Retail investment weak, prices strong...
EVERYONE has a sale price, right? asks Adrian Ash at BullionVault,
reporting from Day 1 of the LBMA 2024 precious metals conference in
Miami
Hollywood, Florida.
I mean, your wedding ring. You would never sell, of course. But really? Is there no gold or silver or platinum price that might make you consider it?
For some gold investors that price proved to be $2000 and higher, reaching almost $2700 last month. Silver approaching $30 and above has also seen net selling since the last time members of the London Bullion Market Association gathered like this, 12 months ago.
Platinum prices in contrast have 'only' gained 10%, and palladium has dropped around that much.
But for both of the former monetary precious metals – and while net demand remains poor on the visible data, most especially in retail gold and silver bars and coin products – someone has been taking the other side of that trade, driving prices higher.
The vast bulk of existing owners have meantime sat on their hands, including the usually price-sensitive markets of south-east Asia, where scrap flows are very quiet given where prices have gone...
...with both gold and silver rising by more than 1/3rd against the US Dollar and most other currencies.
"We've seen 35
new all-time highs in the gold price this year," said John Reade of the mining industry's World Gold Council this morning, chairing the annual LBMA conference's investment session.
"Must say, I never thought we'd see almost $2700 in my career."
"I'm having conversations where people tell me they can't see gold trading below $2300 again," said one panel member, noting how this year's steep rise and high levels mean gold is "losing part of the retail market."
But while gold has become "volatile, it's a buy and hold investment," said another speaker. "Distributions in prices are much wider [because] there a lot of different players now. Many are still underinvested."
"People are struggling to explain the rise in gold prices," added another. "But gold is redefining itself as a portfolio asset. The best allocation is around 12-15% – gold is a very effective diversifier. Central banks have realized this...adding gold at these higher prices. Western wealth managers are starting to it again, too."
Central bank gold demand – whether in chit-chat, meetings or conference panel sessions – certainly continues to plug the gap between the rising price and what LBMA members are seeing in terms of customer demand in their own business. And so for the 2024 conference, the LBMA got a panel of gold-owning central bank reserve managers to explain how they see and use the precious metal.
Bottom line? Gold isn't held in their liquidity portfolios in case of urgent currency-market intervention. Instead, it's a long-term holding for portfolio stability, because repeated analysis – by their own internal teams – show how gold helps boost the risk-reward profile of a wider spread of assets. And looking ahead, today's central-bank session agreed that both the value of total FX reserves and the proportion of those reserves held in gold are expected to keep growing.
"Why's that?" you ask? First because of those portfolio benefits. Second because, well, just read the news. Global politics are a bloody mess, and while November's US election might at least resolve the direction and engagement of the world's dominant power (possibly not all for the bad if Trump wins, according to the geopolitical discussion which kicked off the LBMA conference today), it won't solve that.
Silver, unlike gold, doesn't enjoy central-bank reserves demand. (Russia recently said it's maybe adding non-gold precious metals to its non-central bank holdings; one of today's central-bank panellists said they looked at silver but the price is too volatile to act as a diversifier). Yet the price has still risen by 35% since the LBMA conference met in Barcelona in October 2024. And even more than in gold, the bulk of private investment action has been to sit tight, rather than take profit.
Maybe, as the silver table I joined at this evening's roundtable discussions agreed, that's because silver still looks 'cheap' relative both to gold (
via the Gold/Silver Ratio) and to its historical highs of the past 50 years.
Silver's big top at $50 in January 1980 would now equate to $200 per Troy ounce in real inflation-adjusted Dollars, and April 2011's re-touch of that level would cost $70. Whereas silver today is trading at $31.
From all the conversations I've had so far, everyone here thinks we'll see both precious metals trading higher (and higher) for longer (and longer). That sure fits the pattern of LBMA conference attendee forecasts in the past,
projecting forwards what the gold market just did.
