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07 June 2023

Gold is well in sight of $1,000 mark this year

By Peter Cooper


With gold hitting a record high this week and closing in on $1,000 an ounce more Gulf investors are looking to own and store precious metals in an ultra-safe, tax-free and low-cost environment. The Perth Mint in Australia offers such an option for Gulf residents and nationals.

The AAA-rated Perth Mint is wholly-owned by the Government of Western Australia and has many Gulf clients. Perth Mint’s most senior official, Treasurer Nigel Moffatt, spoke to Emirates Business about the recent growth in interest in gold, silver and platinum, and offered some of his own views on how the market for precious metals is likely to develop in the future.


Why would investors from the Gulf choose the Perth Mint to invest in precious metals when they can just go to the Gold Souk in Dubai, for example, or trade in futures on the Dubai Gold and Commodities Exchange? What is your unique selling proposition? 


Well, write-downs by leading banks are making investors look closely at where they put their money nowadays – counter-party risk is more important than ever. When investors come to the Perth Mint, they are dealing with a 109-year-old institution that is government-owned and backed by an AAA-rated government guarantee.

Furthermore, we have a 40 per cent shareholding in Australia’s only refinery, which gives us access to physical metal when we need it.


What increase in business have you seen in the past 12 months? Where is the new business coming from, and how important is the Gulf?


Our business seems to fluctuate in close proportion to the gold price, and the rise in price that we have witnessed over the past couple of years has seen a large influx of new business. Over the last year our business has grown by around 30 per cent. We see the Gulf as an important growth area, but we are well aware of the local alternatives that you have already mentioned.

There are certainly regional preferences regarding investment forms; India, for example, has demand based almost exclusively on physical gold, whereas in the United States, investors prefer some sort of investment product rather than the physical holding. The Gulf has centuries of history to add to its gold trading activities and these are not about to disappear. However, we do see this market moving towards account-based gold investment programmes.


Bull markets climb a wall of worry, and we saw a gold market correction from May 2006 until the autumn of 2007. Gold is now riding high with a surge from $650 an ounce last summer to more than $950. What are the fundamentals behind

this market?


I’m not in the prediction game – I leave that to those far better qualified than myself. But I suppose you’re not going to let me get away without some sort of view. The market was stuck on something of a knife edge around the $900-mark, but has now moved well past that level. The market is strong enough to sustain a $50-$100 or so correction and still maintain the bull run. Personally, I think $1,000 is well within sight this year and if pushed, maybe $1,200.


How much importance should we attach to the recent breaking of gold’s all-time high reached in 1980? If gold is really the hedge against inflation then should the price not be a great deal higher, at least $2,000 in inflation-adjusted terms compared to the old all-time high, and $5,000 if adjusted to the change in the money supply since 1980?


I think breaking the $840-level was a very significant move for gold. The gradual build up has given the gold price a legitimacy that the 1980 spike never had. I am not a great believer in using an inflation-adjusted price as a guide and the numbers that you give bear out this scepticism. Yes, gold is still seen as a hedge against inflation, but as with most market correlations, you rarely get a perfect fit. Looking at the extraordinary 1980 price rise on a chart, surely it was an aberration.

Can anyone remember why it happened? Actually, it coincided with the Russian invasion of Afghanistan, but viewed now as part of the gold price pattern over the past few decades, I believe it has to be seen as a one-off event. It is, therefore, unreasonable in my view to use this level as a basis for comparison to inflation.


From a historical perspective, how did the Perth Mint come into existence? Are any of these reasons still relevant for investors to consider today?


The Perth Mint was built in the late 1890s to solve two problems – gold had been discovered in Western Australia and it needed refining, and at the same time, the Swan River Colony [as it was known] was growing fast and was short of currency to meet the needs of the population. Governor Lord Forrest managed to persuade the UK’s Royal Mint to establish a branch in Perth. This meant producers’ gold was refined and then made into sovereigns and half-sovereigns, and introduced into the local economy.

In 1970, the Royal Mint decided to exit its colonial operations and gave the ownership of the Perth Mint to the state government. Much has happened since then of course, but along with the Mint’s historic buildings, the old-fashioned values have also been preserved. We now produce a large range of commemorative coins and medallions, together with a range of investment options. However, from an investor’s perspective, the government ownership and guarantee stand out as distinctive features.


Australia is not a tax haven for foreigners. Why are they allowed to make a tax-free capital gain on precious metals held in the Perth Mint, while local residents face capital gains tax?


Actually this is not true. We sell gold to investors in many countries, and if those investors sell it back to us and realise a profit, it is their responsibility to declare it to their relevant authority. The tightening of regulations relating to money laundering has affected us all and we strictly observe the requirements relating to the transfer of funds. Funds received from a source are returned to the same bank when an investor redeems his or her metal holding, so there is always an auditable trail of funds.


Some investors in precious metals argue that historically silver has delivered better total returns than gold in times of financial crisis, although it is more volatile in price movements. What do you think of this view, and would that make you more bullish on silver than gold in the present market?


Silver has never been a favourite of mine, as it has been too easily influenced by unfounded rumours in the past.These include the belief insufficient physical stocks exist to meet the volume of metal held by investors. In reality, there are vast quantities of above-ground supplies of silver, but these rumours start when an investor cannot get immediate supply of metal.
More often than not, the reason is the physical metal may be in the wrong location and more probably, in the wrong form [size of bar] for immediate delivery. Having said this, I certainly believe the price of silver will rise along with the price of gold, but mainly because of its current perception as ‘poor man’s gold’. I think far too many people look at historical highs of silver on the $40 range and think ‘if gold has just gone to a new high, silver can’t be far behind’.


Platinum is also having a great run. What forces are shaping this market and how long will the run continue? 


South African electricity woes have the potential to hit up to 700,000 ounces of gold and 400,000 ounces of platinum annually. From what I understand, it is going to take some years to solve the power shortages and with high demand for platinum in a market with reduced supply, it seems that platinum has only one way to go.


In the 1970s it clearly took a decade for gold to hit the highest price. Do you agree that the present financial crisis has something in common with what happened in the mid-1970s and that the ultimate impact on precious metal prices could well be the same?


I’m not sure that I see many specific parallels between then and now, but the sentiment driving gold demand, which include counterparty risk mitigation, US economic concerns, stock market jitters, the oil price and geopolitical tensions, all seem to be aligned to make gold an easier choice to make that ever before.
Let’s not forget what happened to gold in 1980 after it hit $840 – clearly, that price was unsustainable. However, we have witnessed a far more orderly build-up in the gold price and this should  keep the ball rolling for some time to come.