Gold Holds Key Support as Markets Plunge

Precious metals have been in consolidation mode for most of the past week, with gold last trading just below USD $4,100 per troy ounce (oz), while silver is at USD $58.60oz. In local currency terms, gold is sitting just below AUD $5,900oz, with silver at AUD $84.30oz, with the gold to silver ratio sitting at 70:1. 

This price action is part of a healthy base building that we have seen take place over the past couple of months for both gold and silver. This has occurred against a backdrop of broader market turmoil, led by the tech-centric Korean stock exchange (KOSPI), which has now fallen by more than 40% in the past six weeks. 

The plunge in the KOSPI—which has been driven by major corrections in Samsung and SK Hynix, both major players in the global memory chip market—is being mirrored in the United States, with the tech heavy NASDAQ now down by more than 10% from its June high. 

That June high coincided with the launch of SpaceX, with the euphoria from that listing now well and truly gone, with shares down by close to 40% from the initial post-IPO surge that was seen in its first few days of trading.  

While these stock-specific stories, and equity market movements as a whole, continue to dominate headlines, it is recent moves in the bond market that arguably spell more trouble for investors and the economy, with borrowing costs surging in recent weeks. 

Overnight market movements were a continuation of this trend, with 30-year U.S. Treasuries rising above 5.21%, up from closer to 4.60% in late February. They are now at their highest level in nearly 20 years.  

Those higher borrowing costs act as a de-facto handbrake on economic activity, and will continue to pressure listed asset valuations, as well as real estate prices. The proximate cause of the overnight spike in yields was the just-completed Federal Reserve Meeting, which saw the Federal Open Market Committee (FOMC) elect to maintain interest rates in the United States at current settings.

Far from reassuring investors, the FOMC decision appears to have troubled the market, with the S&P 500 falling by over 1%, with investors now ‘pricing in’ more interest rate hikes by the end of this year.  

Given this backdrop, gold has done well to so far hold key support at USD $4,000oz, while silver has also held above the key USD $55oz price point, with long-term buyers likely to be well-rewarded if they add to holdings at these levels.  

Until next time.  

Jordan Eliseo
General Manager, ABC Bullion

Luke Tyler
Senior Analyst, ABC Bullion

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