The case for gold grows stronger!

Oct 28, 2023

In this week of October 23 to 27, market update of ABC Bullion said, gold prices rallied again this week, with the precious metal +1% to USD $1,982.50 per troy ounce (oz). Despite climbing above USD $23oz earlier in the week, silver was unable to hold onto the gains, and is currently -1% over the past five trading days, with the gold to silver ratio (GSR) now sitting at 87.

While foreign exchange markets were stable, it was risk off across broader markets, with equity indices in the United States -3% and Australia -2%. Commodity prices were also hit, led by oil which is -8% and back below USD $85 per barrel. Cryptocurrencies by contrast caught a strong bid, with Bitcoin +19% on the week and back above USD $30,000 per coin.

Bond yields continued to climb, with 10-year treasuries in both the United States and Australia now approaching the key 5% level, with expectations of further interest rate hikes building. ABC believe, gold going from strength to strength. Gold was stronger again this week, with weakness in equity markets, and the ongoing conflict in the Middle East helping drive the price back above USD $1,975oz.

Gold’s recent price action and the evolving geopolitical and market landscape is reigniting conversations around the role it can play in a portfolio, with a recent update from Aberdeen highlighting the fact gold remains underutilised in investor portfolios, that it can be a core risk management tool. Critically, they also discussed the view that investors would be best looking at precious metals as a distinct asset class, rather than simply part of a commodities basket.

Economists at UBS meanwhile have used the recent events in the Middle East to highlight the importance of diversification, while for gold, they see an additional tailwind on the horizon given expectations the US Federal Reserve will turn to interest rate cuts, lowering the opportunity cost of investing in gold in due course.

Despite the recent price spike and the strong evidence of the benefit of holding gold in a portfolio, it remains somewhat off the radar of investors looking for defensive assets, best evidenced by the gold ETF market, which remains quiet, and speculative positioning in the futures market.

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