Last month the Gold Industry Group attended ABC Bullion’s sold out seminar; “The New Bull Market in Precious Metals”. It was evident gold is in focus as more than 600 investors, finance professionals and media filled the Ivy Ballroom in Sydney.
It was no surprise the first point Jake Klein shared was “gold is here to stay”, and that its importance as an investment would endure.
He also spoke passionately about how fantastic a place to mine gold Australia really is. He noted that Australia is the world’s second largest gold producer (with production of circa 280 tonnes, valued at close to AUD $15bn), we have a high quality workforce, and Australia is a first world mining jurisdiction. With the AUD gold price at or near all-time highs, it’s no surprise cash margins are strong in the industry – and there is certainty investment into the sector will continue to flow.
The impact of the Australian gold industry is significant – as a commodity earner and an employer, with some 50,000 Australians working in the sector, or in jobs supported by the gold industry.
Cor Capital’s Tom Rachcoff talked about why investment advisors ignore gold bullion. Cor Capital is a diversified investment portfolio with a strategic holding in physical gold bars. Tom addressed the fact that today, asset allocators in institutional portfolios around the globe have less than 1% of their funds in physical gold bullion.
A key takeaway from his presentation was for investors to pay attention to what they are exposed to in a portfolio, and ensure they have true asset class diversification – not just different exposures that are positively correlated.
Physical gold – which is uncorrelated to stocks and bonds, and highly sought after in times of systemic stress – plays this role when appropriately combined with financial assets as well, if not better, than any other asset.
The other interesting point that Tom highlighted was how damaging volatility is to investor returns, due to the impact emotions have on people’s decisions to buy and sell (often at the wrong time). The lesson from this – controlling volatility is important.
The Honorable Anthony Roberts, NSW Minister for Industry, Resources and Energy also addressed the room expressing the importance of the gold sector to the entire Australian economy, stating that our nation was built on gold.
ABC Bullion’s Nick Frappell and Jordan Eliseo talked about gold for Australian investors, looking at the positive returns the sector has offered for the past 15 years, why they think the bull market has further to go, and the important role it can play for local investors today.
Nick looked at Chinese overcapacity and the explosion in debt there, negative yielding sovereign debt and negative interest rate policy, and the rise in political uncertainty, best witnessed by the recent Brexit vote, and the ever shortening odds on a Trump presidency.
Jordan covered a few reasons to hold gold and silver from personal experience. One of those being the historical performance of gold in low ‘real’ interest rate environments. It is unsurprising that gold tends to do well when the income one earns on term deposits and bank accounts is low (on an inflation adjusted basis), as the opportunity cost of owning non yielding gold declines. He also touched on the diversification benefits of gold, noting that it acts to reduce volatility, and improve risk-adjusted returns. Another one was simplicity. Gold is tangible, highly liquid, easy to transact in, and to store.
The rally in gold this year, plus the strong performance of the XGD (S&P/ASX All Ordinaries Gold Index) has put gold mining well and truly ‘back on the map’ this year for investors, many of whom are having to navigate volatile equity markets, negative real yielding bond markets, and ever lower interest rates.
A positive outlook for gold and as Jake said, “Gold is here to stay.”
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