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Dollar rally sparks sharp gold sell off

Perth Mint gold and money stacks

Precious metals fell sharply in June 2021, with gold, which fell by more than 7%, recording one of its largest monthly declines of the last decade. The key driver of the sell-off was as a more hawkish US Federal Reserve, which brought forward its projections for when monetary policy in the United States may tighten, sparking a rally in the value of the US dollar. The pullback in precious metals, while frustrating for bulls, has seen sentiment and technical indicators hit levels that are often seen when the market is close to bottoming.

Summary of market moves:

    • Gold and silver prices suffered major falls in June, with the two precious metals down by 7% in US dollar terms. 

    • Prices for the two precious metals in Australian dollar terms fell by closer to 4.5%, owing to a 2.5% decline in the AUDUSD FX rate, which ended June at 0.752.

    • A more hawkish tone by the US Federal Reserve, which sparked a rally in the US dollar was the primary driver of the pullback in precious metal prices, with real yields largely unchanged for the month.

    • Sentiment toward precious metals was negatively impacted, while technical readings also suggest the market is oversold.

Full report - June 2021

Gold and silver prices experienced sharp falls during June, with the 7% decline in the gold price representing the sixth largest monthly fall since the start of 2010, with the 10 largest monthly corrections over this time period highlighted in the table below.

table 1Source: The Perth Mint, World Gold Council, LBMA

Interestingly, two of the other top 10 monthly price declines (February 2021 and November 2020) were also part of the current corrective cycle that dates back to the middle of August last year, when gold was trading at all-time highs above USD 2,050 per troy ounce.

This helps highlight how difficult the last nine months have been for precious metal bulls, and how it has come to pass that gold has actually fallen over the 12 months to end June. While that might seem hard to fathom given the events of the last year, which would have been expected to drive the price of safe haven assets higher, it’s worth highlighting the fact that gold is still up 16% since the start of 2020, when the world first started appreciating the COVID-19 threat.

Gold also remains almost 50% higher compared to September 2018, which was around the time developed market central banks began easing monetary policy in an effort to stimulate flagging levels of economic growth.

While the longer term return figures for gold remain impressive, there can be no doubt that the recent weakness has shaken the faith of certain segments of the precious metals market. June saw a notable decline in bullish positioning in the futures market, particularly in the latter part of the month, while ETFs also saw outflows, which we explore below in more detail.

The recent weakness also saw sentiment toward precious metals take a significant hit, while technical indicators have now fallen to levels that often coincide with market bottoms.

What has driven the pullback in gold?

The recent sell off in precious metals was mostly attributed to a more hawkish than expected Federal Reserve, whose June policy meeting now has the market expecting an earlier return to interest rate hikes, which could now occur in 2023.

This is not to say the Fed is in a rush to walk back the extraordinary stimulus it is providing markets, and indeed in its June policy meeting it reaffirmed the commitment to purchase USD 120 billion per month of Treasury and mortgage backed securities and maintain the Federal Funds rate between 0 - 0.25%, among a range of other policy tools currently being deployed.

Nevertheless, the market’s interpretation of a change in tone from the Fed helped push the US dollar higher (the US Dollar index is now up over 3% since the late May lows), and in the short-term also caused real yields to jump, with both of these factors helping drive the sell-off in gold.

Short-term price moves aside, we think there are at least five factors that have driven the gold price correction since August of last year, with the precious metal now down 15% from the all-time highs seen back then.

Those factors include a stabilisation in real yields, strong stock market performance, rising economic optimism as the threat of COVID-19 recedes (as hard as that may be to believe in Australia right now), the attention that Bitcoin and cryptocurrencies have generated, and last but by no means least, the level of froth that existed in precious metal markets nine months ago.

Stabilisation in real yields

Over the long run, gold prices are highly correlated to real yields, which is logical given the real yield available on credit (but not inflation) risk free US Treasury bonds are one of, if not best, indicators of the opportunity cost of owning an income free asset like gold.

The chart below, which highlights the US dollar gold price and the real yield on a 10-year US Treasury bond from 2003 to the end of 2020 illustrates the relationship between the two.

US dollar price of gold and real yield on a 10-year US Treasury

Graph 1

Source: The Perth Mint, Reuters, US Treasury, St Louis Federal Reserve

Since gold peaked in August 2020, real yields for longer dated US Treasuries, which are those with 10, 20 or 30-year maturities, have increased -, which is to say they are now less negative than they were nine months ago. This can be seen in the table below.

Source: United States Treasury 

Strong stock market performance

Since the COVID-19 induced market lows seen in March 2020, stock markets around the world have staged an almost unprecedented rally. In Australia for example, the ASX 200 is up more than 50%, whilst in America, the S&P 500 has almost doubled.

On a rolling one-year basis, the S&P 500 was up almost 40% in the year to end June, making the last 12 months one of the greatest market rallies of the last 50 years. This can be seen in the below chart, which highlights year on year movements in the S&P 500.

Rolling annual returns for the S&P 500

Source: The Perth Mint, Yahoo Finance

The rise in equity prices has also seen a meaningful shift in portfolio allocations, with investors upping their exposure to share markets. Indeed, data released from Bank of America Merrill Lynch in late June suggests equity allocations within client portfolios are now at all-time highs.

Furthermore, on an annualized basis, inflows into equities in the first six months of 2021 have been so significant that if they continue at their current pace for the rest of the year they will be substantially larger (circa 50%) than cumulative inflows for the past 20 years combined. 

As a final sign of the exuberance in risk assets today, CFTC data suggests small speculators have never had more money invested in long, equity market futures contracts, which require the market to keep rising in order for them to make money.

While gold is typically positively correlated to rising stock markets, there is no doubt it really comes into its own during periods of market distress (for example in Q1 last year when it outperformed the stock market by almost 25%).

Given we are in the midst of such a strong stock market rally, and seeing so much money pour into equities, it’s no surprise the appetite for a safe haven asset like gold has waned over the past few months, putting downward pressure on prices.

Rising economic optimism

Despite the ongoing threat posed by COVID-19, optimism regarding the economic outlook has improved markedly in the past few months, driven by vaccine rollouts across most of the developed world, and fiscal stimulus measures which have supported cashflows for households and businesses.

Growth forecasts continue to be revised up, while consumer confidence in the United States is now soaring, with the latest Conference Board numbers suggesting confidence levels are back to where they were roughly 18 months ago before the pandemic hit.


Despite the 50% correction that we have seen in Bitcoin (BTC) prices in the past few months, it has been a very strong year for cryptocurrencies.

On the day gold peaked back in early August 2020, BTC was trading below USD 12,000 per coin. It then went on to rise almost five times over, trading at almost USD 65,000 per coin in mid-April this year.

Even after the correction it has had since that April high, the BTC price is still more than triple where it was when gold peaked, with the chart below (which comes from our late February research report: Gold, Bitcoin and the Elon effect) highlighting the price movements of the two assets since the start of last year.

While gold and BTC have very different risk profiles, the rise in the price of BTC and the attention that it has generated given the launch of BTC ETFs, the news that Tesla added BTC to its balance sheet, and the perpetual marketing of BTC as “digital gold”, have had some negative impact on gold in the past six to nine months.


The final reason gold has corrected since August 2020 is simple. It was overbought and way too popular, with the move above USD 2,000 per troy ounce sparking a wave of bullish headlines and price forecasts, which often occur just before an asset is set to undergo a correction.

As we pointed out last year, gold was also trading at more than 20% above its 200-day moving average (200DMA), a level that often coincided with interim market tops, as the following chart highlights.

USD gold price per troy ounce and 200DMA

Source: The Perth Mint, World Gold Council

The good news is that as at the end of June 2021, gold was trading 4% below its 200DMA. That doesn’t mean the market has bottomed, but all the froth that was evident in the market in August is well and truly gone.

That’s a positive sign.

Physical markets, ETF flows and managed money positioning

Given the multiple factors that have driven the gold price correction over the last few months, it should come as no surprise that the demand picture for the precious metal has been a mixed bag in 2021. On the physical side of the market, volumes out of India, which had been robust initially, continue to be impacted by COVID-19.

Despite this, Swiss exports to Asia were climbing up until the end of April, helped along by the price pullback in Q1, though they then dropped by more than 50% in May as the USD gold price rallied back toward USD 1,900 per troy ounce.

The sharp gold price sell-off in late June reignited demand from China in particular, something The Perth Mint has seen first-hand with buyers returning to the market and adding to their holdings.

Perth Mint minted product sales also tell an interesting story, with Q1 seeing some of the highest levels of demand for gold and silver on record. Interestingly, in Q2, gold sales fell, with June being the slowest month since January, while silver continued to see impressive demand, which the following table attests too.

Source: The Perth Mint

In the gold ETF space, we’ve seen the better part of 145 tonnes of gold (4% of total global holdings) divested from these products in the first half of the year, though June only saw modest outflows.

Most of the outflows for the year have come from North American investors, with smaller outflows seen in Europe. Interestingly, investors in Asia are still continuing to accumulate gold through ETFs, including in Australia, where Perth Mint Gold (ASX:PMGOLD) saw inflows of almost 3,000 ounces (just over 1% of fund holdings) in June.

The futures market also tells an interesting story, which can be seen in the chart below. It shows net positioning amongst managed money speculators as well as the US dollar gold price since late 2009. 

USD gold price per troy ounce and net managed money futures positioning

Source: CFTC, The Perth Mint

The chart highlights that increases in net positioning typically occur, and indeed contribute to rising gold prices, while the reverse is also true. Over the course of the first six months of this year, the net position almost halved.

This was predominantly driven by a more than 30% decline in long exposure, much of which occurred in the last two weeks of June, after the US Federal Reserve meeting.

While this has undoubtedly contributed to the recent price weakness in gold, long positioning has now fallen to levels seen near the bottom of corrective cycles.

That’s no guarantee that the next move in prices will be to the upside, though it should provide some encouragement to long-term investors happy to add to positions during pullbacks like the one we are experiencing now.


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.

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What’s behind the strong rally in gold and silver prices?

A Perth Mint gold bar resting on top of a market report

Gold and silver prices rallied strongly in May, buoyed by a multitude of factors from a falling US dollar to declining bond yields and crashing cryptocurrencies. Reclaiming all the losses that had been seen earlier in the year, the precious metal market is well placed to continue delivering gains to investors, with a range of factors likely to support demand as we head toward the second half of 2021.

Summary of market moves:

    Gold and silver prices rose strongly in May, increasing by over 6.5% each for the month. 

    • The rally saw both precious metals reclaim all of the losses seen in Q1 this year, with prices now positive on a calendar year basis. 

    Multiple factors drove the increase in precious metals, from a falling US dollar to declining bond yields and a crash in cryptocurrency prices. 

    The demand side for gold remains positive, with solid buying being seen in retail markets, ETF holdings increasing for the first time since January, and managed money speculators increasing their exposure. 

    Looking ahead, a period of range trading should not be unexpected, but there remain multiple tailwinds for precious metals, including heightened warnings about bubbles in financial markets.

Full report - April 2021

Prices for gold and silver surged in May, with the two precious metals rising by 7.5% and 6.8% respectively in US dollar terms. The increase, which has now seen the two precious metals rally by 12.4% (gold) and 15.1% (silver) since the lows seen at the end of March, means both are now trading in positive territory for the year, having totally clawed back the losses seen during Q1.

In Australian dollar terms, gold and silver ended the month at AUD 2,459 and 35.77 per troy ounce, up 8.2% and 7.5% respectively. The AUDUSD FX rate saw a minor fall during May, ending the month at 0.7725.

There have been multiple factors driving the recovery in gold prices, including weakness in the US dollar, which fell by 1.4% during May, to a decline in bond yields, with 10-year US Treasuries ending May yielding just 1.58%, down from 1.65% a month prior.

Crashing cryptocurrency prices have also been a factor. The circa 50% pullback in Bitcoin since the peak above USD 60,000 per coin earlier this year reaffirmed why it’s not yet a reliable safe haven in the minds of many investors, and indeed may never become one, no matter how often its supporters attempt to market it as digital gold.

Interestingly, gold’s recovery is taking place alongside a pause in the recent pickup in inflationary forces, with 5 and 10-year breakeven inflation rates in the United States falling in the last two weeks of May, ending the month basically flat. Commodity prices, which had roared higher in an almost uninterrupted fashion since hitting multi decade lows around the end of Q1 2020, also stagnated in the latter part of May.

Success with the rollout of vaccines (which it must be noted is not uniform across the developed or developing world) is also leading to a more optimistic outlook for economic growth, with the OECD increasing its projections for global GDP growth in 2021 to 5.8%. This number was set at 5.6% in March, and just 4.2% when the OECD released forecast growth numbers for 2021 back in December last year.

Finally, we are also seeing hints of a more hawkish tone creeping into the guidance issued by some developed market central banks, with a few beginning to talk about tapering the excessive levels of stimulus they’ve been deploying.

The fact that gold has rallied as hard as it has since the lows seen in Q1 attests to the fact that it is far more than an inflation or crisis hedge, which is how many investors see it.

At this point, the strong performance seen during May reinforces the view that the pullback we saw between August 2020 and March 2021 was simply a healthy correction in an otherwise well-established bull market trend.   

The strong price gains also led to a return to inflows for gold ETFs in May, continued demand for physical products in key markets, and speculators increasing their positioning in futures markets. 

Below, we explore the demand picture, touch on the inflationary forces building in the economy, and examine warnings of bubbles in financial markets.

Gold demand

Over the last few months, we’ve seen encouraging signs on the demand side for gold. For most of the year, retail bar and coin demand in Western markets has been robust, witnessed through the 36% year on year increase in Q1 2021. Perth Mint sales of coins and bars were particularly strong in Q1, with this trend continuing in April and May of this year.

In key physical markets, demand was strong for most of the month in China, even if premiums came off a little bit. India was understandably distracted by the acute challenges it is facing with COVID-19, with the market likely to take some time to normalize.

In other parts of Asia, the sharp rally in gold led to more subdued levels of demand, which is in stark contrast to the significant levels of buying seen in late Q1 and April, when prices were hitting their lows for the year.

On the ETF side of the market, investors turned net buyers again after three months of selling that saw more than 200 tonnes of gold flow out of these products. Current estimates suggest between 50 and 60 tonnes of gold was bought through these vehicles during May, with clients of The Perth Mint contributing to this trend through the modest inflows into our ASX listed product PMGOLD.

Speculative money also increased its exposure on the long side of the gold trade, with managed money long positions increasing from 117,100 contracts on 27 April to 143,900 contracts by 25 May, while short positions declined from 66,500 to 36,600 positions over the same time period. 

All up, this speaks to renewed optimism regarding the outlook for gold among developed market investors, though a period of range-trading either side of USD 1,900 per troy ounce would not be unexpected after such a strong rally in recent weeks.

Inflation – transitory or not?

Despite the plateauing in inflation expectations that took place in late May, there is no doubt that the last 12 to 15 months have seen a sharp rise in cost of living pressures, with official inflation results suggesting prices across the United States rose by 4.2% in the 12 months to the end of April.

Energy prices were a major contributor to the sharp rise in overall inflation, having increased by more than 25% over the year, with core inflation (which strips out more volatile items like food and energy) rising by a lower amount, though still coming in at 3% for the year.

Despite the increase, there are two schools of thought as to how big a problem this increase in consumer prices is.

In one camp are those who think the pick-up is transitory and that within a year or so inflation will return back toward the levels central banks tend to target, which is typically around the 2% level.

This camp attributes much of the rise in inflation over the last 12 months to base effects. As they see it, the 3-4% increases we are experiencing are coming off a lower than expected base due to the cratering of inflationary pressures seen at the height of COVID-19. They also believe that the supply chain issues caused by the pandemic driven shutdowns as a short-term inflationary phenomenon, but one that will normalise in due course.

The other camp is not convinced and sees the recent pick-up in consumer demand as the start of a multi-year period of higher rates of inflation. This camp sees the much larger role that fiscal stimulus is playing now, relative to the post GFC environment, as a ‘game changer’.

Meanwhile, the mandates of central banks have also expanded in terms of the quantity of money they can, and are, creating, the types of assets they are allowed to buy, and the funding they are providing to commercial banks.

The higher inflation camp also thinks that central banks will be too slow to pare back the levels of monetary stimulus they are currently deploying. This is because the high inflation camp by and large thinks central banks themselves are in the “inflation is transitory” camp, meaning they aren’t as worried as they should be about building price pressures.

There is also a view that central banks as a whole will be happy with two to three years of higher than average inflation to “make up” for several years of lower inflation results, with the US Federal Reserve’s move to average inflation targeting announced in late 2020, supporting this notion.

While history suggests gold would really thrive if inflationary pressures continue to build, it also tells us that gold delivers positive real returns in environments where inflation is more modest. This can be seen in the table below, which highlights the average nominal and real return for gold in US dollar terms in years where inflation is above or below 3%.

a table of the inflation environment
Source: World Gold Council, data from 1971 to 2019.

As a result, while we will watch inflation with interest, month to month developments shouldn’t necessarily drive a change in the investment approach when it comes to gold, given it has historically played a positive role in a portfolio no matter how fast consumer prices are rising.

Bubble warnings continue to build

When investors think of gold as a safe haven, they are typically attracted to the precious metal because it has a strong track record of outperformance when inflation rises, when real interest rates fall, or when risk assets like equities fall in value.

And while low to negative real interest rates combined with the unprecedented levels of fiscal and monetary stimulus we’ve seen since COVID-19 hit can be used to justify why equity markets are as high as they are today, there is also no doubting the risk in this asset class in the years ahead.

Multiple metrics, from price to earnings ratios and price to sales ratios, to the market value of the equity market relative to the value of economic output, all suggest markets are either at or near all-time highs, which portends a period of much lower returns between now and 2030, with significant drawdowns and volatility along the way.

To this end, we were fascinated by a recent podcast hosted by Patrick Poke of Livewire Markets, who spent the better part of two hours interviewing a genuine investment legend in Jeremy Grantham of GMO on the state of financial markets today.

To summarise, Grantham believes markets are in a clear bubble, which could pop at any time, causing severe financial pain to those not prepared for it.

Two of the key takeaways from the interview were that, in Grantham’s view:

    • Resources will be more scarce going forward, with the more or less 100-year downtrend in commodity prices over.

    • Inflation hedges, including commodities, look like attractive investments now.

While there are no guarantees we see a sharp pullback in equities anytime soon, history suggests it is just a matter of time, with the takeaways from the interview likely to bode well for gold demand in due course, an asset that Grantham himself owns, in part due to its multi-millennia history of use.  

If it’s a good enough asset for a master of the investment universe, then it’s good enough for most of us, one suspects.


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 decisionThe 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.

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Gold rebounds as markets continue to charge higher

a gold ball in motion to hit several silver balls

Precious metal prices rallied in April, with gold and silver up 5% and 8% respectively. Lower yields and a fall in the US dollar contributed to the moves, with the sector at least temporarily halting a multi-month corrective period that dates back to August 2020, when gold was trading at all-time highs. Despite the bounce, there were some headwinds for precious metals, the most notable of which was the continued rally in risk assets, from equities through to cryptocurrencies.

Summary of market moves:

• Gold and silver prices rallied strongly in April, with the two precious metals up 5% (gold) and 8% (silver) in US dollar terms.

• The rally was not unexpected, given technical and market sentiment readings had plunged during Q1 of this year, when precious metals fell by close to 10%.

• A decline in real bond yields and a 2% fall in the US dollar contributed to the April rise in precious metals, which has so far continued in the first few trading days of May.

• Despite the price increases, precious metals continue to be held back by surging equity markets and continued euphoria in cryptocurrencies

• Gold demand figures released by the World Gold Council (WGC) highlighted surging gold bar, coin and jewellery demand in Q1 2021, while ETFs suffered some of their largest outflows on record. Central banks remained net buyers of gold, led by Hungary, which acquired over 60 tonnes during the quarter.

Full report - April 2021

Gold and silver prices rallied strongly in April 2021, with the two precious metals rising by 5% and 8% respectively in US dollar terms, ending the month at USD 1,767.65 and USD 25.88 per troy ounce.

Gains for Australian investors were more subdued. Gold finished 2% higher and silver was up 5% for the month owing to a rally in the Australian dollar, which finished April trading just below USD 0.78.

Given gold and silver prices fell by 11% and 9% during Q1 2021, the rally seen in precious metals during April was not unexpected. The fact that technical indicators were as oversold as they were by late March, and that sentiment readings were at or near some of their lowest points seen in the last two decades, it was most likely that the next move in precious metals would be to the upside. This is exactly what has transpired in the past few weeks.

Developments in financial markets helped drive the bounce, with real yields declining across the maturity spectrum during April. As an example, the real yield on a US 10-year Treasury dropped from -0.63% to -0.76%.

Commodity prices also continued to increase during April, with the Bloomberg Commodity Index up more than 8%. Meanwhile, breakeven inflation rates continued to edge higher across the month, with these factors supporting higher bullion prices.

The US dollar also weakened against a basket of currencies, with the US Dollar Index (DXY) falling by more than 2% to end the month sitting at 91.28.

Despite the bounce, precious metals were held back in April to a degree by soaring prices for risk assets, from equities to cryptocurrencies, as we highlight in more detail below.

Risk on for equities

Since the lows seen in March 2020, global equity markets have staged one of their most impressive rallies on record, with the S&P 500, for example, rising by more than 80% in just over a year. The market rose by more than 5% in April 2021 alone.

The staggering rise has been met with almost unprecedented levels of buying, with data from Bank of America suggesting more than USD 600 billion has flowed into global equity markets in the last five months. That figure surpasses inflows seen in the prior 12 years combined.

Investors are not only happy to deploy cash, but also leverage their way into equity positions. Year on year increases in margin debt are currently close to 70%, representing a speed of increase exceeded or matched only twice in the past 25 years - just prior to the NASDAQ crash and the Global Financial Crisis.

While markets may not repeat, they do tend to rhyme. As such, though these developments are great in the short-term for equity market bulls (all the while helping hold back gold demand), they do portend a serious day of reckoning for risk assets as a whole.

If history is any guide, when that day of reckoning arrives, it would not surprise to see precious metal demand, and prices, rise accordingly.

Bitcoin pulls back - crypto craze continues

Crypto markets continued to dominate market attention in April, with US crypto exchange Coinbase listing on the NASDAQ. It closed as high as USD 342 per share on 16 April, though eased below USD 300 per share by the end of the month. At a roughly USD 80 billion market capitalisation, it is already larger than many banks and financial services companies in the United States, a clear illustration of how enthusiastic investors are to own assets that are leveraged to soaring crypto markets.

Bitcoin suffered one of its first monthly pullbacks in April, falling by almost 10% to end the month at USD 53,260 (price data from CoinDesk). Intra-month, it continued the spectacular volatility that investors either love or hate, at one-point trading as high as USD 63,346 per Bitcoin (the 16 April, which was the same day stock in Coinbase peaked), before plunging almost 20% in a matter of days, hitting USD 48,542 at its low.

Other high-profile cryptocurrencies like Ethereum and even Doge Coin, which was originally created as a joke, fared better than Bitcoin in April, rising by 50% and 468% respectively.

It is no surprise that investors are tempted to put some capital to work in frontier markets like this, given the fast money being made, and lost.

By contrast, gold, and precious metals more generally, are far more staid investments, which is exactly why they are better suited to long-term wealth preservation, as we highlighted in detail in our recently published Gold, Bitcoin and the Elon report.

‘Hungary’ for gold

Data from the WGC looking at Q1 2021 gold demand highlighted some interesting trends that illustrate the set up for the precious metal right now. Key insights include:

• A 52% year on year increase in gold jewellery demand, driven by a more than 200% increase in China. To contextualise, Q1 2020 was one of the worst quarters on record for gold jewellery demand, as it was of course during this period that COVID-19 and its associated lockdowns were wreaking havoc across much of Asia.

• A 36% year on year increase in physical bar and coin demand, with almost 340 tonnes of gold bought in this format in Q1. The number was also 37% above the five-year quarterly average for bar and coin demand, with China and India again key contributors to this increase.Western markets also saw strong demand, evidenced by minted product sales from The Perth Mint which we highlighted in our end March product update, with Q1 sales hitting all-time highs for gold.

• Huge outflows from gold ETFs, with almost 180 tonnes of gold sold from these products in Q1 2021, on top of 130 tonnes of outflows seen in Q4 2020. This represents the second fastest pace of ETF outflows on record, exceeded only in 2013 when the gold price suffered a major correction. The chart below, which highlights rolling six month changes in the US dollar gold price and total gold ETF holdings, illustrates clearly just how important this segment of the market is.

a line graph depicting 6 month changes

Source: The Perth Mint, World Gold Council

Developments in the central bank space have also been noteworthy, with total net purchases in Q1 2021 of 95.5 tonnes. While this represents a more modest pace of acquisition that has been in place since the second half of 2020, it would still see central banks accumulate close to 400 tonnes for the year if this rate of purchases was continued.

Hungary was the main contributor to demand in Q1, purchasing 63 tonnes in March, with its central bank noting that: “The appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value.“

So much for central banks not liking gold.

Outlook for gold – bull market back on?

While precious metal bulls should be encouraged by the bounce in prices seen in April, which has so far continued in the first few trading days of May, the market remains in a trading range, with gold likely needing to decisively break above USD 1,800 per troy ounce to tempt more investors back into the space.

For prices to rise further, ETF investors would need to turn net buyers, and/or speculators in futures markets will need to add to their long positions.

There are multiple catalysts that could see this happen should they eventuate, from a falling US dollar, to declining real yields, or a long-overdue pullback in equities and broader crypto currency markets.

On the consumer side, while it has been impressive to see the uptick in demand in 2021, there are no guarantees this will continue across the entirety of the year. Indeed, if anything, demand for jewellery in particular is likely to slow, driven largely by an expected slump in India, which, distressingly, continues to be ravaged by COVID-19. 

With more than 300,000 cases of the virus diagnosed every day, the latest news suggests gold is already selling at a small discount in India, which may continue for some time, and feed into subdued overall market sentiment toward the precious metal.


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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How should SMSF trustees invest in gold?

A nest full of golden eggs

Precious metals were at the forefront of investors’ minds in 2020, as the fallout from the COVID-19 crisis saw the price of gold rise by more than 20%, with investment demand soaring.

Despite the pullback in the gold price seen in Q1 this year, the investment environment in the years ahead is likely to remain supportive for gold.

For investors wanting to build a well-diversified portfolio, the precious metal can offer several key benefits, including the fact that it has:

    • Historically outperformed in low real interest rate environments, with the gold price typically increasing by approximately 20% per annum in years the real cash rate in Australia was 2% or lower.

    • Historically been the best performing asset in the months, quarters and years that the share market falls. For example, in the worst five years for Australia’s equity market (where stocks on average fell by 24%), the price of gold increased on average by 39%.

How to invest in gold

Separate to the discussion on why to invest in gold, is the question of how.

Note that for the purpose of this article, we are excluding gold miners from the equation, as although they are exposed to the gold price, they do not mimic the return on gold itself, with a range of factors that can lead them to outperform, or underperform the precious metal.

The table below highlights three main ways investors access gold these days, with The Perth Mint offering all of these options to its clients. The table also highlights the potential advantages and drawbacks of each option for investors like SMSF trustees to consider.

While physical bars and coins which people self-store (for example at home) will forever remain an important part of the overall gold market, they are less popular with SMSF trustees for a number of reasons, including the fact they are typically more expensive to buy and sell.

For this reason, SMSF trustees tend to invest in gold via:

A depository account like The Perth Mint’s Depository Online option

This is similar to a share trading account, but instead it is used to buy and sell gold and other precious metals which are held in custody by The Perth Mint on behalf of investors.

As an example, The Perth Mint Depository Online option allows SMSF trustees to trade 24/7 without the worry of having to store the metal themselves.

Valuations can also be provided to facilitate the reporting requirements SMSF trustees must adhere to.

A gold ETF like Perth Mint Gold (ASX:PMGOLD)

Bought and sold like regular shares via a stockbroker or online trading account, gold ETFs are becoming the most popular way for SMSF trustees to invest in gold.

Gold ETFs also tend to be the lowest cost way of accessing gold, with trading spreads that are cheaper than buying bars or coins. Management fees are also very competitive. As an example, ASX:PMGOLD has a management fee of just 0.15%.

Gold ETFs are arguably the easiest way for SMSF trustees to invest in gold, given the vast majority already own shares and can therefore make an investment out of their existing brokerage account.

For a more detailed read on the key reasons why investors like SMSF trustees are turning to gold, please access our latest SMSF investment whitepaper.

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What to look for when choosing a gold ETF

businessman pointing to the word ETF

In the last 15 years, gold exchange traded funds (ETFs) have become an increasingly popular way for investors, including SMSF trustees, to gain exposure to the precious metal in their portfolio.

Australia was at the forefront of the development of the gold ETF market, with the Australian Securities Exchange (ASX) listing gold ETFs, including Perth Mint Gold (ASX:PMGOLD), ahead of most international exchanges in 2003. 

Bought and sold like a regular share, such products track the price of gold, offering the same economic exposure to investors as physical gold bars or coins, without the need for investors to personally store the gold bullion themselves.

This tends to make them easier and more liquid to trade from an investor’s perspective, while the fact they are listed on a regulated exchange provides additional comfort.

Gold ETFs also tend to be the lowest cost way for investors to incorporate gold into their portfolio, with transaction spreads that are typically sub 0.10% to buy and sell. This means a AUD 50,000 investment into a gold ETF would likely only incur a cost of AUD 50 maximum plus brokerage.

Whilst most gold ETFs do a very good job of tracking the gold price itself, they are not all created equal. Below is a list of questions investors would be well served considering when it comes to picking a gold ETF should they decide to allocate a portion of their portfolio to the precious metal.

Questions to ask when picking a gold ETF – and the answer for Perth Mint Gold (ASX:PMGOLD)

What is the management fee?

Management fees paid to the product issuer eat away at the net return an investor earns on any asset class, including gold. All other things being equal, the lower the management fee the better, so if the gold ETF you are looking at charges more than its peers, it’s certainly worth asking why.

ASX:PMGOLD charges a management fee of just 0.15%.

Who is the product issuer?

It is critical to know the background of the organisation issuing any financial product, including gold ETFs. When was it founded? Who owns the company? How big is its balance sheet? What expertise does it have in the precious metal market? These are all questions worth asking when assessing a gold ETF.

ASX:PMGOLD is issued by Gold Corporation (which trades as The Perth Mint). Gold Corporation has more than a century of experience dealing in precious metals. It is 100% owned by the Government of Western Australia, has more than AUD 6 billion in assets and turns over more than AUD 20 billion in precious metals each year.

Who are the counterparties to the gold ETF?

Apart from the product issuer, most, though not all, gold ETFs will have at least three other counterparties. These include the trustee, the custodian (where the gold sits), and the market maker (or market makers), who provide liquidity to the product.

ASX:PMGOLD is fully operated by Gold Corporation, which is the issuer, custodian and market maker for the product.

Who holds legal title to the gold backing the product?

This is arguably the most important risk factor to analyse when picking a gold ETF. In nearly all cases, investors in a gold ETF don’t actually own title to the gold itself. They own a financial instrument, with that financial instrument backed by gold holdings.

The custodian of the gold might be the owner, or it might be a trustee company. It is worth asking that question and making sure you are comfortable with the answer, as that custodian or trustee is arguably your primary counterparty.

ASX:PMGOLD is backed by gold held by The Perth Mint on behalf of the fund investors.

How is the gold backing the product sourced?

It is worth asking the product issuer of a gold ETF where it sources the gold backing its product. Some may be entirely reliant on the gold custodian they use because they don’t have access to gold themselves.

ASX:PMGOLD is backed by gold The Perth Mint sources in the marketplace. This includes gold from Australian gold miners, who produce more than 300 tonnes per year. Australia has been the second largest gold producing country in the world over the last ten years, with The Perth Mint refining the vast majority of this gold.

Where does the gold physically sit?

It is worth knowing where the gold backing an ETF is sitting. Most gold ETFs use reputable high-profile gold custodians, but there can still be a degree of jurisdictional risk if the gold is physically sitting outside Australia.

ASX:PMGOLD is backed by gold stored in The Perth Mint’s vaults and across its operations, including both the refinery and minting divisions.

What form is the gold stored in?

Some gold ETFs are backed by allocated metal, which means numbered bars that typically sit in a vault, owned by the trustee, or custodian, on behalf of the product investors. Others are backed by unallocated metal, which can include gold that is in numbered bars, as well as gold that is being refined, cast or minted.

ASX:PMGOLD is backed by gold held in unallocated form in The Perth Mint’s vaults and across its refining and minting operations.

How is liquidity provided to the product?

All gold ETFs require market makers to provide liquidity to the product, meaning they will be there to sell units to investors that want to buy them, or buy units from investors that want to sell them.

It is worth asking whether the product issuer does the market making itself (this alone is a good indication it has a sizeable balance sheet and expertise in precious metals trading directly), or whether or not it outsources this function.

ASX:PMGOLD market making is provided by The Perth Mint directly. As such, investors benefit from the more than AUD 20 billion in liquidity that The Perth Mint accesses in the global precious metals marketplace.

Can your investment be redeemed for physical gold, and if so, how?

A key attribute of a gold ETF is whether or not the ETF holdings can be converted into physical gold for delivery or not. Some can’t be converted at all, whilst others may require overly complex processes that make it all but impossible to do.

While most investors who buy gold ETFs will likely end up selling them for cash, knowing it can be converted into physical gold is an additional level of security.

ASX:PMGOLD investors can redeem their holdings into physical gold bars manufactured by The Perth Mint. Investors simply need to fill in an Exercise Notice (which is contained within the PDS), and The Perth Mint will provide the gold bars the investor has requested, which can be delivered anywhere in Australia, or collected from its offices in Perth.

Are there any additional investor protections in place?

It is worth considering what investor protections are in place should something happen to the gold custodian who is storing the precious metals backing a gold ETF.

ASX:PMGOLD investors are protected by the unique government guarantee that protects all investors in The Perth Mint Depository.

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Bargain hunters stock up as gold prices fall

gold figures of a bull and a bear

Gold prices continued to correct in March 2021, suffering a 3% decline and ending the month below USD 1,700 per troy ounce. Multiple factors have driven the correction, with sentiment reading showing the market is now deeply unloved. While volatility is expected to persist, the correction in prices since August last year may be close to ending, with astute investors adding to their holdings during the recent weakness.

Summary of market moves:

• The Australian dollar gold price fell by just 1.50%, finishing the month trading above 2,200 per troy ounce. Over the past year, Australian dollar gold prices are now down by just over 15%, with the pullback largely driven by the increase in the value of the local currency, which rallied 23% in the 12 months to March 2021.

• Silver also fell sharply during March, ending the month down by more than 10%. YTD it is still outperforming gold, with the gold to silver ratio ending Q1 2021 at 70

• Global stock markets continued to rally in March, with the S&P 500 in the US increasing by 4%. In early April, the index topped 4,000 points for the first time.

• Yields in the US continued to climb, with 10-year bonds ending March with a yield of +1.74%, up from +1.44% at the end of February. This contributed to the continued increase in real yields, though they remain negative on all Treasury bonds with maturities of 20 years or less.

• US dollar strength was also a contributor to precious metal price weakness, with the US Dollar Index (DXY) rising by 3% during March.

Full report - March 2021

Gold and silver prices continued to weaken in March, with the precious metals falling by 11% (gold) and 9% (silver) in the first three months of 2021. The decline in the gold price represents the third largest quarterly decline and the weakest start to a year in two decades.

There were multiple factors contributing to the sell-off, which has now seen the US dollar gold price pull back by almost 20% since it hit all-time highs in August 2020. These factors include a rally in the US dollar, which rose by close to 3% in March, as well as an increase in real bond yields.

Soaring prices for cryptocurrencies also chipped away at gold demand, with Bitcoin trading near USD 60,000, while a range of crypto-friendly developments contributed to a weakening in sentiment toward precious metals.

Finally, continued strength in equity markets, with the S&P 500 topping 4,000 points in early April, combined with rising optimism regarding economic growth amid continued fiscal and monetary support, have also limited safe haven demand for gold, even as inflation expectations continue to rise.

In this detailed market report, we look at a range of factors from bond yields, to inflation rates, to gold’s interplay with commodities, as well as demand in the ETF, gold futures and bar and coin market, to gauge where precious metals sit today and contextualise their recent performance.

The report finishes by looking at sentiment in the gold market and why, perhaps more than any other factor, it encourages us that the correction in gold may be nearing its end, with the precious metal already reclaiming the USD 1,700 per troy ounce level in early April.

Yields and inflation

One factor that has contributed to the sell-off in gold has been the increase in bond yields.

This can be seen in the table below, which plots the nominal bond yield on a range of US Treasury bonds on 6 August 2020 and 31 March 2021, as well as gold prices on those days.


2 year

5 year

10 year

20 year

30 year

Gold price















Source: US Treasury

Rising yields, particularly at the longer end of the market, have been a factor pulling gold down, as these higher yields represent an increased opportunity cost of investing in the precious metal.

Given the market expects that economic growth rates will continue to improve and that record levels of fiscal stimulus will see continued upward pressure on bond yields, it is understandable why many think the outlook for gold is still troubled at best.

Logical as this may sound, market history demonstrates very clearly that gold often thrives in environments where nominal bond yields are rising.

Consider that in the 1970s, the US 10-year bond yield rose from close to 6% to more than 12% (it peaked closer to 15% in 1981). In that 10 years bond yields doubled and the gold price rallied from under USD 50 to more than USD 580 per troy ounce.

In the early 2000s we saw a similar phenomenon at play. In May 2003 the US 10-year bond yielded 3.37%. By June 2006, the yield on the US 10-year hit 5.15%, an increase of 50% relative to where it sat in May 2003. Over the same period, the gold price rose by almost 85%, increasing from USD 341 to USD 629 per troy ounce.

Clearly, nominal yields are only one factor at play, with changes in inflation dynamics helping to provide a better understanding of gold price movements.

Over the past six months, while inflation and inflation expectations have continued to rise (the US 10-year breakeven inflation rate has gone from +1.63% to +2.37%), real yields have increased, with the US 10-year treasury bond seeing its real yield climb from -0.94% to -0.63%.

It’s also worth stating that while inflation (CPI) rates are rising, they remain comfortably toward the lower end of the historical range, with official US CPI increasing by just 1.7% in the 12 months to end February 2021.

Inflation rates are also coming off a very low base, driven by the collapse in economic activity and in commodity prices that took place last year.

Given this backdrop, both the market and policymakers are likely to ‘look through’ rising inflation rates for most of 2021 at least, with many seeing a returning inflation impulse as a good thing and a sign of a rebounding economy.

This in part explains why gold has pulled back the way it has in the last six months.

Commodity prices soaring – why not gold?

Another factor confounding some investors is the fact that broader commodity indexes have soared in the past six months, with energy, agriculture and industrial metal indices up anywhere from 20-35% since August, while gold has fallen.

On the surface this might seem strange, but the World Gold Council (WGC) published a great article on this phenomenon in late March. Titled Gold, commodities and reflation, it noted that gold’s weak performance in the last few months is consistent with past reflationary episodes.

The article also noted that the bounce in commodities has come off a multi-decade low as a base. Gold, by contrast, started 2020 trading at more than USD 1,500 per troy ounce, having risen by almost 20% in the preceding year, and of course increased in value during Q1 2020. By contrast, commodity prices, which were broadly flat in 2019, cratered during the first quarter of last year, falling by almost 25%.

Given such vastly different starting points, it should be no surprise that commodities have outperformed gold as strongly as they have over the last six to 12 months.

Looking ahead, there is reason for precious metal bulls to be enthusiastic, as the WGC report noted that: “gold has on average caught up to most major commodity groups by the second and third years from the start of a reflationary period since 1991.”

Gold futures market and ETF positioning

Since the correction in precious metal prices that began in August last year, speculators who use the futures market to express a view on gold, and ETF holders, have drastically trimmed their positions.

In the gold ETF space, more than 310 tonnes of gold have been divested since September 2020, when total holdings hit an all-time calendar quarter high of just over 3,880 tonnes. The market value of these gold ETF holdings has declined by closer to 20% over this time period, having fallen by more than USD 45 billion.

To put it in context, the sheer volume of outflows from gold ETFs seen over the last six months has only been outpaced once. That was back in 2013, when the gold price fell by more than 25%, with total gold ETF holdings falling by more than 30% that year.

In the futures market, managed money long positions declined to just 113,000 contracts by the end of March 2021. That is a decline of almost 60% relative to where positioning was back in late February 2020. It’s also almost 30% lower than average long positioning seen in the market since 2009.

Meanwhile, the managed money gross short position in the gold market was almost 70,000 contracts at the end of March, up from closer to 10,000 contracts a year ago.

While part of the absence of short positioning in the market a year ago was a result of the logistical challenges of moving gold during peak COVID uncertainty (spreads between spot gold and the nearest dated futures contracts blew out as a result during this period), there is no doubt the market is far more cautiously positioned today.

This can be seen in the chart below, which highlights gross long and gross short positions, as well as the US dollar gold price from 2009 through to end March 2021.

Source: CFTC, Y-charts, The Perth Mint

This chart is another indicator that the precious metal market has either already bottomed or is in the process of doing so. In the past decade, managed money readings have only twice been as, or more cautious than, they are today.

The first time was in 2015, when gold was ending a four-year bear market cycle, and again in late 2018, when the precious metal was trading below USD 1,200 per troy ounce.

Both occasions proved to be a good time to add precious metals to an investment portfolio.

Physical demand rising

While the gold ETF market continues to see outflows and the futures market continues to see speculators unwind their positions, there are more encouraging signs in the physical market for bars, coins and jewellery, particularly in key consumer nations like China and India.

A late March article in the South China Morning Post noted that gold jewellery sales at big urban retailers in China had more than doubled during the Lunar New Year holiday compared with sales figures in 2020, while jewellers in India were expecting to see solid demand lasting until May at the earliest.

Here at The Perth Mint, we are seeing extremely high levels of demand for minted gold and silver bars and coins, which are the products favoured by retail investors who want to physically hold their precious metal investments (versus using our Depository or ETFs like ASX:PMGOLD which also offer gold price exposure).

In March, The Perth Mint sold more than 130,000 troy ounces of gold and almost 1.6 million troy ounces of silver in minted product form, which was shipped to clients worldwide. These figures are 285% higher (gold) and 178% higher (silver) than average monthly sales dating back to 2012.

For Q1 2021, The Perth Mint sold more than 330,000 troy ounces of gold and more than 4.5 million troy ounces of silver in minted product form. These figures represent the highest calendar quarter on record for gold and the fourth highest calendar quarter on record for silver.

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

Outlook for gold - sentiment couldn’t be worse

One factor that may encourage precious metal bulls is the fact that sentiment readings toward gold in particular are incredibly depressed. Almost no one in the mainstream financial media is bullish about gold right now, while many are almost outright mocking gold as an investment.

This was perhaps best encapsulated in a Bloomberg update from early April, which stated that it was “time to officially bury Goldbug Macro”. The article noted that despite the fact the US Federal Reserve has seen its balance sheet rise from under USD 3 trillion to almost USD 8 trillion in the last 10 years, the gold price is only up about 10% in US dollar terms.

It also noted how benign official inflationary pressures have been over this time period, with the author noting that: “After two huge crises in just over a decade, plus fiscal and monetary stimulus the likes of which we haven't seen before, we now have enough evidence to bury the economic fantasies of gold's most ardent believers.”

This is exactly the kind of commentary one expects to see toward the end of a correction, not just in gold but in any asset class. No one would have felt confident printing an article like that back in August 2020 when the gold price was above USD 2,050 per troy ounce, sentiment was red hot, and analysts were tripping over themselves to publish ever higher price forecasts.

The Bloomberg article isn’t the only example of how bad sentiment toward precious metals is today. In early March, an article titled Gold Timers Are Finally Throwing in the Towel was published on thestreet.com.

Author Mark Hulbert opened the article with the following statement (bold emphasis ours): “Take heart, long-suffering gold traders: A sustainable rally is getting close. I base this forecast on a contrarian analysis of sentiment among several dozen gold market timers. Collectively, they are now more pessimistic than at almost any other time over the past two decades.”

Hulbert’s insights were backed by data from Sentimenttrader.com, which also suggested the market was more bearish on gold by late March 2021 than it had been at any point in the past 20 years.

Combine this with technical readings that also suggest the market is deeply oversold, and it is little wonder contrarian investors are now busy adding to their precious metal positions.

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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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