Market Updates

Precious metal prices rallied last week, with the price of gold climbing back toward USD $1,340 per troy ounce (oz), whilst silver prices rallied toward the USD $20oz level at one point, before giving up some of the gains.

As it stands, September is set to be a positive month for the precious metal complex, arresting the decline witnessed in August, which at one point threatened to push gold below the USD $1,300oz level, and did take out USD $19oz in the silver market.

Physical gold has been one of the best performing assets this year, up some 20%, with the price currently sitting just below AUD $1,750 per troy ounce. This continues a strong run that dates back to the turn of the century, with gold prices returning close to 9% per annum over this time period.
Despite the solid returns, gold is still barely on the radar of most investors, with global pension funds holding less than 0.50% of total assets in gold.

With the central banking symposium at Jackson Hole coming to an end, Livewire, one of Australia's leading financial news platforms, was kind enough to ask us, as well as analysts from BT Financial Group, JCB, Morphic and Nikko Asset Management for our views on the event, and the implications for monetary policy going forward.

You can read the report here.

Below are our answers to the questions in full!

It’s been a relatively uneventful month for precious metals so far, with the price of gold in USD up slightly, currently trading at USD $1,352 per troy ounce, whilst silver has eased somewhat.

In AUD, the price is just holding above $1,750 per troy ounce, with a stronger than expected Australian jobs report helping push the local currency back toward and indeed briefly above USD $0.77.

Though the precious metal market has no lack of support right now, a rally in risk assets, greater (though not great) chances of another rate hike from the Fed, a reduction in net gold longs from speculative traders in four of the last five weeks, and even some minor outflows from gold ETFs have acted to limit any further upside for precious metals of late.

Too much bullishness is never a good thing! For precious metals bulls, it is worth keeping that in mind, with the metal trading near AUD $1800 an ounce this week, up circa $350 in 2016 already.
 
Short-term, we wouldn’t be surprised to see the metal take a breather here, but with a price rise of over 25% YTD, equity markets volatile, and the cash rate moving lower, it’s no surprise that interest in the sector is skyrocketing.

On Tuesday night, ABC Bullion hosted a sold out seminar; “The New Bull Market in Precious Metals”, in front of over 600 existing and new clients, as well as an assorted mix of finance professionals and media at the Ivy Ballroom in Sydney, NSW.

We had key-note speeches from Jake Klein, the Executive Chairman of ASX listed gold Evolution Mining, as well as Tom Rachcoff from Cor Capital Pty Ltd, a diversified investment portfolio with a strategic holding in physical gold bars.

In this week’s market update – we’re going to highlight what we believe some of the takeaways from the night were, and discuss possible price targets for precious metals in the next few years.

There has been a flurry of articles written about precious metals lately, not surprising considering the strong rally in the first half of 2016, which saw gold and silver outperform most mainstream asset classes by some margin.

Some of the articles have been wildly bullish, whilst others are unconvinced by the recent rally, believing that gold is still stuck in the cyclical bear market that can be traced back to the latter part of 2011, when gold peaked at around USD $1900oz.

One of the more interesting articles we’ve seen on the topic of late came from Montgomery Investment Management, run by Roger Montgomery, one of Australia’s most successful and best known value investors. They discussed the precious metal in an article titled; “Is it time to buy gold?”, which they published on June 28th, just before the end of the financial year.

Financial markets went through one of their most volatile trading days on record Friday, with an unexpected Brexit vote causing chaos on currency markets and stock exchanges, with huge moves in the Japanese yen, declines in bond yields, and a rally in gold, as investors flocked to safe haven assets.
 
This morning, gold is trading back USD $1320 per troy ounce, whilst in Australian dollars, the price is closing in on AUD $1800 per troy ounce, owing to a sharp decline in the local currency.
 
Below we share our thoughts on the impact that the vote will have on markets and the investing world, as well as the result itself!

Gold prices rallied strongly on Friday night, an understandable reaction to some of the worst US employment data in years. The news, which rattled currency markets, saw a notable re-pricing of US interest rate expectations, whilst the Australian dollar rallied too.
 
This week, we wanted to share something a little different to our regular market updates. It is not precious metal specific (though gold is a topic that is discussed) but which we think is highly relevant to all Australian investors, as the vast majority of ABC Bullion clients are.

For the first time in 2016, precious metal investors are on the back foot, with gold and silver declining from early May. After closing out April at USD $1274.50 and USD $17.85 per troy ounce respectively, the two precious metals eased 5% and 10% respectively.
 
With gold closing out May at USD $1210.50 per troy ounce, and silver at USD $16.06, the gold silver ratio has also increased back to 75:1, a not unexpected development considering the overall trend in the market the past four weeks.

Despite the overnight pullback, it’s been another solid week for precious metal investors, with gold in USD trading at $1267 per troy ounce. In Australian dollars, prices are closer to $1735 per troy ounce, with the local currency having fallen below USD $0.73.
The fall in the currency represents a dramatic change in the space of just a few weeks, owing to the RBA rate cut from early May, as well as a dramatic repricing of interest rate futures, which suggest we could hit Xmas 2016 with a cash rate closer to 1% than 2%.

Look for a move to US$1020 with support at US$1013

If support at US$1013  doesn’t hold then note a target to US$982 on the hourly P and F? That takes the price back to near the weekly cloud base.

Click to see our weekly report that captures the technical outlook for precious metals using Point and Figure and Ichimoku Cloud charts, along with a brief commentary that addresses the changes in speculative positioning in US futures exchanges and global ETFs. We will also discuss economic and other news affecting precious metals.

Weekly Technical and Precious Metals Positioning Report

Starting this week, ABC Bullion will be distributing a weekly report that captures the technical outlook for precious metals using Point and Figure and Ichimoku Cloud charts, along with a brief commentary that addresses the changes in speculative positioning in US futures exchanges and global ETFs. We will also discuss economic and other news affecting precious metals.

After the decent break that took place on Tuesday the 19th, it looks worthwhile to have a quick visit to the Weekly Charts and ratio charts to see how the picture has moved on since the report written a fortnight ago.

“Why investors may need to lower their sights”, looks at the extraordinary performance of financial markets in the last thirty years, describing them as a ‘golden age’ for investors, before noting that those returns were significantly higher than the long-term average.

Platinum has had a strong start to 2016, with the market rallying from US$889.50 to a high of US$1,008.50 in early March, a 13.30% increase, before easing back slightly. The price has pretty much as good a run as gold and silver, and has outshone its sister metal, palladium. To read more about this intriguing precious metal please click the image below to view our in depth report.

Nicholas Frappell
General Manager

ABC Bullion

Precious metals continue to impress, with another impressive week for the gold and especially silver. In US Dollars, the gold price continues to consolidate around the $1250 per troy ounce level, whilst it is again sitting comfortably above AUD $1600 per troy ounce, despite the continued strength in the Australian dollar, which was pushing above USD $0.78 earlier in the week.

This week also saw the launch of the Shanghai Gold Fix, with the Shanghai Gold Exchange starting a twice daily fixing system, an unsurprising development considering the growth of the gold market in China. The first fix was set at 256.92 per gram (circa $USD $1233.85 per troy ounce), according to Bloomberg.

Despite the overnight weakness, it’s been another solid week for precious metal investors, with gold trading just below USD $1230 per troy ounce, whilst in local currency, it is sitting just below AUD $1600 per troy ounce, with the dollar pushing well above $0.76 vs. the USD.

The bigger news has been in silver, with the little cousin of the precious metal complex now trading closer to USD $16.20 per troy ounce, up nearly 9% since the start of the month, when it was trading closer to USD $15.

The outperformance of silver in the last few trading days is giving further encouragement to those who believe the next move in this precious metal cycle will be to the upside, building on the impressive gains seen in Q1 2016.

Gold and silver prices have had another solid week, with the precious metals trading above USD $1230 and USD $15 per troy ounce respectively.

In Australian dollar terms, the metals are also trading strongly, sitting above AUD $1630 and $20 per troy ounce, consolidating the impressive returns in Q1 that saw the metal rise 17% in USD terms.

Precious metals have closed out a very impressive Q1 2016, a welcome respite after what has been a tough three years for those who’ve been long in the sector. After starting the year trading at USD $1,060 and USD $13.85 per troy ounce for gold and silver respectively, the market has rallied strongly, with the two metals finishing the quarter up 16% (gold) and 11% (silver). That is based on closing prices of USD $1234 and USD $15.38 per troy ounce for the two metals.

Gold prices corrected sharply overnight, with the price of the yellow metal falling as low as USD $1214 per ounce, with silver following suit, trading as low as USD $15.13 per ounce before stabilizing somewhat.

Prices for Australian dollar investors have also pulled back, with the local currency still stubbornly sitting above $0.75 per ounce. AUD gold is currently trading at $1620 per ounce, whilst silver is sitting at AUD $20.40, an area that has proved very good buying for most of the last year.

The price decline we’ve seen overnight has not come as a huge surprise, with a pullback expected for much of the past two to three weeks. Speculative and commercial positioning in the futures markets had suggesting precious metals were short-term overbought, and this kind of weakness is often a good thing, setting the market up for another move higher.

We will take a more detailed technical look at where the market sits today, after this pullback, and where the key support lines are late on in this report.

Gold prices have consolidated this week, originally pulling back before the very dovish projections from the Fed put some wind under the sails of precious metal prices.

In USD, gold is currently trading at $1259 per ounce, essentially unchanged for the week, whilst silver is sitting at $16 per ounce, up nearly 3% for the week. Prices in Australian dollars have corrected, owing to the quite extraordinary rally in the local currency, which has pushed above 76 cents vs. the US dollar.

AUD gold and silver are now trading just below $1650 and $21 per ounce respectively, a pullback that is all currency related, rather than due to any actual precious metal price weakness.

If they closed the books on 2016 tomorrow – precious metal investors would be celebrating a very happy year indeed. After ending 2015 as the most hated asset class on the planet, gold has trumped all over the last several weeks, currently trading north of USD $1250 and AUD $1700 per ounce.

The price in Australian dollars, up nearly 20% for the year, is even more extraordinary when one considers where the local currency is, with the Australian dollar sitting at $0.74 vs. the US dollar, testament to better than expected GDP figures down under, a bounce in iron ore, and the realization the Fed’s forecasts for stronger growth and higher rates in the United States were as inaccurate heading into 2016 as they were heading into 2008.

The performance of gold over this period has seen huge inflows into gold ETFs, strong retail demand (ABC Bullion turnover is particularly brisk right now), and an incredible change in speculative activity in the precious metal market, with managed money now aggressively long, whilst shorts have all but disappeared.

Indeed so strong has gold been of late that we’ve even seen the more ‘entertaining’ end of the finance media endorse gold investment, with Jim Kramer coming out and stating that every portfolio should have an allocation to gold and silver. Obviously we agree – though on a short-term basis, too much bullishness towards the sector makes us nervous, and we are more inclined to believe a correction can’t be too far away.

First: the facts. Gold prices have been on a tear the past week, with the price of the yellow metal climbing above USD $1240 an ounce, now up an incredible 18% in USD terms since the start of the year. Silver has come along for the ride of late too, currently trading at USD $15.70 an ounce. YTD it is now up 14%, with precious metals comfortably the best performing asset class of the year.

In Australian dollar terms, the news is even better, with silver now trading above AUD $22 per ounce, whilst gold has just broken through AUD $1750 per ounce, up nearly 25% from the lows of late 2015, and within striking distance of its all time highs.