Investors Buy the Dip as Gold and Silver Correct!

Precious metals markets firmly entered correction mode this week, with gold and silver both falling significantly.

Since their highs in mid-April, both gold and silver fell by close to 10% in USD terms, though they have since bounced, with the current decline from the prior peak currently sitting at close to 5% for both metals.

Australian dollar precious metal investors have also seen prices decline, with the AUD gold price at one point falling back toward AUD $4,870 per troy ounce (oz) in overnight trade, after having traded as high as AUD $5,334oz in mid-April.

Silver likewise has seen a near textbook correction, having fallen from AUD $54.52oz in late March to just AUD $49oz earlier this week.

Clients at ABC Bullion have been aggressively stepping up their purchases in response to the recent market moves, with many treating it as a buying opportunity.

Market News

Given the recent gold and silver price surge, and subsequent correction, it is no surprise that precious metals have been front page news, while precious metal market commentators have been sharing their views on the price action. This includes;

• An update from Schroders, who correctly (in our view) pointed out that gold is trading like a monetary asset, not a commodity, in the current climate, with James Luke, a fund manager at the firm, stating that gold’s fundamentals, which were already positive, were being supercharged by the Trump administrations desire to talk down the role of the USD as the global reserve currency. Luke went on to suggest that a USD $5,000 price point by the end of the decade may now be conservative.

• Charlie Morris of Atlas Pulse also published an update on the gold market, noting that ‘the gold trade’ is not as hot/overbought as many are claiming.

• Hedge Fund manager David Einhorn also talked up gold’s prospects recently, looking at the deficit and debt (and almost by definition inflation) angle of the market. He also noted that a moon-shot in prices would not make him happy, even though he is obviously bullish.

Last but by no means least, Ronald Stoeferle and the team at Incrementum released their annual ‘In Gold We Trust Report.’ First published back in 2007, it remains a must read for those passionate about understanding the case for gold and silver, and how they can help protect and grow wealth.

What happens next?

History would suggest investors that are adding to their holdings during this corrective period in gold and silver are likely to be well rewarded in time, with the last twenty-five years (a time period in which gold has basically risen ten-fold) seeing many cycles in which gold in particular has;

• Rallied sharply and delivered exceptional 1-year returns of 40% or more, then

• Pulled back from that strong rally, with the metal often falling by 10-15%

These short-term gyrations have done nothing to stop to primary, or secular, bull market in gold, with the chart below showing both the AUD gold price from 1999 to current date, as well as rolling 12-month returns for the AUD gold price over this time-period.

Source: ABC Bullion, LBMA, RBA

As the chart makes clear, while on a yearly basis the gold price can be volatile, with maximum gains above 60% and maximum losses of closer to 20%, the primary trend is to the upside, with gold in a textbook bull market that shows no meaningful sign of ending.

The below table further reinforces the point about gold’s secular bull market, and how long-term investors have been rewarded. It shows;

• The “peak” gold price in each of the periods in the past where gold has run exceptionally fast – and delivered rolling 12 month returns of +40%

• The current gold price today

• The total and annualised return investors would have enjoyed had they invested at these points historically.

Those are exceptional return figures, with most precious metal investors likely to be happy should history repeat in the years to come.

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.}