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Demand for precious metals will triple says expert

17 September 2021


 

Shae Russell,
Group Communications Manager

  • Gold reacts to US economic data
  • Price dips, gold bulls enter
  • Over the long term, gold outperforms
  • Is Australia the largest gold producer?
  • Inside our office this week…
  • Before you go

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

US dollar gold price Daily chart

Gold reacts to US economic data: The yellow metal continues to demonstrate its sensitivity to the US economy, rather than emerging problems in the financial system. Gold fell US$40 per ounce overnight, touching a monthly low of US$1,745.

Drop was predictable: The trading range for the past week has been tight, with gold barely moving US$25-30 per ounce. Looking at the charts, the size of gold’s drop overnight was predictable based off this range (highlighted above, in pink ). Technical analysts are unlikely to be surprised by the size of the fall as on a long-term daily chart, Au tends to use US$1,750 as a pivot point.  

Stuck in no man’s land: Au has regained some ground at the time of writing, but gold finds itself sitting in ‘no man’s land’, around US$1,750. Solid support and resistance for are US$50 per ounce either side of this price.

  • Data coming out from the US tonight is unlikely to sway the metal in any obvious direction.
  • US Business Inventories data due out may provide clues to US demand, though they shouldn’t have any major impact on the gold price…unless of course, the data is a total surprise.

Americans went shopping: Driving gold lower overnight was US retail sales. Consumption in the US is a vital part of the economy, so it matters how people spend their money. Month on month retail data for August came in at 0.7%, which beat expectations of 0.8% drop. This was a significant improvement on July retail spending. With Reuters writing:

‘The surprise rebound in retail sales reported by the Commerce Department on Thursday defied slumping consumer confidence. Sales were driven by a surge in online purchases, which offset a continued decline at auto dealerships.

[…]

‘"U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales," said Chris Low, chief economist at FHN Financial in New York. "The economy continued to hum in August."’

Stagflation is back: With gold dipping lower, TD Securities commodity strategist Daniel Ghali told Kitco, it’s odd gold isn’t finding new buyers given the word stagflation is being thrown around in the media, saying:

‘If you were to track the number of news stories with the theme of stagflation, you realize , it is part of the market's narrative, and you could expect that to translate into capital inflows into gold. But, instead, interest remains stagnant, and gold is struggling to find interest.’

Price dips, gold bulls enter: The spot price of gold may have taken a hard dip overnight, however our office has been inundated with people placing orders for gold this morning.

Bears, we have an unpredictable technical set up: There’s not much resistance between US$1,750 and US$1,795-1,810. Nor is there a lot of support between here and US$1,700.

On the fence: The metal could go either way in the next 48 hours. Hold onto your hats, investors.

Locally, gold sits above AU$2,400: Gold in our currency wasn’t spared either, though the Australian dollar gold price has remained above AU$2,400. The Aussie dollar has dropped back to 72.90 US cents, which should cushion the falling US dollar gold price.

The most important reason to hold gold, however, is not because of what it did today. Rather it’s because of how it performs over decades.

Gold - a multi decade investment

A US$40 dip overnight in gold prices certainly makes for good headlines, but don’t get caught in the in the daily price gyrations. When you compare the performance of gold over the past two decades, you can see that that yellow metal has out formed two major indices.

Gold in US dollars has exceeded the gains made by the SP&500 [SPX]. As has gold held in Aussie dollars, with the Australian gold price significantly outperforming the ASX/S&P200 [XJO] over the past 21 years.

Gold in AUD & the ASX 200 rebased to January 2000

Source: Bloomberg; ABC Refinery

Gold in USD & the SPX rebased to January 2000

(Click to enlarge)

Source: Bloomberg; ABC Refinery

Is Australia the largest gold producer?


The papers were abuzz last week, Australia is the largest producer of gold for the first time ever! Australia pipped China at the post for the first half of 2021 with ABC News writing:  

China has been the world's biggest gold producer since 2007, with Australia the second largest producer for about a decade.

Gold analysts Surbiton Associates report China produced 153 tonnes of gold in the first half of this calendar year.

Australian gold miners produced 157 tonnes’

Our time at the top as the world’s largest gold miner may be short lived. Chinese gold production has been plagued with closed mines, reducing their gold production. These are expected to be rectified in the second half of 2021.

Here at ABC Bullion, we’re thrilled to be part of the Australian gold story. We form partnerships with many Australian gold and silver miners to ensure a steady stream of ethically sourced Australian gold and silver, which sister company ABC Refinery turns into investment grade precious metals. You can read all about our supply chain works, as well as our latest ESG initiatives in our recent report here.

Inside our office this week

The gold price dip has certainly encouraged investors to buy more gold today.

Yet, all week our most popular item has been our 1kg silver bars, refined by ABC Refinery.

They do they ‘stack’ up nicely!

Before you go…

If precious metals return to their mean, in line with the historical average, demand for gold will skyrocket, particularly in Australia says Rick Rule.

Today he outlines the case for precious metal demand to triple, that gold isn’t even a mainstream asset class, and why it’s vital to have exposure to silver during a gold bull market…click below to watch now.

Rick Rule: Demand for precious metals will triple...

Until next time,
Shae Russell,
Group Communications Manager,
For ABC Bullion