By Jerry Hicks, Sales and Business Development Manager, The Perth Mint
Ongoing instability and uncertainty in global markets will likely drive the price of gold upward and support demand, which we are already seeing. Of the market influencers, it seems that trade tensions are at the core, with prolonged and unresolved negotiations undermining business confidence and market sentiment. Gaining significant attention beyond that are heightened concerns regarding further interest rate cuts and the plunge in global bond yields.
What we are also hearing now are increasing reports of a recession underpinned by fears that US equity markets are overvalued. In addition, due concern also surrounds Brexit and its implications for the broader EU, the potential impact of political unrest and fiscal volatility in countries across South East Asia and Europe, plus the rise of greater division and instability in the Middle East.
Looking specifically at The Perth Mint in terms of current levels of gold demand, this world-leading Mint sold more gold bullion coins in September than any other month this past year. The greatest drivers for this demand were the introduction of the 2020 Australian Bullion Coin Program including the third twelve-year Australian Lunar investor series, combined with the advanced release of its signature Australian Kangaroo gold bullion series.
Overall it exports close to USD13 billion each year in precious metal bars and coins.
In addition, as far as its physical gold ETF AAAU is tracking, global gold investment demand is currently biased to the upside so it is a time of acquisition. With AAAU trading for only a little over a year in a rallying market for gold, it is generating an increasing daily average of share buying and investor interest. In August, for example, AAAU reached a milestone of $150 million in net assets, growing to more than $165 million to the year-end 31 October.
While individual investors buying gold ETFs represents a much larger flow into gold than that of central banks, it is the buying by central banks that sends an inherent ‘buy now’ signal to the market at large, with astute investors thereby asking, “If central banks are diversifying their monetary reserves, should I be doing the same?”
Net buying of gold by central banks has been at the highest level since Richard Nixon abandoned the gold standard in 1971. Led by China, Russia, and Poland, central banks across the globe bought more than 570 tonnes of gold last year. This strong demand continued in the first quarter of this calendar year with total purchases reaching in excess of 180 tonnes – up 116% year-on-year.
As the year comes to a close we keep a keen eye on the US political landscape. President Trump’s friendly business policies and tax cuts certainly have taken the edge off any strong impetus to push gold significantly higher than where it is at the moment. If the impeachment proceedings go forward, that will certainly have an effect, but there’s no doubt the President is going to do everything he can to keep the American economy as strong and as buoyant as he can in the lead up to the election next year.
This material must be proceeded or accompanied by a prospectus. Click HERE for a copy of the prospectus. Before investing you should carefully consider the Perth Mint Physical Gold ETF (“Trust”) investment objectives, risks, charges and expenses. Please read the prospectus carefully before you invest.
All obligations of the trust custodian, The Perth Mint, including the gold held on behalf of investors in AAAU, are guaranteed by the government of Western Australia.
The Government Guarantee is subject to the claims-paying ability of the Government of Western Australia. If the Custodian becomes insolvent, its assets, and the assets of the Government of Western Australia under the Government Guarantee, may not be adequate to satisfy a claim by the Trust or any Authorized Participant. The referenced guarantee does not apply to fluctuations in the value of shares based on the price of gold which could create potential losses. Gold owned by the Trust may be subject to loss, damage, theft or restriction on access.
The Trust is not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder. The value of your shares fluctuates based upon the price of the gold held by the Trust. Fluctuations in the price of gold could materially adversely affect your investment in the shares. Investors should be advised there is no assurance that gold will maintain its long-term USD value in the future. The lack of an active trading market for the shares may result in losses on your investment at the time of disposition of your shares. Because the Trust invests only in gold, an investment in the Trust may be more volatile than an investment in a more broadly diversified portfolio. Substantial sales of gold by central banks, governmental agencies and multi-lateral institutions could adversely affect an investment in the shares.
The request for the exchange of shares for gold is subject to a number of risks including but not limited to the potential for the price of gold to decline during the time between the submission of the request and delivery. Delivery may take a considerable amount of time depending on your location. The Trust may suspend redemptions of baskets by authorized participants and Gold Corporation may suspend or reject the exchange of shares for physical gold, which could affect the market price of the shares. The withdrawal of an authorized participant and substantial redemptions by authorized participants may affect the liquidity of the shares.
Trust shares may trade at Net Asset Value or at a price that is above or below Net Asset Value. Any discount or premium in the trading price relative to the Net Asset Value per share may widen as a result of the different trading hours of NYSE Arca and other exchanges.
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