen.

Gold ETFs won’t be the only vehicle investors consider. Institutions through to millennial investors will have a suite of products to access gold and grow their wealth, including trading and savings apps like GoldPass, depository services like those offered by The Perth Mint, and physical bar and coin holdings.



Blog DisclaimerComments PolicyCopyright Policy

Diversify or let your winners run? How to encourage your portfolio to bloom

There is no shortage of investment information and tips for investors looking to grow their portfolio. The challenge is how to turn them into actionable insights that work for the individual, something that is made even harder by the fact that while many of these tips make sense as standalone concepts, they can conflict with each other.

Consider the fact that many investment advisers talk of the need to have a diversified portfolio, which is another way of saying don’t put all your eggs in one basket. Those who embrace diversification fully expect that at any point in time they’ll have some exposure to asset classes that are rising in value, and some that are falling.

There is nothing wrong with this approach, and indeed investment legend, Nobel Prize laureate and founder of Modern Portfolio Theory, Harry Markowitz, once described diversification as “the only free lunch in finance”.

Meanwhile, other famous investors talk of the need to give outperformers room to grow while cutting losses in underperforming assets. Indeed, none other than Warren Buffett was fond of saying selling your winners and holding your losers is like cutting the flowers and watering the weeds, though it’s not his quote originally.

In practice, disciples of this school of thought believe in concentrated portfolios as the best way to build wealth.

These two arguments – diversification versus letting your winners run, are to some degree in conflict with each other.

As to which one is ‘right’, Buffett’s view makes a lot of sense in the context of owning a particular stock, but from an asset allocation perspective, which is the primary driver of diversified portfolio returns, one could argue it doesn’t.

After all, history is very clear that markets move in cycles, and asset classes that see years of outperformance (the flowers) eventually run out of steam and turn into losers (the weeds).

What is an investor to do?

Below we look at three hypothetical portfolios comprised of just two asset classes, equities (using the S&P 500 to proxy returns) and gold, highlighting the returns and risks over a 50-year time period from 1971 to 2020.

Note that we’ve used a starting balance of $10,000 evenly split between the two asset classes, with the three portfolio simulations as follows:

• Never rebalancing the portfolio.
• Rebalancing back to 50% allocations each year.
• Rebalancing back to 50% allocations each decade.

The table below highlights the results, from both a return and risk perspective for the three portfolios.

Equity and gold portfolio statistics – 1971 to 2020


Source: The Perth Mint, LBMA, NYU Stern

The table makes it clear that the pure buy and hold approach is the lowest returning strategy of the lot, generating returns of just under 10% per annum over the past five decades.

The portfolio that embraces annual rebalancing is the second-best performer, generating returns of just over 10.5% per annum, and also exhibits much lower volatility than the other two portfolios.

This is because the annual rebalancing back to a 50% weight to each asset (in practice selling a bit of last year’s flowers and buying a bit of last year’s weeds) means the maximum allocation it ever has to either asset class is much lower than the other two portfolios.

This can be seen in the chart below, which looks at the allocation to gold for each portfolio over time. Note how the portfolio that rebalances once a decade, and the portfolio that never rebalances, had maximum gold allocations of almost 90% by the end of the 1970s, and just over 10% towards the end of the 1990s. The portfolio that rebalances every year never gets to those extremes.

Gold weights as a percentage of total portfolio assets – 1971 to 2020

Source: The Perth Mint, LBMA, NYU Stern

So while the portfolio that never rebalances, and the portfolio that rebalances every year, both had their worst calendar year in 1981 (primarily driven by a 32% fall in gold), the latter portfolio fell by only 18.6%, versus an almost 30% dip for the portfolio that never rebalances.

The portfolio that rebalances every decade is by far the best performer of the three, with annual returns of almost 13% per annum. In many ways this makes sense, as it allows market cycles time to play out, giving the flowers 10 years to grow, and the weeds 10 years to shrivel, before rebalancing the portfolio.

The difference in terms of total dollar value gained from this portfolio relative to the others is staggering when compounded over five decades.

Interestingly, the portfolio that rebalances every decade is not only able to achieve returns that are 3% per annum higher than the portfolio that never rebalances, but also displays lower overall portfolio volatility, and had a worst year that is essentially in line with the portfolio that rebalances annually. 

These findings suggest there is value in adopting a hybrid approach between letting your winners run and aiming for a diversified portfolio.

After all, if you never rebalance, you’ll end up with a portfolio too heavily weighted to last year’s, or last decade’s winning asset. You will then suffer when the tide turns against that asset.

Conversely, if you always rebalance, you aren’t giving your flowers any real time to grow, with investment cycles needing years to fully play out. That can clearly cost you substantial returns over the long run.

Limitations of the study

Backwards looking exercises in portfolio modelling are by definition limited. There are four primary factors which the above model doesn’t account for, all of which would impact the total return from each of three portfolio simulations. They are as follows:

• Inflation: In the past 50 years, inflation has averaged just below 4% per annum. This would obviously negatively impact the real return generated by all portfolios.

• Taxes: Tax on the income stream generated from dividends, plus any capital gains from sales of gold and equities, will also diminish total returns.

• Transaction costs: The more you trade, the more you pay in brokerage fees and/or buy sell spreads.

• Management or storage fees: There is typically some kind of fee paid for holding any kind of investment, which will also impact total returns.

Last but not least, these portfolios exist only on a spreadsheet. They don’t take the risk profile, or psychology of an investor into account.

For example, in the portfolio that rebalances every decade, the allocation to gold by the end of the year 2000 was just 12%. That’s because the 1990s was one of the best decades on record for equities, with average annual returns of more than 20%, while gold languished. The headlines at the time were proclaiming the precious metal was dead and that the stock market was certain to head ever higher.

Hindsight proved it was a wise choice, but how many people in the year 2000 would have felt comfortable selling almost half of their equity portfolio and using the proceeds to buy gold.

What to do now?

The example above of an investor selling down the equity component of their portfolio and using the proceeds to buy gold is arguably just as relevant today as it was 20 years ago.

This is because the last 12 months, and indeed the last 10 years, have seeing equities strongly outperform gold, evidenced in the below chart, which highlights the rolling 10-year performance differential between the S&P 500 and the precious metal.

From an asset allocation perspective, this means the gold portion of the portfolio that aims to rebalance every decade was just 27% by the end of last year, which can be seen in the table below.

That’s not quite as low as it was at the end of 1990 or 2000, but it is clearly a lot closer to those levels compared to the more than 80% allocations to gold this portfolio held by 1980 and 2010, which were at or near the top of long bull markets in the precious metal. 

On a relative basis at least, this suggests that gold is cheap today.


Disclaimer:
Any opinions expressed in this article are subject to change without notice. The information in this article and the links provided are for general information only and do not contain all information that may be material to you making an investment decision. The Perth Mint is not a financial adviser and nothing in this article constitutes financial, investment, legal, tax or other advice.  Before making an investment decision you should consider whether it is suitable for you in light of your investment profile, objectives, financial circumstances and the merits and risks involved.  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 have not been independently verified by The Perth Mint and we do not guarantee their accuracy or completeness. The Perth Mint does not accept any liability, including without limitation any liability due to any fault, negligence, default or lack of care on the part of The Perth Mint., for any loss arising from the use of, reliance on, or otherwise in connection with the information contained in this article.



Blog DisclaimerComments PolicyCopyright Policy

Gold sales ease during volatile markets

A Perth Mint employee packing monster boxes

Summary

The Perth Mint sold 53,976 troy ounces of gold and 1,467,229 troy ounces of silver in minted product form during August.

The Perth Mint’s ASX listed ETF, ASX:PMGOLD, saw holdings decline modestly, falling by 1% for the month.

The Perth Mint Depository’s holdings of gold and silver were flat during August, with their value sitting just above AUD 6 billion.

Manager, Listed Products and Investment Research, Jordan Eliseo said: “Precious metal prices were volatile during August, with gold and silver falling by 8% and 9% respectively in US dollar terms early in the month. Both metals rebounded, with gold finishing the month trading back above USD 1,800 per troy ounce, down just 1%, while silver finished the month above USD 24 per troy ounce. Continued concerns over the spread of the Delta strain of COVID-19, a dovish US Federal Reserve, and heightened geopolitical tensions contributed to the rally off the intra-month lows.

Despite the tailwinds, the pace of investment into precious metals was far more subdued relative to the levels seen during 2020, with a continued surge in equity markets driving investors into risk assets.”

Minted Products

The Perth Mint sold 53,976 troy ounces of gold and 1,467,229 troy ounces of silver in minted product form during August.

The table below highlights how these numbers compare to sales seen one month, three months and one year ago, and against monthly average sales dating back to mid-2012.

Current month sales of gold and silver sold as coins and minted bars
Change relative to prior periods

table of the current month sales of gold and silver voins and minted bars

While sales for gold in particular fell relative to the very high volumes seen in the first few months of 2021, they remained comfortably above long-term averages, demonstrating the ongoing investment demand for precious metals.

Troy ounces of gold and silver sold as coins and minted bars
December 2018 to August 2021

graph depicting Troy ounces of gold and silver sold as coins and minted bars between December 2018 to August 2021

General Manager Minted Products, Neil Vance said sales of Perth Mint physical gold bullion in August reflected an easing of demand among its key distributors worldwide. However, he noted, “demand for our gold coin and minted bar products remained comfortably above pre-COVID levels, which averaged 33,690 troy ounces per month between August and October 2019. Meanwhile, Perth Mint silver coins remained a key focus for investors. Higher output was achieved in August 2021 as coin presses were brought back online after a period of maintenance.”  

The Perth Mint manufactures and markets the Australian Precious Metal Coin and Minted Bar Program. Trusted worldwide for their purity and weight, the coins include annual releases of the renowned Australian Kangaroo, Kookaburra, Koala and Lunar series. For more product information visit perthmintbullion.com

The Perth Mint Depository

Total gold holdings in The Perth Mint Depository were static during August, with the value of these holdings coming to more than AUD 6 billion.

Over the 12 months to end August, total holdings of gold and silver increased by 8% and 2% respectively.

Total troy ounces of gold and silver held by clients in The Perth Mint Depository
June 2018 to August 2021

Troy ounces of gold and silver sold as coins and minted bars December 2018 to August 2021

The Perth Mint Depository enables clients to invest in gold, silver and platinum, with The Perth Mint storing this metal in its central bank grade vaults. Operated via a secure online portal, a Depository Online Account allows investors to buy, store and sell their metal 24/7. For further information visit perthmint.com/storage.


Perth Mint Gold (ASX:PMGOLD)

Total holdings in Perth Mint Gold (ASX:PMGOLD) fell by almost 3,000 troy ounces in August, with this decline representing one of the largest monthly outflows in the past five years. These outflows saw investors end the month with 232,653 troy ounces (7.24 tonnes) of gold backing their holdings.

Monthly change in troy ounces held by clients in Perth Mint Gold (ASX:PMGOLD)
January 2015 to August 2021

Total troy ounces of gold and silver held by clients in The Perth Mint Depository  June 2018 to August 2021

Source: The Perth Mint, ASX, LBMA

With gold prices largely flat in Australian dollar terms during August, these outflows saw the total value of PMGOLD decline to just above AUD 575 million. 

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



Blog DisclaimerComments PolicyCopyright Policy

Volatile month for precious metals as gold turns 50

a gold bear with blue arrows

Gold prices displayed heightened volatility during August, with a large sell off seen early in the month before the precious metal staged a recovery to close back above USD 1,800 per troy ounce. Silver was also impacted, at one point falling by almost 10% intra-month, though it too finished on a stronger footing. Despite the volatility, a range of factors look set to support precious metal markets going forward. 

Summary of market moves:

• Precious metal prices were particularly volatile during August, with gold ending the month falling by almost 1%, while silver fell by almost 6%. 

Equity markets continued to rally, with the S&P 500 closing above 4,500 points at the end of August, up almost 3% for the month. The ASX200 was up 2% during August.

Cryptocurrency prices continued their recent recovery, with Bitcoin ending the month trading just below USD 47,000, up almost 10%.

The Australian dollar continued to weaken, falling almost 1% versus the US dollar, driven by falling iron ore prices and continued uncertainty caused by lockdowns along the Eastern seaboard. 

The spread of the COVID-19 Delta variant continued to plague the global economy, with central banks, including the US Federal Reserve, which just completed its annual Jackson Hole Symposium, likely to provide significant levels of monetary policy stimulus for the foreseeable future.

August 2021 marked 50 years since the United States ended convertibility of the US dollar into gold, with the precious metal subsequently playing a valuable role in investment portfolios over the past five decades.

Full report - August 2021

Volatility in precious metal markets picked up during August, with gold and silver prices at one point falling 8% and 9% respectively in US dollar terms. The two precious metals then rallied as August came to a close, with gold recovering almost all its losses to trade back above USD 1,800 per troy ounce, down just 1% for the month as a whole.

Silver finished the month trading back above USD 24 per troy ounce, down 6%, with daily movements in prices throughout August seen in the chart below.

a graph depicting the gold and silver price movements

The sell-off that occurred in early August, which can be seen in the above chart, was driven by a rapid liquidation that took place in the gold futures market on the morning of Monday 9 August.

In the space of one hour, more than 35,000 gold contracts (with a notional market value of over USD 6 billion) were traded, with more than half of the turnover happening in one 15-minute time slot. In that window prices fell 4% from USD 1,755 to USD 1,677 per troy ounce.

While much speculation has taken place as to what drove that level of turnover in such a short time frame, the data makes it clear that the market hit an air pocket of sorts, with the drop driven predominantly by a short-term lack of liquidity. The fact that gold recovered a good part of the losses within the day reinforces this view.

Indeed, the sharp sell-off seen on 9 August may end up marking the completion of the corrective cycle in gold, with the metal rallying more than 8% since. Multiple factors have driven the rally, including:

• The threat posed by the COVID-19 Delta strain, with the daily case rate in the United States back above 150,000 and continuing to surge, despite the fact almost 65% of the adult population has been fully vaccinated.

• Heightened geopolitical tension in the wake of the withdrawal of American and other coalition troops from Afghanistan.

• A continued dovish tone from the US Federal Reserve, with Chairman Jerome Powell using the annual Jackson Hole Symposium to reassure markets the Fed is in no rush to begin tapering asset purchases, let alone normalise monetary policy in any meaningful sense. 

The speech from Powell noted that while the US job market was recovering, there was still a long way to go. He also reiterated the Fed’s view that the recent spike in inflation will prove transitory (more on this below, where we discuss whether or not gold remains an inflation hedge).

It was enough to boost stock markets, cause a fall in the US dollar, and ultimately, help boost gold back over USD 1,800 and silver back above USD 24 per troy ounce as August came to a close. 

Is gold still an inflation hedge?

Five decades of market data tells us conclusively that gold tends to perform well during periods of higher consumer price inflation (CPI), with average annual increases in excess of 15% per annum in the years CPI rates are 3% or higher.  

However, given gold has been in a corrective cycle since peaking above USD 2,000 per troy ounce in August last year, and given this time period has coincided with an uptick in CPI,  questions about whether gold is still an inflation hedge continue to be asked in financial blogs, podcasts etc.

We are encouraged by the very fact this question is getting airtime, as it’s the kind of thing you only see when sentiment toward gold has soured and when prices have eased, which is often a good time to be buying.

As we highlighted last month, there are multiple factors that have contributed to gold falling in the last year despite the uptick in inflation - from soaring stock prices to the market’s belief that the current surge in inflation will prove transitory.

This month we want to delve a little deeper, looking at the difference between current annual rates of CPI, and the market’s expectation for average inflation over the next 10 years (called the breakeven rate). As per the table below, there is now a 3% gap between current CPI, which was 5.4% in July, and the 10-year breakeven rate.

table depicting the annual change in CPI

The chart below, which dates back to 2003, shows the difference between these two readings on a monthly basis, as well as the gold price itself over the same time period.

graph depicting annual CPI minus 10 year breakeven inflation rate and us dollar gold price

The standout observation from the chart is that the inflation differential between CPI levels and the 10-year breakeven rate, which is 3% right now, is as pronounced as it was back in Q3 2008, around the time the Global Financial Crisis hit.

History shows that equities fared horribly in the period that followed, falling by 40% over the next six months. Gold, on the other hand, went from strength to strength, rallying by more than 100% in the three years that followed.

The chart, and the fact the market doesn’t think that the current high rates of CPI will last, is encouraging for another reason. Markets don’t react to formal data releases like CPI, GDP, or employment figures - they react based on what a data release is relative to what the market expected the data release to be.

As such, even if inflation rates do ease in the months ahead, it may not negatively impact gold at all, as the market already expects this to happen.

Billionaires are bullish gold 

For those unfamiliar with the name, John Paulson was one of the few investors that not only foresaw the problems in the US housing market that would culminate in the sub-prime crisis and the GFC, but also put his money on the line, making billions of dollars in the process.

He has also long been a fan of gold, with the below extract from a recent interview with Bloomberg (subscription required ), highlighting his current view on the precious metal.

Bloomberg: “After you made your famous trade, you bought a lot of gold, or gold futures, and you were called by some a gold bug. Gold’s now about $1,700 an ounce. Do you think that gold is a good investment at this price?”

Paulson: “Yeah, we do. We believe that gold does very well in times of inflation. The last time gold went parabolic was in the 1970s, when we had two years of double-digit inflation.

The reason why gold goes parabolic is that basically there’s a very limited amount of investable gold. It’s on the order of several trillion dollars, while the total amount of financial assets is closer to $200 trillion. So as inflation picks up, people try and get out of fixed income. They try and get out of cash. And the logical place to go is gold. But because the amount of money trying to move out of cash and fixed income dwarfs the amount of investable gold, the supply and demand imbalance causes gold to rise.”

Bloomberg: “So, you’re a big believer in gold as a good investment now?”

Paulson: “Yes. We thought in 2009 with the Fed doing quantitative easing, which is essentially printing money, it would lead to inflation. But what happened was while the Fed printed money, at the same time they raised the capital and reserve requirements in banks.

So, the money sort of recycled. The Fed bought Treasuries, created money, which wound up in the banks and then was redeposited at the Fed. And the money never really entered the money supply. So, it wasn’t inflationary. However, this time it has entered the money supply. The money supply was up about 25% last year and the best indicator of inflation is money supply. So, I think we have inflation coming well in excess of what the current expectations are.”

Paulson isn’t the only high-profile investor singing gold’s praises, with Mark Mobius, who spent the better part of 30 years managing emerging market portfolios, and once served as the executive chairman of Templeton Emerging Markets Group, recently stating investors should hold up to 10% of their portfolios in gold.

Like Paulson, Mobius sees the value in holding gold given the potential for significant currency devaluation in the years to come. 

Gold turns 50

August 2021 marks the 50-year anniversary of the closing of the “gold window”, with then US President Richard Nixon ending the convertibility of the US dollar into gold. Since then, the price of gold has risen by approximately 8% per annum, outperforming a range of traditional asset classes over this period.

Alongside the strong long-term returns, gold has also offered investors:

• An effective equity market hedge and portfolio diversifier, with gold typically being the best performing asset whenever equity markets suffer their most significant corrections.

• Protection from monetary uncertainty, with gold delivering positive real returns in periods of high inflation, and in periods of low inflation.

• Accessibility, with gold being an asset class that every investor can include in their portfolio, irrespective of their budget.

We discussed some of these themes in significant detail in a separate blog post published to commemorate the 50 years since Nixon’s momentous decision.

While none of these attributes guarantee what will happen to the gold price from one day to the next, in time they can all be expected to support gold demand, and therefore prices, especially given the continued uncertainty plaguing the global economy, the monetary environment we are in, and how expensive financial markets as a whole are.

For this reason, we remain optimistic on the outlook for gold over the medium to long-term and why we think that alongside silver it will continue to play an important role in diversified portfolios.

Jordan Eliseo
Manager – Listed Products and Investment Research
The Perth Mint
September 2021

Disclaimer:
Any opinions expressed in this article are subject to change without notice.The information in this article and the links provided are for general information only and do not contain all information that may be material to you making an investment decision.The Perth Mint is not a financial adviser and nothing in this article constitutes financial, investment, legal, tax or other advice.  Before making an investment decision you should consider whether it is suitable for you in light of your investment profile, objectives, financial circumstances and the merits and risks involved.  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 have not been independently verified by The Perth Mint and we do not guarantee their accuracy or completeness.The Perth Mint does not accept any liability, including without limitation any liability due to any fault, negligence, default or lack of care on the part of The Perth Mint., for any loss arising from the use of, reliance on, or otherwise in connection with the information contained in this article.



Blog DisclaimerComments PolicyCopyright Policy

Confirm
No
Yes