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Australian Gold Prices Hold Firm as American Prices Take a Hit

American gold prices took a hit this week since the Federal Reserve announced another 25 point interest rate cut, yet the value of gold in the Australian market has managed to hold firm despite its counterpart losing steam. With gold currently trading at $4,197.36, silver at $47.66, and platinum at $1,506.74, Australian investors need to remember that this is largely due to market fundamentals ever present in the background, and not simply Lady Luck blessing the Lucky Country.

Gold dropped USD $65 overnight in response to the rate cut.  Federal Reserve Chairman Jerome Powell said, “I think it’s pretty clear we have avoided a recession… The US economy is performing very, very well, substantially better than our global peer group.”  Needless to say, there are many economists that will remind investors that recessions are always declared post-recession when the data proves it out.  The Fed also confirmed it has, at this point, revised down the number of rate cuts for 2025 and 2026 to only two, attributing the change in sentiment to higher inflation rates and global economic uncertainty.  “It’s common-sense thinking that when the path is uncertain, you get a little slower…. It’s not unlike driving on a foggy road or walking around in a dark room with furniture in it.”

Yet American gold prices were not the only asset to slump.  The S&P 500 fell nearly 3%, while the Nasdaq (Big Tech) plummeted 3.5%.  The Dow Jones Industrial Average (DJIA) has also dropped about 1,100 points, or 2.5%, the largest drop since August.  It is also the longest losing streak since 1974.  It was in 1974 that the stock market experienced one of its worst years to date, experiencing a 45% loss in value.  The devastating hit was the result of the continued conflict between Israel and the Middle East (headed by Syria and Egypt). The conflict triggered an oil embargo on Israel, the United States and other countries in support of Israel, the economic consequences resulting in the aforementioned historic dip in the stock market.  All of this sounds strangely familiar to the events unfolding in Syria today with the Isreali Defence Force claiming to have destroyed around 80% of the Assad Regime’s military capacity.  Let’s hope the West does not experience another oil embargo (post Inauguration Day) as we did before.

While American gold prices are not alone in experiencing a pullback, the Australian market has avoided the correction to date.  The main reason is the AUD to USD ratio.  Gold against the Greenback has lost value, but our local currency has lost value even more thus buoying local prices.  Indeed the Australian Dollar and the Euro appear to be competing to enter “crash” territory, while the American Dollar and the British Pound remain in positive territory.  If the Euro and other significant currencies tank look to a strengthening American Dollar as investors seek safety, and observe if Australian gold prices continue to benefit.  Regardless, the below graph illustrates the safe and steady climb of all gold bulls’ favourite metal.

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2025 Outlook for Gold: Risk vs Reward

2024 has been a volatile yet satisfying year for gold which has ultimately enjoyed a 38.9% increase in value year to date. This past week it experienced a record high and the outlook remains promising for 2025. With gold currently trading at $4,226.04, silver at $48.97, and platinum at $1,489.09, we look to next year, eyes wide open, and assess the bullish and bearish influences on gold moving forward.

If there are any bearish reservations concerning gold one cannot avoid pointing the finger at Donald Trump. As President-elect of the world’s largest superpower his chaotic and unpredictable style (whether driven by impulse or a carefully-crafted strategy) creates uncertainty for gold investors. Election night showed that Trump can impact the price of gold quickly. Once a clear victory was evident gold prices dropped as investors moved to high-risk assets. Almost a month later gold has rebounded to outstrip the highs established on election day. Look to 20 January, 2025, for a move in precious metals depending on his strategy moving forward.

Trump’s promise of tax cuts, looser regulation and trade tariffs have investors worried about inflationary consequences. This is because tariffs could drive higher inflation which is generally positive for gold prices. However, next year will likely provide a backdrop of recession, in which case, different rules could apply. Normally, higher interest rates can increase the demand for a country’s currency due to the yield investors can receive. In the US a strengthened dollar has little impact on gold, but in Australian markets the value of gold priced in AUD will benefit accordingly. It becomes clear that Trump’s economic strategy will affect many moving parts that influence the price of gold, creating a murkiness that clouds predictions in the future.

On a positive note for gold investors, the “Bitcoin President” may need to rethink his promises in the coming year as new regulations are implemented by central banks regarding crypto currencies. The Group of Central Bank Governors have endorsed the Basel Committee’s global prudential standard for banks’ exposure to crypto assets. Central Banks must have these standards implemented by 1 January, 2025. This tighter, high-level scrutiny of crypto assets is good for gold which is already accepted as a zero-risk Tier 1 asset by central banks, highlighting a marked difference in how the Bank of International Settlements views the two extremely different assets.

Beyond the US, the economic world keeps ticking with central bank gold purchases to form the fundamental basis for higher gold prices in 2025. Eastern nations will continue leading the way after having witnessed how America weaponised its currency when they sanctioned Russia in 2022. Some Eastern countries have adopted fairly creative strategies that are outside the normal scope of over the counter (OTC) purchases when diversifying away from the dollar into hard assets such as gold and silver.

China is the perfect example. Not only is China the world’s largest producer of gold, they are also one of the largest importers (second to Switzerland). The Oriental Superpower has recently announced more economic stimulus meaning industrial demand for precious metals could increase. The graph below shows how much key countries held and imported in 2023.

China is also buying gold OTC after an official break of six months, but did they really stop? When official OTC transactions dried up the largest Eastern nation was still purchasing gold and silver in less than transparent ways by purchasing large amounts of unrefined gold cast bars directly from minors (mostly in South America). This makes assessing China’s true gold holdings fraught with danger; however, economist Alistair McLeod suggests that it could be as high as 38,000 tonnes. The World Gold Council puts China’s official holdings at 2,264 tonnes… If true, one must ask if the Chinese are prepared to invest so much in gold over time, what does this mean for the average investor. The answer is obvious.

In closing the gold’s general outlook for 2025 is positive to say the least, with some experts expecting spot price to average AUD $4,390. The more conservative analysts suggest that while gains made will be more subdued next year gold still has a lot to give. Other analysts suggest it could run up to AUD $4,630, an amount hot on the heals of AUD $4,709, the figure that a number of commercial banks forecast earlier in the year.

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Gold Up 60% Since the Start of Russia’s Special Military Operation. What is Next?

Gold continues to recover in the Australian market despite a distinct lack of movement in the United States.  With gold currently trading at $4,118.97, silver at $48.95, and platinum at $1,489.77, it appears that the value of gold could move either way over the Christmas season, so let us take a close look at what has been building gold’s momentum both in the medium and short term. To read about the long-term implications for precious metals read our article on silver from last week.

Geopolitics is generally the most effective context to view medium-term trends in precious metals.  Since the beginning of the Russian Special Military Operation in Ukraine, gold has increased 60% in the Australian market.  This type of stellar performance is in part due to the conflict in Ukraine as a root cause.  With the US and other Western countries freezing (and in some cases, seizing) Russia’s central bank assets, many Eastern nations chose to diversify away from the USD in favour of physical gold and silver, hence, driving the price up on precious metals in general.  This driver will likely continue given the number of regional conflicts that could officially trigger World War III at any time (Russia vs Ukraine, Israel vs the Middle East, and China vs Taiwan to name a few, all of them, incidentally, potentially proxy wars for the US to justify resetting its financial system).

Another slow-burning issue affecting the price of precious metals is the elephant in the room that just won’t go away.  “Recession” is an ugly word and it is used more and more in current times.  Governments don’t use it lightly, but is it possible the West is already in one?  It would certainly explain some of the provocative behaviour from the Democrats as they prepare to leave office in America.  In the US, bankruptcies for companies holding USD $50 million or more in liabilities is on par with the statistics from 2008 Great Financial Crisis.  This is filtering down to individual households that are defaulting on credit card, auto, and personal loans, in addition to mortgages. Some analysts suggest that recession in America technically started in April this year and that it should end at a similar time in 2025.  Certainly the price of precious metals reflects this, but is this the end of the bull run for gold and silver?  Put simply, the answer is no.  If it really has started, fallout from recession would still need to play out, as would a financial reset, on a backdrop of global conflict.  Chaos is always good for gold and silver.

Lastly, and most importantly for Australian investors, is the immediate performance of our own currency.  The AUD took a nosedive in recent days which, in turn, increased the value of gold in local markets.  While the exchange rate against the USD is most important in affecting the price of precious metals in Australia, as per the graph below, it dived also against the British Pound, the Canadian Dollar, and the Euro in spectacular fashion.  Further, the outlook for our local currency is fairly unfavourable.  The Commonwealth Bank of Australia has warned that President-elect Donald Trump’s use of higher tariffs could turbocharge the Greenback’s rally and that the Australian Dollar could sink as low as $0.50 on the US dollar. This sentiment is echoed by National Australia Bank, with the writer expecting more banks to join the chorus over time.

With the weakening Australian dollar, recession looming, and global conflict sitting on a tinder box, travelling overseas may not be a high priority for Aussies in 2025.  Although, if one does need to travel, any bullion investor would advise to buy some gold to offset the expenses.

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Five Reasons that Silver is Set to Skyrocket in the Near Future

The silver correction in the Australian market since the beginning of November now exceeds 11%.  With gold trading at $4,158.35, silver at $47.43, and platinum at $1,464.90, it is little wonder if retail investors feel a little overwhelmed momentarily; however, the prospects for precious metals for 2025 remain promising, in particular, silver.  Below we outline five reasons why silver will likely increase in the coming year.

 

Global recession will likely be declared next year.

This is a big statement so what is it founded on?  Based on financial cycles where recessions occur every 18.6 years, it can be argued that a recession can be expected anytime from now if one applies this formula from the 2008 Global Financial Crisis (GFC).  The GFC officially occurred between December 2007 and June 2009.  However, be aware that recessions take years to wind up and wind down. View a timeline on how the GFC unfolded here.  As per most recessions the US government declared it retroactively in December 2008, twelve months late.  This means that Western world could already be in recession now, as many economists acknowledge, even though the Australian government is still spruiking blue skies and a healthy real estate industry. Silver tends to outperform gold in the pre-recession and post-recession stages.  Could the spike in silver prices this year herald a recession in 2025?  The odds are likely.  Although gold performed almost as well, perhaps the pre-recession spike is yet to come.

The below graph shows the 18.6 year real estate and economic cycle as it has played out since the 1950s.

Silver provides positive responses to FED and RBA interest rate cuts.

Historically silver responds well to central bank rate cuts.  For the last three announcements by the Reserve Bank of Australia silver has responded with an increase between 1 and 3%.  Interestingly, silver responds even better to US Federal Reserve rate announcements, averaging price increases between 3.3 and over 8% in Australian markets.  The general consensus is that if rates are to move next year it will continue to decrease.  Expect healthy responses from silver each time a central bank executes a rate cut.

 

Silver has seen physical production deficits for the fourth year running.

According to the Silver Institute, it has had slight growth in supply and (paper) demand but the global market is likely to close the year with a record physical deficit for 2024.  This will be the fourth year running with both 2023 and 2024 elevated by historical standards, and with deficits likely to persist in the foreseeable future. To read about why the price of silver is suppressed despite the physical deficit read our previous article.

 

To this point, the Silver Institute anticipates that industrial demand is set to increase by 7%, surpassing 700 million ounces this year.  The main driver is applications around the solar industry; however, two more drivers worth watching in the coming year derives from the rapid adoption of AI and storage of information because of the amount of energy both use (as well as physical demand in the form of chips and so on).  For example, the amount of data used in 2025 is anticipated to be 50% more than it was this year.  A simple ChatGTP search uses ten times more energy than a standard Google search.  While technology giants will be looking to nuclear power as a source of energy, smaller companies will likely turn to solar energy.  Further, as financial markets weaken institutions will look at how best to boost national economies, with the tech sector offering an easy answer as far as funding innovation goes.

 

The gold to silver ratio is unbalanced.

2024 has seen the gold to silver ratio sit at 1 ounce of gold to between 80 and 90 ounces of silver.  In recent times this ratio has averaged 1:63 over the last 50 years, and 1:56 over the last 100 years.  But thanks to the paper derivative market the ratio is now insanely high.  When the derivative market corrects, expect this ratio to adjust at the same time.

 

The USD to AUD exchange rate will push silver prices higher.

Finally, as discussed in our last article, the likelihood of the USD strengthening is high.  As it strengthens, and if the Australian Dollar does not, the price of silver locally will also increase.

 

 

In summary, despite the talk of war, recession and associated societal discomfort, there is a lot to look forward to in 2025 for gold and silver bulls.  The super cycle may have already started, with governments yet to play catch up.

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Trump and the USD Lead the Way to Blue Skies for Australian Gold and Silver Prices

AUD to USD

The anticipated appreciation of the Greenback bodes very well for gold and silver prices on the Australian market. With the Australian Dollar to United States Dollar exchange rate at 0.6518, gold currently trades at $4,102.34 indicating at 3.5% increase in the last week, silver is at $47.67 with a 2.6% increase in the same time, and platinum is $1,501.21.  This exchange rate has been a critical indicator for Australian precious metal prices, with both gold and silver enjoying gains above 32% over the last 12 months.

Enter the “Trump Turbulence” factor: Donald Trump has been a consistent source of uncertainty in global politics and finance. His bold and unpredictable actions have often caused disruption in markets, and as he prepares for a second term, it’s expected that his influence will continue to keep both political opponents and financial markets on edge. While much of the media attention around Trump’s leadership focuses on the drama and unpredictability of his decisions, it’s important to look beyond the mainstream focus when considering the markets—especially for investors in gold and silver.

For those holding precious metals in the Australian market it is not just Trump’s handling of geopolitical events that will influence the price of gold and silver. A key factor to watch is the Australian Dollar (AUD) against the US Dollar (USD), as it directly impacts the local price of gold and silver. The below graphs illustrates the current trend for the AUD/USD exchange rate points to further devaluation of the Australian Dollar. If the trend continues, we could see a breaking point in the coming years where support and resistance intersect.  At this point the AUD will either strengthen or weaken significantly against the USD. This is something to watch closely as it could have a direct impact on the value of precious metals in the Australian market.

AUD to USD

 

When looking at the broader picture, it’s important to consider the US Dollar Index (USDX), which measures the value of the USD against a basket of major international currencies. As discussed in our last article, Trump’s unpredictability, as much as it is welcomed by gold and silver, will have little impact on the macro-economic trends dictating the ebb and flow of the US Dollar Index and the price of precious metals alike.  Right now, the trends within the USDX suggests that the Greenback is more likely to strengthen than weaken in the near term. While Trump’s unpredictability may continue to stir volatility in financial markets, it is the macroeconomic forces that will have the most significant impact on the value of the US Dollar. If the USD strengthens, it could put downward pressure on the Australian Dollar leading to a potential decline in value.

For Australian investors, this means that the value of gold and silver is likely to increase in local markets as the AUD weakens against the USD. While we cannot predict exactly how low the Australian currency could go, what is clear is as the AUD declines against the Greenback, the price of gold and silver in Australia is set to rise. This presents a potential opportunity for those looking to hedge against currency risks and protect their wealth in uncertain times.

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The Twin Presidencies of Trump and Biden and How it Affected Gold

It feels like the recent retraction in precious metals has been significant but the truth is, it is still within the historical norm when the current aftermath of Trump’s second victory is compared to that of his first.  With gold currently trading at $3,970.78, silver at $47.52, and platinum at $1,477.84, it is worth stepping back and considering some of the trends established during Trumps first term to assess what this tells us about the current market, and what we can expect in the future.

On November 8, 2016, Trump stepped onto the world stage with a decisive win for the Republican Party in America.  The world gasped and metals went down.  Within a week the value of gold was down 3.4% and silver followed with a decline of 9% on the Australian market.  Similarly, nine days ago Trump returned, again riding the red wave and heralding yet another contraction for precious metals in the same week after the election, this time 3.5% for gold, and silver losing only 2.9%.  This illustrates that what feels like a somewhat violent contraction in the price of precious metals is really “situation normal,” suggesting that further consolidation (especially in silver) is hardly out of the question, even likely. Indeed some analysts believe that based on Trump’s first term gold may dip as low as $3,870 if it kept pace with American markets; however, the likelihood is unknown. To read more about the reasons for the current pullback read last week’s article.

There are further extrapolations of interest when comparing gold’s performance during Trump’s first presidency versus Biden’s.  When Trump took office in January of 2017 gold was at $1660 and at the end of his term it was $2408, an increase of 50.5%.  From $2408, with governance under Biden gold is currently at $3978, an increase of 65%.  From this perspective one could argue that gold fares better under Democratic leadership; however, Biden still has two months of his term left when volatility is at its highest- at this point, nothing is sacred.

Volatility, on the other hand, deserves a mention. Based on the price of gold at the start of Trump’s term in 2017 it did not drop more than 2.8% during his term. At its highest, it reached 77.6% above the starting price.  This leaves a spread between the low and the high of 80.5%.  Applying the same formula to gold during Biden’s presidency produces a very similar result thus far at 85%.

Another interesting coincidence is that, based on the price of gold at the beginning of their terms, the increase in the gold price varied only 1.6% between the two presidents, with Trump achieving an increase of 77.6% and Biden 76%.

So far regarding gold both presidencies ­­seem eerily similar.  So was there anything different?  Apart from domestic politics, global events that affected gold prices has been the main difference.  The graphs below show very similar behaviour in the yellow metal but the underlying causes differ greatly.  The cause behind the main upward trend in gold under Trump was the Covid 19 Pandemic, while the breakout of conflict between Israel and Palestine et. al. has been the source of the upward pressure on gold under Biden.  Arguing whether either president was provocative or reactive to their relative emergencies is irrelevant.  The main take away is that, regardless of who is in power and what domestic challenge unfolds, global events are the dominating factor that affects precious metals, of which geopolitics plays a significant role.

So moving forward, what comes next?  Will Trump end the war in Ukraine as he pledged?  Signs are promising.  But what about Israel?  History paints this tiny country as a wildcard that the USA does not necessarily influence all that well.  Some would argue it’s the opposite.  Whether peace is possible in the Middle East is unknown.  At the time of writing resolution does not look possible. “Complicated” might be a positive spin.  So more importantly, if conflict breaks out in a larger way what does this mean for gold?  All gold bugs know the answer to this.  Anyone looking to add to their position might consider now as the perfect time to buy the dip.