Is this the start of another gold super cycle?
The precious metal has now broken price records in Australian and US dollar terms – and the action is heating up as investors rush in.
The price of gold hit a record high of $US2200 an ounce just days ago – having broken through its Australian dollar high some weeks ago.
While some investors are cashing out of bullion after holding on for decades without any meaningful gains until recently, others are now rushing into the precious metal on the prediction that we are at the start of another gold super cycle.
Joe Tai, director of gold broker Bullion List says: “We are finding that a lot of our first time gold buyers are cryptocurrency investors. For the lucky ones who have made money on bitcoin, they have been liquidating their holdings and taking profits to buy physical gold.
“This is especially fuelled by their general distrust of the banking system and government and as such, wanting to hold less traceable assets but at the same time be able to easily liquidate it if needed. The half-ounce gold size has been popular, as one ounce of gold costs over $3000 now. If someone needs to liquidate a bit of gold, half-ounce coins and ingots are a handy size to free up a bit of cash.”
Jordan Eliseo, general manager of ABC Bullion, says: “A lot of the demand for gold is coming from China and other parts of Asia given the uncertainty in their local economies. In addition there is a continued appetite from central banks around the world to hold gold, leading to the all-time high prices we are seeing at the moment.”
In Australia, Eliseo also sees strong demand from a diverse group of gold buyers.
“We have the traditional interest from SMSF trustees, individual investors and professional wealth managers, but we are also seeing interest from mum and dad investors, particularly those with Indian or Chinese backgrounds. Demand for gold is particularly strong in India and China, and these cultural preferences have been seen to persist locally.
“Unlike the panicked buying that we saw when Silicon Valley Bank collapsed in March last year and a short-lived contagion with other regional US banks ensued, we are experiencing another push into gold but for more measured reasons.
“Investors are adding gold into their portfolios for diversification, while mum and dad investors appreciate the highly liquid nature of gold and are jumping on the bandwagon as prices rise.”
But it’s not just physical gold coins bars that are in demand, buyers have also been buying gold jewellery.
Sydney designer Alice Wong from Lovelle jewellery says: “We have seen a spike in demand for gold jewellery as the price of gold rises. For some people, rather than buy a block of gold that they keep locked away in a safety deposit box, they prefer to buy high purity jewellery gold which they can enjoy on a daily basis.”
As she suggests: “It does not have to break the bank either. Our most popular item that costs less than $1000 is an 18K gold chain in a snake pattern where the links are very close together and create a beautiful effect reminiscent of a snake’s body.”
If buying physical gold coins, bars and jewellery is not your style but you still want to get in on the action, there are other options that you can consider. ABC Bullion offers a gold saver account, which is an Australian first that allows people to direct debit money regularly and build a holding in gold which is backed 1 for 1 with physical gold in its reserves.
The sharemarket is also a popular way for people to gain an exposure to gold. Traditionally sharemarket investors would buy gold companies such as Northern Star Resources, Evolution mining and previously Newcrest Mining before its 2023 buyout by Newmont, the world’s largest gold company. However, the downside is that you do not get a pure gold exposure. There is a lot of noise that impacts the share price and ultimately your return. You would think that the fortunes of a gold mining company would be closely linked to the gold price, however company-specific issues and geopolitical risks can mean that in some cases returns from gold stocks have absolutely no correlation to the underlying gold price.
With the exponential growth of the exchange-traded fund sector over the past 10 years, there are also plenty of ETF gold options. The Perth Mint offers a fully backed gold ETF that not only tracks the gold price, but can be converted into physical gold through the mint. You give a few weeks notice and then you can turn up at their East Perth headquarters and take possession of your gold.
Several other major ETF providers such as Betashares and Global X also have gold price tracking ETFs.
SMSF trustees who buy physical gold instead of paper gold need to be aware of the collectable rules that could apply to gold holdings. There are strict storage and insurance requirements that need to be followed.
Eliseo from ABC Bullion says: “Like any industry you have good and bad operators, and for the gold industry this definitely rings true. Buy from businesses that have a long history, good reputation and ideally have The London Bullion Market Association. Another thing to keep in mind is the stamp on the gold bar. If you buy from a dealer who goes out of business and you want to sell, you may not get top dollar from another dealer who trades a different gold stamp, so think about the two-way market before you buy.”
As is the case with most investments, everyday investors tend to be late to the party and only think about trading after the opportunity has passed, which is typically after a spectacular rise or fall in value. The question is whether we have seen the best of the gold price in the short term, or whether ongoing global instability can drive prices even higher.
James Gerrard is principal and director of Sydney financial planning firm www.financialadvisor.com.au
More Coverage
Why more investors put their money before the environment
Sustainable investing has been a growth area in recent years but a new study suggests some people are putting it on the backburner.
Why investors will bolt if property taxes change
Tinkering with property taxes drives investors out of the market – it’s just happened in New Zealand and now Canberra is looking at a very similar picture.