Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
After gold’s performance in the first quarter of this year, when it posted its first quarterly decline since the September quarter of 2018, the gold price looks as if it is basing out. Silver has been following suit and since the start of the month the gold: silver ratio has been trading in a narrow range between 68.5 and 70.0, albeit contracting ever so slightly overall.
The key elements that have been driving the price have, from a professional investor standpoint, revolved primarily around the performance of U.S. Treasuries, particularly the yield on the ten-year bond. This rose over much of the quarter as some investors started agonising about a perceived inflationary threat, even though economies do need some inflation in them in order to encourage expenditure. The Federal Reserve Board in the United States, for example, regards the 2% inflation target as just that – a target. For much of the first quarter it almost looked as if the investors were seeing it as a threat.
It would seem now that attitudes are changing slightly, with the ten-year bond rate easing, which is helping gold to stabilise. Whether this is a technical correction, or the realisation that the U.S. bond market has taken too much of a beating because there is still a long way to go, remains to be seen. But the Fed is talking of no change in the federal funds benchmark rate until 2023 and the major central banks are showing no signs of reducing the rate of asset purchases just yet, so it is possible that sentiment is starting to move back into risk-off mode.
In the background the physical market in Asia has been picking up smartly, notably in China, with the local prices now at a premium of roughly $9/ounce over loco London. The resurgence of the virus in India may dampen sales rates in the coming weeks; the important festival of Akshaya Tritiya, the second most auspicious day in India for gold buying (and a particularly auspicious day for weddings, which involve considerable amounts of gold), falls on Friday 14th May, which is a few weeks away yet and so we cannot yet tell whether that will be affected.
Elsewhere, the Perth Mint reports very strong sales of gold and silver coins in the first quarter, especially in Germany and the United States; gold demand thrived, and the Mint could not keep pace with silver coin demand. In March, the Mint sold over 130,000 ounces of gold and almost 1.6M troy ounces of silver in minted product form; the Mint reports that these numbers are 285% and 178% higher respectively than average monthly sales dating back to 2012.
On the other side of the market the gold Exchange Traded Products lost 178t in the first quarter of the year for a net redemption dollar flow of $9.5Bn. In the first week of April the funds lost a further 13.6t, until last Friday, which saw a small inflow of just over one tonne. With central banks returning to the market as buyers during March, there are early indications that the price is starting to turn around.