This morning brought another encouraging update for gold investors as we review the overnight activity in the US market. Gold continued its upward trajectory, reaching AUD$3,970, while the Aussie dollar experienced a slight dip of 0.30%, settling at the 0.67c mark. Remarkably, gold is less than 1% away from the much-anticipated AUD$4,000 milestone—something few would have predicted at the start of 2024.
Since the beginning of the year, we’ve witnessed an uninterrupted bull market, with the gold price in AUD terms soaring by an impressive 30%, while the silver price has enjoyed a remarkable 34% increase. These gains significantly outpace the ASX200’s year-to-date return of over 9%, underscoring the importance of precious metals as a cornerstone in a well-rounded investment portfolio.
Most investors are now familiar with the factors driving this surge, particularly the challenging geopolitical landscape we’re navigating. However, it’s crucial to examine the elements that could sustain this rally going forward.
In addition to the safe-haven demand prompted by geopolitical tensions, several positive trends may continue to bolster the gold market. Firstly, despite rising prices, central banks remain eager buyers, with some even turning to silver for their balance sheets for the first time. Furthermore, the economic downturn in China, coupled with issues in the housing market, is pushing investors toward gold in significant ways.
Geopolitical Tailwinds
Metals are clearly benefiting from strong support as a safe haven amidst the escalating wars and tensions of 2024. The three primary geopolitical issues we face continue to deteriorate. With no positive developments in the Middle East or Ukraine, we now find ourselves grappling with escalating tensions between China and Taiwan.
In response to the recent military drills around Taiwan, gold experienced an uptick, particularly notable since China initiated these exercises without prior warning. For the latest updates on this situation, check out the clip from ABC News below.
Central Banks Favor Bigger Gold Stash
Bloomberg reports that the reserves of several central banks are likely to keep growing in the coming years, driven by a mix of geopolitical tensions and lower interest rates. “Given the current context—lower rates, political tensions, the US election, and significant uncertainty—it’s possible that the share of gold in our portfolios could increase,” noted Joaquín Tapia, director of international reserves at Banco de México.
Echoing Tapia’s sentiments were Enkhjin Atarbaatar from Mongolia and Marek Sestak from the Czech Republic, who joined him on a panel at an annual industry conference hosted by the London Bullion Market Association in Miami. “In Mongolia’s case, I anticipate that our reserves will continue to grow, and I expect the share of gold in those reserves to rise in the future,” said Atarbaatar, director general of the financial markets department at the Central Bank of Mongolia.
Sestak, deputy executive director of the risk management department at the Czech National Bank, added, “I completely agree as well.” According to Terrence Keeley, CEO of Impact Evaluation Lab, the average central bank holds about 15% of its foreign exchange reserves in precious metals at current market valuations.
Russia Adds Silver to Central Bank Assets
Kitco News has reported that the Russian government is considering allocating 51 billion rubles (approximately USD$535.5 million) over the next three years to replenish its precious metals reserves. This information comes from a line item in the government’s Draft Federal Budget, released on September 30.
While gold has long been a significant asset within foreign reserves, this proposal suggests that the Russian government aims to broaden its holdings to include silver and platinum group metals.
The draft budget did not provide specifics on a potential purchasing program; however, some analysts believe that incorporating silver into foreign reserves could spark renewed investor interest, positioning it once again as an official monetary metal.
Despite rising prices, we’re observing robust net demand from domestic investors for both physical gold and silver. One might expect to see a significant uptick in sales or liquidations of client portfolios given these record prices, but so far, it appears that most Australian investors are choosing to maintain their long positions in this market.
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