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Create AccountA billion reasons to buy silver as gold joins the party
08 March 2024
In this week's market update:
In the news this week:
Gold prices surged to all-time highs this week, with the price breaking out above USD $2,150oz. The 5% rally in USD gold now sees the precious metal trading 18% higher than where it was one year ago, when markets first began to panic due to the collapse of Silicon Valley Bank.
This week’s rally has been fuelled by a number of factors, including remarks from Jerome Powell, Chair of the US Federal Reserve, who gave a heightened indication that interest rate cuts may be on the way in the United States.
The move higher in gold has caught some traders unaware, with speculators short the gold market looking to cover positions. This was one of the subjects Saxo Bank discussed in detail in one of their most recent updates, with Ole Hansen, their Head of Commodity Strategy, noting “gold’s resilience during February when the yellow metal ended up unchanged on the month despite the negative pull from a stronger dollar and rising bond yields, after rate cut expectations deflated with the first cut being delayed until June or later. Furthermore, so-called ‘paper’ gold investors in ETFs and futures have so far this year been net sellers of gold, in ETFs by around 100 tons while speculators in the futures market have halved their net long after selling around 190 tons.”
World Gold Council data also shows continued buying from global central banks, who added to their holdings for an 8th month, with 39 tonnes of metal added in the month of January. The trend in sales and purchases can be seen in the chart below.
While many have questioned the sustainability of gold’s price action in recent months, the outlook is beginning to turn, with USD $2,000oz beginning to look like a price floor, rather than a ceiling, which been the perception of many for some time.
Analysts are now openly calling for higher gold prices, including ANZ who see further price upside.
Is now the time for silver?
While gold will always get more attention in the precious metal market, silver is also an incredibly popular investment, especially among retail investors who prefer bar and coin holdings.
The case for silver was made clear in this recent release from The Silver Institute, who forecast global silver demand to rise to 1.2 billion ounces in 2024, the second highest level ever seen.
At ABC Bullion, we see five factors that may encourage investors to add an allocation to silver in their portfolio. We have listed them below.
If history is any guide, its just getting started.
Chart of the week:
This weeks chart comes courtesy of @BobEUnlimited who published a thread of gold charts on Twitter this week. That included the below, which shows both the USD gold price, and the total amount of gold held in gold ETFs.
The chart makes it clear there was a remarkably close correlation between the two up until early 2022.
Since then, a notable divergence has emerged, as Western investors using ETFs have largely abandoned the gold market (futures market positioning is also very light at present), while Eastern investors and central banks have continued to accumulate.
That gold is at all-time highs despite the absence of buying from ETF investors is telling.
It speaks to an incredible resilience in physical markets, which can be expected to put further upward pressure on prices in due course.
It also stands in stark contrast to what we are seeing in the Bitcoin market, with ETFs seeing massive inflows in the crypto space. One market (crypto) is seemingly reliant on a Western speculative mania to keep it going. The other is at all-time highs despite complete apathy from the same cohort of investors.
Pod of Gold – How High Could Gold Go?
On the 25th February, my colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, recorded his most recent Pod of Gold.
Brilliantly timed, it discusses a range of factors, the most notable of which is a pathway for gold to rise toward USD $2,500oz (skip to the 12-minute mark for this).
It is a must listen, with other subjects (and their time stamps) listed below:
ABC Bullion has been making a market in precious metals for more than 50 years in Australia. Over that time, we have been on the front line of this market, witnessing firsthand the ebbs and flows of changes in investor sentiment and buying and selling preferences.
Suffice to say the past week has seen elevated activity across all our investment channels, with the surge higher in precious metals that we have seen since the start of March igniting a spike in trading volumes.
One segment of our client base, including new investors, are busily adding gold and silver to their portfolios, while another segment is in profit taking mode, taking advantage of the all-time high gold price to liquidate part of their portfolio.
On the buy side, silver coins are proving one of our most popular investments, no doubt driven by the special promotion we are running on 1oz silver coins from the Britannia to the Maple to the Krugerrand, all of which we are selling at a flat $2 above spot.
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Jordan Eliseo
General Manager
ABC Bullion Australia
Disclaimer: This document has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this document or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it. Although the information and opinions contained in this document are based on sources, we believe to be reliable, to the extent permitted by law, ABC and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice, and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances. To the extent possible, ABC, its associated entities, and any of its or their officers, employees and agents accepts no liability for any loss or damage relating to any use or reliance on the information in this document. It is intended for the use of ABC clients and may not be distributed or reproduced without consent. © Australian Bullion Company (NSW) Pty Limited 2020.
- Gold prices soared to new heights this week, with the precious metal rising by more than 5%, last trading above USD $2,150 per troy ounce (oz).
- Silver also rallied, last trading at USD $24.30oz. The +9% rally in silver saw it outperform gold to the upside, with the gold to silver ratio falling from 92 to 89 in the past five trading days.
- The sharp move higher in precious metals occurred despite the calm in equity and FX markets, with the S&P500 +1% for the week.
- Gold also rallied despite lukewarm sentiment, and modest investor positioning, which bodes well for the price outlook.
In the news this week:
Gold prices surged to all-time highs this week, with the price breaking out above USD $2,150oz. The 5% rally in USD gold now sees the precious metal trading 18% higher than where it was one year ago, when markets first began to panic due to the collapse of Silicon Valley Bank.
This week’s rally has been fuelled by a number of factors, including remarks from Jerome Powell, Chair of the US Federal Reserve, who gave a heightened indication that interest rate cuts may be on the way in the United States.
The move higher in gold has caught some traders unaware, with speculators short the gold market looking to cover positions. This was one of the subjects Saxo Bank discussed in detail in one of their most recent updates, with Ole Hansen, their Head of Commodity Strategy, noting “gold’s resilience during February when the yellow metal ended up unchanged on the month despite the negative pull from a stronger dollar and rising bond yields, after rate cut expectations deflated with the first cut being delayed until June or later. Furthermore, so-called ‘paper’ gold investors in ETFs and futures have so far this year been net sellers of gold, in ETFs by around 100 tons while speculators in the futures market have halved their net long after selling around 190 tons.”
World Gold Council data also shows continued buying from global central banks, who added to their holdings for an 8th month, with 39 tonnes of metal added in the month of January. The trend in sales and purchases can be seen in the chart below.
While many have questioned the sustainability of gold’s price action in recent months, the outlook is beginning to turn, with USD $2,000oz beginning to look like a price floor, rather than a ceiling, which been the perception of many for some time.
Analysts are now openly calling for higher gold prices, including ANZ who see further price upside.
Is now the time for silver?
While gold will always get more attention in the precious metal market, silver is also an incredibly popular investment, especially among retail investors who prefer bar and coin holdings.
The case for silver was made clear in this recent release from The Silver Institute, who forecast global silver demand to rise to 1.2 billion ounces in 2024, the second highest level ever seen.
At ABC Bullion, we see five factors that may encourage investors to add an allocation to silver in their portfolio. We have listed them below.
- Inflation Protection: Silver typically outperforms gold in years that inflation is high with average returns of close to 18% per annum in such periods.
- Industrial use: Industrial demand for silver is near all-time highs. This will help support the market going forward as it provides an additional source of support, over and above the monetary or investment demand which gold is best known for, and which also benefits silver.
- Historically cheap: The gold to silver ratio (which measures how many ounces of silver you need to buy an ounce of gold) is currently just below to 90. That number has averaged closer to 60 over the long-run and has been below 30 in the past. This suggests silver is cheap relative to gold and reinforces idea it may strongly outperform in the next precious metal bull market.
- Liquid/portable: Silver is very liquid, highly portable, and available in small denomination investments from 1oz silver coins to 10oz bars etc. This can be extremely useful for investors.
- Bull Market Runs: In precious metal bull markets, silver typically leads the way. It has generated average returns of close to 500% in five major bull market periods since the 1970s.
If history is any guide, its just getting started.
Chart of the week:
This weeks chart comes courtesy of @BobEUnlimited who published a thread of gold charts on Twitter this week. That included the below, which shows both the USD gold price, and the total amount of gold held in gold ETFs.
The chart makes it clear there was a remarkably close correlation between the two up until early 2022.
Since then, a notable divergence has emerged, as Western investors using ETFs have largely abandoned the gold market (futures market positioning is also very light at present), while Eastern investors and central banks have continued to accumulate.
That gold is at all-time highs despite the absence of buying from ETF investors is telling.
It speaks to an incredible resilience in physical markets, which can be expected to put further upward pressure on prices in due course.
It also stands in stark contrast to what we are seeing in the Bitcoin market, with ETFs seeing massive inflows in the crypto space. One market (crypto) is seemingly reliant on a Western speculative mania to keep it going. The other is at all-time highs despite complete apathy from the same cohort of investors.
Pod of Gold – How High Could Gold Go?
On the 25th February, my colleague Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery, recorded his most recent Pod of Gold.
Brilliantly timed, it discusses a range of factors, the most notable of which is a pathway for gold to rise toward USD $2,500oz (skip to the 12-minute mark for this).
It is a must listen, with other subjects (and their time stamps) listed below:
- (1:43) – The market machine versus the Fed
- (3:25) – We still have a positive dollar environment.
- (6:05) – Short term gold price targets
- (8:55) – Managed money positioning
- (11:10) – Option strikes for gold remain magnetic.
- (17:59) – Australian rate decisions ‘the canary in the coal mine’
- (21:27) – Chinese market intervention blunts market price discovery.
ABC Bullion has been making a market in precious metals for more than 50 years in Australia. Over that time, we have been on the front line of this market, witnessing firsthand the ebbs and flows of changes in investor sentiment and buying and selling preferences.
Suffice to say the past week has seen elevated activity across all our investment channels, with the surge higher in precious metals that we have seen since the start of March igniting a spike in trading volumes.
One segment of our client base, including new investors, are busily adding gold and silver to their portfolios, while another segment is in profit taking mode, taking advantage of the all-time high gold price to liquidate part of their portfolio.
On the buy side, silver coins are proving one of our most popular investments, no doubt driven by the special promotion we are running on 1oz silver coins from the Britannia to the Maple to the Krugerrand, all of which we are selling at a flat $2 above spot.
Jordan Eliseo
General Manager
ABC Bullion Australia
Disclaimer: This document has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this document or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it. Although the information and opinions contained in this document are based on sources, we believe to be reliable, to the extent permitted by law, ABC and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice, and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances. To the extent possible, ABC, its associated entities, and any of its or their officers, employees and agents accepts no liability for any loss or damage relating to any use or reliance on the information in this document. It is intended for the use of ABC clients and may not be distributed or reproduced without consent. © Australian Bullion Company (NSW) Pty Limited 2020.
