Market Updates

A subdued session in the Far East yesterday and during European trading saw gold drift lower as Chinese investors returned to their desks and were on the offer for much of the day.
 
A strong ADP jobs report from the US drove the U.S. dollar index and stock markets higher, weighing further upon metal values. The U.S. ADP national employment report (March) showed a higher than expected rise of 263K jobs vs 180K expected.

Good morning all,
 
Chinese participants remained absent yesterday during Far Eastern trade as they observed Tomb Sweeping Day but AUD/Gold took a leg higher when the AUD was pushed lower after the 2.30pm RBA announcement which left interest rates on hold at 1.50%.

Good morning all,
 
AUD/Gold caught a bid in Asian trading yesterday in spite of reduced liquidity due to the absence of Chinese participants who are out for ‘Tomb Sweeping Day’, Monday and Tuesday of this week.

If you are to taking your cue from the market as to what will happen next with Australian interest rates, then you’d come to the conclusion that the RBA has reached the end of its rate cutting cycle, with the official cash rate set to rise toward 1.80% by the end of 2018.

The precious metal market has had a mixed week, with gold pushing up toward USD $1,263 per troy ounce, approaching the 200 day moving average, before pulling back toward its current level around USD $1,235.00 per troy ounce.
 
Silver has been under even more pressure, with the metal falling over 3.50% overnight, currently trading at USD $17.72 per ounce. The move happened rapidly too, with some USD $2 billion of notion silver exposure dumped unceremoniously onto the market.
 
Prices in Australian dollars have been supported by the fall in the local currency overnight, which fell a full cent. This helped limit the fall in precious metal prices for local investors, with the AUD gold and silver price sitting at $1,632 and $23.62 per troy ounce respectively.

The precious metal complex has continued its solid start to calendar year 2017, with gold currently trading at USD $1,238 per troy ounce, whilst silver is sitting at USD $18.15, with the two metals up 7% and 14% respectively this year.

In this week’s market report, we look at the latest developments in the precious metal market, the outlook for the Australian dollar, and a handful of other economic and market factors relevant to investors, including:

• A look at the Australian housing market

• Alan Greenspan’s thoughts on gold

• Insights from the latest Credit Suisse Global Investment Yearbook

Last week, ABC Bullion participated in the SMSF Association’s National Conference in Melbourne. To coincide with the Conference, we are proud to release our latest research report, titled Exter’s Pyramid and the “End of Easy Money”.

Investors in both gold and silver have enjoyed a solid first month of calendar year 2017, with the price of both precious metals in USD rising by 5.30% and 8.40% respectively.

Despite the price weakness and rapidly declining sentiment toward precious metals in the aftermath of the US presidential election, it is worth reflecting on the fact that as it stands today, 2016 has been a very profitable one for long-term gold and silver investors.
 
Starting the year below USD $1,100oz and USD $14oz for gold and silver respectively, the metals jumped out of the gate during January and February, with continued strong gains (for silver at least), through March and April. There were multiple drivers for this rally, with a combination of volatile stock markets, the introduction of ever more extreme monetary policy (most notably the introduction of NIRP in Japan), and a heightened sense of political uncertainty all contributing.

Up until a few weeks ago, 2016 was shaping up as the year that the precious metal market well and truly moved back into bull mode, with strong price gains that easily exceeded the returns generated in risk assets.

Gold: Right but so Wrong!
 
In the week leading into the election (before the FBI released there “nothing to see here” comments regarding Secretary Clinton’s email issue), we commented that at least half of any potential “Trump premium” was already priced into gold, which had crept back above USD $1300oz at the time.

In our market update last week, we noted that longer term investors should look at a gold price close to AUD $1650oz as a gift, and one that they may wish to take advantage of sooner rather than later, with signs that the “correction in the USD gold price may be petering out”.
 
Dated 27th October, this turned out to be a good short-term entry point, with the yellow metal rallying since, now trading at closer to AUD $1700oz, whilst in USD terms, it has headed back above the important USD $1300oz mark.
 
Silver has also rallied, now back above AUD $24oz and USD $18.30oz respectively, up close to 5% in the last week alone.

In a bull market, you should either be long, or sitting on the sidelines waiting to get long. It’s a simple message, but one that a senior trader at ABC Bullion is fond of repeating right now, as it illustrates exactly how precious metal investors should be looking at the market today.
 
For despite the corrective action we’ve seen in precious metals over the last few weeks, 2016 is still shaping up as the year that the secular bull market in gold, which dates back to the turn of the century, re-asserted its primary trend.
 
With that in mind, longer term investors will be nothing but thankful that they now have the ability to buy gold with a spot price near AUD $1,650 per troy ounce, and silver at under AUD $23.50 per troy ounce, despite the decrease in the valuation of any metal they already own.

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.