Gold’s Growing Appeal in a World Desperate for Alternative Investments

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Golds Growing Appeal in a World Desperate for Alternative Investments

As the World Gold Council’s latest report indicates, low interest rates are forcing investors to chase gains. Steady portfolio performance is desirable for regular investors and a necessity for portfolio managers. Yields on government and corporate bonds have reached all-time, mostly-negative lows worldwide. Even an alleged, tentative interest rate hiking schedule is unlikely to push real yields out of negative territory.

Yet investors, whether individual or institutional, must have return on investment. The combination of high inflation and negative real yields have pushed investments further and further into high-volatility, low-liquidity assets. That’s an issue, because in the world of finance and investing, risk and return are inextricably linked.

The WGC cites data from research firms and various sources which indicate that investors are showing more appetite for riskier assets. A recent survey suggesting that a third of portfolios might be allocated in alternative and other assets in the next three years.

Gold offers high liquidity and low volatility

Most of these “alternative” assets have a few things in common.

  • High growth potential
  • High risk
  • Low liquidity

Consider the relatively low liquidity of real estate, the growth potential of cryptocurrencies and the risk of NFTs. Consider also the lack of price discovery among assets that aren’t traded on open exchanges, or otherwise regularly marked-to-market.

During the financial crisis, liquidity was a major point of concern, and nearly half of the participants in the survey stated that it’s a key consideration in their long-term portfolio planning.

Here, gold once again starts to emerge as something that should be treated as a necessity, and likely will as investors take on an uncharacteristically aggressive approach. While it might seem as if though there is little room for defensive assets in a high-risk portfolio, the opposite holds true in the case of gold.

For starters, no prudent investor will forgo hedging their bets whatever their approach is. Bonds might have once been the hedge of choice for risk-on investment, but since it is their underperformance that is prompting the chase of returns, gold is there to assume the role.

There are many more nuances, of course. Risk and uncertainty go hand in hand with market crashes and selloffs. Last March was an infamous example, as even the safest of assets such as gold fell. In situations like these, investors want liquidity both for safety reasons and to make bargain bets in other asset classes. The same month also showed why gold continues to stand out among all other assets, as it was the only one to recover by the end of the month. And, as is by now known, it went on to post one of its best years on record.

This is just one of many occasions where diversification with gold would have assured a portfolio’s stability and maintained its performance as turbulence rocks the markets. There’s a reason it’s the gold standard of safe haven assets.

The world is looking more turbulent than it has in a while, and yet investors aren’t willing to wait and see what happens in order to post a return. During a time when things like farmland and collectibles enter portfolios that they might otherwise never find a place in, a time-proven and highly liquid asset like gold is a prime candidate to steady the rocking boat.

Gold Approaches $1,900 While Investors Mull Fed Chair Powell’s Reappointment

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Gold Approaches 1,900 While Investors Mull Fed Chair Powell Reappointment
Photo by Aaron Munoz

Although analysts expect that gold could have a very volatile closing of the year, the consensus is that the metal is eyeing $1,900 as the next level to breach in the near-term, via Kitco. Market participants are always keeping a watchful eye on the Federal Reserve, so it’s no surprise that questions over the next Fed Chair nominee have caused a bit of tumult.

Some believe that there is a strong chance that Federal Reserve Governor Lael Brainard could take Powell’s spot after recent dissatisfaction with the incumbent’s actions. A Brainard appointment would result in a major shift in short-term yields, said OANDA senior market analyst Edward Moya, along with delaying hike expectations even further.

However, Moya noted that a Powell renomination would be far from negative for gold. Risk remains to the upside, and hikes are questionable regardless of who’s helming the central bank. Pepperstone’s head of research Chris Weston said that a new Fed Chair would cause the kind of uncertainty that most market participants dislike, yet that volatility seems to be in the cards regardless. (Update: Powell was renominated to his current position on November 22. His last Senate confirmation won 84 of 100 votes in 2018, so Congressional resistance is extremely unlikely.)

Weston expects an anything-goes December, partially because the U.S. Treasury will exhaust its measures by the middle of the month as the U.S. debt ceiling issue once again comes to the forefront. The central bank’s meeting, which should announce the tapering schedule, could be another stir for the markets.

TD Securities said that gold remains vulnerable to priced-in rate hikes, even in the absence of any evidence that they will materialize. So long as this remains in view, the bank believes that gold could come under further selling, especially if prices fall below the $1,840 level. Moya expects a very volatile week ahead, saying that gold could trade in a range as wide as $1,840-$1,890.

If the metal does dip to $1,840 or below, Standard Chartered precious metal analyst Suki Cooper expects an influx of buyers on every turn due to gold’s fundamental picture. She noted that gold’s headwinds are mostly absent and not of particular consequence. On the other hand, the upside to physical gold ownership is tremendous. Growth risks, elevated inflation, an expected pullback in the U.S. dollar and real yields establishing themselves in negative territory are far more pronounced than anything pushing gold downwards.

However November’s price action plays out, Moya expects investors to start pouring into gold as an inflation hedge next month and push it above the $1,900 level. This could be expedited by both uncertainty coming from Europe or any number of data reports scheduled for this week turning out disappointing.

Agnew Gold Mine Now Powered by Australia’s Largest Hybrid, Renewable Microgrid

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Agnew Gold Mine Now Powered by Australias Largest Hybrid, Renewable Microgrid

With so little in terms of positive mining developments since the industry went on a cost-cutting spree post-2011, it can feel as if any news are great news. Yet the latest gold mining trend surrounding Gold Fields’ mine in Australia go past discovering new ore or opening a new spot, and have to do with innovations in an industry sometimes considered stagnant.

Gold Fields is one of the largest gold producers in the world, with a total of nine mines spread across Australia, Peru, South Africa and West Africa and Chile. Its Agnew gold mine in Australia is now the testing grounds for the largest hybrid renewable microgrid in the country.

The Agnew gold mine is the first gold mine in the country to be powered primarily by wind-generated energy, as part of an ongoing bid to utilize renewable energy sources on a global scale. The venture was funded by the Australian Renewable Energy Agency (ARENA), which gave $13.5 million through its Advancing Renewables Program.

The microgrid itself is constructed, powered and maintained by global energy producer EDL. In a press release, the company shared some specifics pertaining to the microgrid, revealing that it amounts to 56MW, 50%-60% of which come frome renewable sources. According to the press release, weather conditions can bring the percentage up to 85.

CEO James Harman boasted that the mine is a showcase of both engineering prowess and persistence, as the project was launched amid bushfires, supply chain disruptions and a global crisis that saw the mining industry come under even more setbacks. Furthermore, while wind is the primary one, the CEO stated that the project utilizes as many as five different sources of renewable energy.

Stuart Mathews, Gold Fields Executive Vice President for Australasia, also said that the company is proud to partner with EDL in such a manner, underscoring that both the construction and operation of the project went well. As it stands now, EDL owns close to 100 renewable energy stations that span throughout Australia, North America and Europe.

While not explicitly stating that the technology would be utilized in its other mines, Mathews noted that the Agnew mine has provided the company with a framework on how to utilize renewable energy in its operations worldwide. Having the gold mining industry act as the center of renewable energy innovations during a time of peak appetite for these solutions is indeed promising. Perhaps the success of the Agnew gold mine and its renewable microgrid can bring some welcome sparks to the sector.

Inflation? Stagflation? Gold Is Fine With Either

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Inflation? Stagflation? Gold is fine with either...

Gold’s price has seen some action recently, again climbing past strong resistance at $1,800 to a high of $1,813 before finishing the day above $1,790. Does this mean that market participants are finally, but very slowly, waking up to the economic reality? TD Securities’ analysts seem to think so, having initiated a $1,850 and $2,000 long call spread for gold’s price for April.

In their recent report, the commodity analysts said that inflation, stagflation and dubious tightening all play a part in the bullish forecast for the next four months. Even with nothing to support the notion, the markets still seem to be fully pricing in some kind of Federal Reserve tightening. This includes a reduction of the balance sheet, hikes and so on. This sentiment has been weighing heavily on gold over the past months, with November being the targeted date. It remains to be seen how the Fed intends to tighten its monetary policy in the current environment.

Wade Guenther, managing partner at Wilshire Phoenix, recently told Kitco that he believes the Fed won’t be able to rein in inflation. Guenther has also dismissed the idea that supply chain disruptions are being caused by consumer spending, something that has garnered quite a bit of ridicule as of late, and supports a far more grounded view that the cause is across-the-board inflation.

With the ever-hawkish Fed Chair Jerome Powell going as far as to admit that these disruptions could persist well into next year, it’s turning inflation into an even bigger problem, and also a worldwide one. In Canada, the latest report on consumer prices showed that they have risen to their highest level in more than a decade.

As TD Securities’ analysts noted, this is part of why stagflation is becoming a greater concern with every passing week. The threat of energy prices rising has turned into what the analysts call a global energy crisis, one that seems to be intensifying. There is also much to be said about crumbling economies, an issue that everyone seems to be ignoring right now. With hyperinflation being mentioned on one end and parallels being drawn with the Great Depression on the other, we might yet see the term stagflation redefined.

Another interesting bit of information is that speculators have, mostly based on optimistic sentiment, liquidated more than 190 tons of paper gold this year. Yet the massive dump, as opposed to slicing the metal’s price, only seems to have thwarted its rise for the time being.

Regardless of whether we see inflation or stagflation, TD Securities says that the conflux of factors appears to have primed the gold market for a very strong move upwards by early next year. In the shorter term, Saxo Bank’s head of commodity strategy Ole Hansen said that a breakout above $1,835 could move a lot of interest away from the stock market and into gold.

Solar, EV Demand for Silver Will Drive Prices to High Triple Digits

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Solar, EV Demand for Silver Will Drive Prices to High Triple Digits

Out of all the possible drivers that could push silver up into the sky, Keith Neumeyer, CEO of First Majestic Silver, thinks governmental policies might just be the thing. But instead of loose fiscal ones, it’s the tightening grip on gasoline vehicles that’s shaping up to be a massive driver. In an interview with Kitco, the CEO spoke about the changes in the automotive industry that are taking place, driven partially if not wholly by governments favoring electric vehicles (EVs) over carbon-dioxide-spewing internal combustion engines.

The view that engines of the latter are polluting the environment might have opposing sides in general terms, but it has swept governments around the world by storm. With countries like the U.S. and U.K. already preparing to ban sales of traditional vehicles, it does appear that an automotive revolution is underway. And it just so happens to be one that will heavily favor silver.

Neumeyer has always been extremely bullish on the metal, having previously forecast that it could hit triple digits in the long-term. Now, he sees silver going towards the higher end of that triple digit range due to basic supply and demand dynamics. Silver’s supply picture has always been a lackluster one, with the metal mostly coming in as a byproduct of mining other metals (copper, lead and zinc primarily). Only 28% of silver mines primarily produce silver. This means that silver miners are slower to respond to rises in spot price. They have to consider the costs and value of the other metals they’re digging up.

There’s a grassroots movement of physical silver investors who believe that the paper silver market is heavily manipulated, and that there is nowhere near enough silver to cover the contracts. Neumeyer gives this theory his backing without citing evidence.

Interestingly enough, while Neumeyer acknowledges that QE and U.S. dollar debasement will boost gold and drag silver along the way, he views these drivers as considerably less important. Instead, he is looking towards the amount of available silver against the prospect of ever-growing demand from the industrial side.

As Neumeyer noted, the mining industry currently produces 800 million silver a year, of which 100 million already go towards EV production and another 100 million towards solar panels. Combined, that makes up close to 20% of annual production. Neumeyer points out that the automotive industry currently produces 19 million cars a year, of which 5 million are EVs.

If the governments of the world get their way, every gasoline vehicle will be replaced with an EV within a decade or two. Neumeyer says that this amounts to roughly a billion cars, which obviously puts quite a strain on the automotive industry and therefore silver miners.

With 100 million ounces of silver needed for every 5 million EVs made, it’s clear that even a slight increase in EV demand could quickly shake up prices. It’s definitely looking to come together nicely with growing demand for physical silver among investors, many of whom are staunch believers that the price is being suppressed through derivatives and that it should indeed be closer to Neumeyer’s forecasts than its current levels. Given the silver shortages in various top mints around the world as of late, the theory is not an easy one to dismiss.

Silver Shines Brighter than Gold on Electric Vehicle Demand

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Silver Outshines Gold on Electrical Vehicle Demand

As seen on Kitco, silver’s many uses continue to entice investors with possibilities of price gains from more corners than in the case of gold. In a recent report, John Feeney, business development manager at Guardian Vaults, shared his view of why silver has everything going for it in the current landscape.

Despite a recently-sprung grassroots movement that has turned silver into Main Street’s favored investment, silver has yet to really take off from its $24 support level. And while many correctly attribute this to a disconnect between the paper and physical market, Feeney expects silver’s broad-based demand sources to eventually be reflected in rising prices.

Feeney believes silver will attract more and more investors as they wake up to our economic reality. Despite optimistic claims, the Federal Reserve is in no position to tighten monetary policy or normalize interest rates. Because the modern global economy relies on debt, interest rates must be kept extremely low to avoid a collapse. More money must be printed. This is the same investment case that has many excited for gold moving forward.

However, the case for silver extends far past that. Whereas gold’s detractors like to lament how the metal is a throwback, silver is as futuristic of an investment as one can hope for (despite being around for centuries). And, unlike other futuristic investments, it doesn’t carry a massive amount of risk.

Why futuristic? Well, there are three huge and growing sources of demand: photovoltaics for solar panels, superpowered next-generation batteries and electrical vehicles.

Feeney refers to data from the World Silver Institute, which projects that silver usage in electric vehicles is expected to grow to 90 million ounces by 2025, with demand expected to grow to more than 100,000 ounces by 2030. Whether one wants to fully embrace these forecasts or not, the writing is on the wall in regards to EVs, manufacturing and silver supply.

Partly because of government incentives and partly because of customer interest, demand for EVs has risen exponentially, and is only expected to continue to climb. Manufacturers have long used “thrifting,” a way of spreading out silver as much as possible, in order to cut back costs. Yet these methods are nearing their natural point of exhaustion (at a certain point you just can’t become more efficient). At this point there will be no alternative but to use the necessary silver to manufacture the device, regardless of cost.

On the flip side, silver has one of the more complicated supply pictures, with much of it coming as a byproduct of mining other metals. Therefore, the physical silver market is even worse equipped to deal with a sudden increase in demand than the gold market. Because of all of this, Feeney makes a point of embracing silver’s volatile bouts and encourages investors to buy the dip in what is looking like a very promising investment.

Buying Gold For “Portfolio Insurance” Could Be Lucrative

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With all the parallels being drawn between the Vietnam war and the Afghanistan war, the tale of how gold plays into it is an interesting one. 1971 marked the full and official untethering of the U.S. dollar from gold and the beginning of a monetary experiment that works quite well until one looks under the hood.

But what really prompted President Nixon to make his infamous decision? As MoneyWeek’s Dominic Frisby notes, in August 1971, French president Pompidou sent his officials to New York to collect the nation’s expatriated gold, battleship and all. As the British informed Nixon that he should begin preparations, the President quickly realized that he can’t part with $3 billion of physical gold and finance a costly war with Vietnam. A concession had to be made, and between a sovereign and economic one, Nixon chose the latter.

The dollar was now untethered from gold, and the U.S. was free to print it and finance the war while eroding the greenback’s purchasing power to unimaginable levels. Perhaps most importantly, Frisby reminds us that Nixon portrayed the untethering as an extreme and temporary measure, one that would only be necessary until the war effort is over. This portrayal definitely served to cushion the impact of something that might otherwise seem unacceptable, just as in the case of quite a few other governmental interventions.

Now, 50 years later, we see that the government’s assurances don’t amount to much, and we’ve gleaned a few other things as well. Money is easy to print, but physical gold is hard to come by. Frisby notes that some gold investors might be disappointed by gold’s 15% drop from its high of $2,070. But that only really refers to spot price. An ounce of paper gold might go for its spot price, but those wanting to buy gold bullion might quickly find that the price has hardly changed since last August.

Gold owners and long-time bugs should also view gold’s lack of performance compared to stocks and other asset classes as a positive development. Wall Street instructs investors to hold 10% of their portfolio in gold and hope that it doesn’t go up. That’s because gold going up significantly means economic disaster as an optimistic scenario and a global crisis as a less pleasant one.

Yet gold is indeed going up. Over the last few weeks, it fell to $1,750 only to promptly climb back to its current level of above $1,815. Investors aren’t selling, which tells us that the outlook isn’t that great. Inflation is already here, and that it will only be temporary is yet another governmental assurance that could very well rank with the aforementioned ones. All of the drivers are in place for gold to continue its move up, and that’s not counting any black swan event during a time when everyone seems to be preparing for them.

Frisby sees room for gold to jump between 30% and 40% if trouble arises. In the meantime, gold investors should hold onto their well-performing insurance and hope that the next bout of gains comes from something mild such as a stock market crash, instead of global upheaval.

Gold Bullion and Coin Demand Just Keeps Rising: World Gold Council

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Gold Bullion and Coin Demand Just Keeps Rising: World Gold Council
Photo by Zlaťáky.cz

As seen in the World Gold Council’s Gold Demand Trends report for 2021’s second quarter, gold managed to shed its losses from the first quarter and post an overall 4% price gain in Q2. Certain hawkish statements made by the Federal Reserve weren’t enough to balance inflation concerns, a weaker dollar and negative real interest rates.

Gold demand just keeps growing

Gold demand intensified on all fronts, including a somewhat surprising return by funds after their massive outflows in the first quarter. While the report states that there is still room for improvement in terms of jewelry demand, consumer purchases have nonetheless posted a considerable recovery, especially as economic conditions remain sluggish in many areas of the world.

Overall, jewelry demand in Q2 totaled 390.7 tons, a 60% year-on-year increase. The biggest buyer was China, whose 146.9 tons amounted to a 62% year-on-year increase. Chinese consumers purchased 338 tons of gold in the first six months of 2021, a 122% year-on-year increase. Remarkably, the figure is also 6% higher than the amount of jewelry purchased in the country in first half of 2019. Despite economic woes, India posted a 25% year-on-year increase in jewelry purchases, with similar rises happening across most of the Middle East.

Western jewelers also had a notable showing, with 37.7 tons of jewelry demand in Q2 2021 marking the strongest showing for the quarter since 2007. Investment demand in the U.S. was another important point, with retail investors buying 30 tons in the second quarter. The amount of gold bought in the first half of 2021 was brought to a record 61.7 tons. Chinese retailers and individual investors made the most of lower premiums and a stronger economy, buying 57.3 tons of gold in Q2. This represented a 41% year-on-year increase and a 16% increase over the second quarter of 2019.

Worldwide demand for gold bars saw an 18% year-on-year increase, while gold coin demand rose by 7% compared to the same quarter last year. And not all of the buyers were private investors.

Central bank gold buying significantly higher

Central banks posted their third consecutive quarter of net buying despite many instances of nations resorting to selling. Demand from the official sector was all the more notable due to the diversity of buyers, with Thailand purchasing 90.2 tons of gold in the first half of the year. It was joined by many other relative newcomers, such as Hungary which bought 62.09 tons of gold during the same period and Uzbekistan with purchases amounting to 25.50 tons.

The overall 214% year-on-year increase in central bank purchases was conspicuous, but perhaps expected given the conditions of last year.

Industrial demand for gold rising, too

Despite disruptions in the technological sector, gold demand was still strong across the board, with an overall 18% year-on-year increase of 80 tons bought during the second quarter. Electronics demand rose the most, 16%, while dentistry recorded its first year-on-year increase in 17 years with 12%.

Other industrial demand rose from 8.3 tons in Q1 to 10.8 tons in Q2, a 31% year-on-year increase.

Gold Rises on Inflation, Exhaustion of Stock Market Optimism, and This

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Gold Rises on Exhaustion of Stock Market Optimism, Fears of Inflation, and This
Photo by Sabrinna Ringquist

Sentiment from both Wall Street and Main Street has gotten progressively more bullish on gold over the past few weeks, and with good reason. Gold has now posted its third straight week of gains and appears to be looking for another resistance level to breach.

The metal’s move past, and stay above, the important $1,800 level has been in focus for many. Friday’s trading session had it inching towards $1,830 before closing the day above $1,810 in yet another example of bullish action that has been on full display for nearly a month.

Gold may drop before it launches much higher: Newton Advisors

Newton Advisors’ founder Mark Newton says that, from a broader standpoint, gold’s price could experience another significant dip below $1,750 that would let investors get in on the action. Newton told CNBC that this is because June and July are traditionally the weakest months for gold in a year, making the latest run all the more impressive.

Regardless of whether gold experiences such a pullback, Newton says $1,855 is the next level to watch out for and that breaking it will most likely have gold pushing towards new highs. The gains over the past weeks came in good part over doubts that the global economy will recover as some optimistic forecasts are claiming.

Inflation is only the second most-important issue: Mobius Capital Partners

It can also be interpreted as an exhaustion of optimism in the more risk-on markets, a stance that was very much prominent heading up to June. Seasoned investor and co-founder of Mobius Capital Partners Mark Mobius believes that the narrow focus on inflation has actually sidelined a much bigger problem.

As investors and people worry about prices of goods and services rising, many of them forget that the true cause of this is currency devaluation, said Mobius in a recent interview. Mobius is one of a number of prominent experts who doubt in the accuracy or even altogether relevancy of the CPI as an inflation gauge.

While the CPI rose this year at its fastest pace since 2008, Mobius says that it leaves too many factors out and that prices are actually rising much more rapidly. The spike in prices, says Mobius, is the result of a currency losing its value, as has unfortunately been the case throughout history. This is why companies treat any spike in inflation as currency debasement, and why gold is likely to come into prominence as a store of wealth over the coming months.

Mobius’ comments over currency devaluation come during a time when the U.S. dollar faces some of the biggest threats to its status in a long time, partly due to money printing and balance sheet expansion and partly due to a broader loss of faith in fiat. In general, Mobius expects gold to continue moving up along with inflation, especially since central banks are actively targeting it instead of attempting to deflate their currencies as part of standard policy.

Wall Street, Main Street Bullish on Gold

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Wall Street sentiment regarding gold’s price trajectory is shifting to the upside in considerable fashion, joining the already-optimistic Main Street traders. The Kitco gold price survey from last week showed 69.2% of Wall Street analysts surveyed expecting prices to move higher this week. No bearish votes were cast, with the remaining 30.8% predicted a neutral or sideways-only price movement.

Main Street was a bit more evenly spread, though still heavily favoring the upside. Nearly half of retail investors surveyed (49.6%) forecast higher prices this week, while 25.8% were bearish and 24.6% were neutral.

Despite little price action last week, analysts generally agree that a move to the $1,750 support level will be met with a strong correction, while a breach of the $1,800 level will continue to establish new highs for the metal.

Specific analyst commentary on gold in the short term

Marc Chandler, managing director at Global Forex, views a scenario where gold touches $1,750 before bouncing to the $1,800-1,815 range this week as the likeliest.

Kitco’s senior analyst Jim Wyckoff also finds the range important, noting that a move above $1,800 would set the trend for prices to go higher.

RJO Futures senior commodities broker Daniel Pavilonis is especially focused on a close above the $1,820 level. If it happens, Pavilonis thinks the market could be in for some explosive price action. Besides gold finding consistent support above the 200-day moving average, Pavilonis also said that the latest bout of strength in the U.S. dollar appears to be exhausting.

Colin Cieszynski, chief market strategist at SIA Wealth Management, is also notably bullish on gold. Cieszynski pointed to strong technicals as a reason to believe that gold might be getting ready to break out from the aforementioned range and continue moving up.

How is recent news affecting gold?

In general, the lack of any notable rise in gold price has been attributed to mixed signals from the Federal Reserve and corresponding data. The dollar continues to hold ground amid both peak inflationary expectations and rising inflation across the board. The latest data reports were likewise a mixed bag, with better-than-expected U.S. non-farm payrolls being met with a rise in unemployment.

The data still fell short of optimistic forecasts, however, and both Treasury yields and the greenback fell after the report. Analysts also noted that a lower trading volume on Monday due to the 4th of July holiday in the U.S. could result in some additional delays before gold finds a spot above $1,800.

Short-term vs. long-term views

Although analysts do enjoy attempts to predict the future, if you don’t work in the financial news industry, you’re probably better off keeping your eye on the horizon. When you look at gold’s performance over time, that’s when it really begins to shine.