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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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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.



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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.



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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.



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