THE RBA IS PRACTICALLY TELLING US TO BUY GOLD!

Last week, the Reserve Bank of Australia (RBA) cut the local cash rate to a new all-time low of just 1%, following on from the reduction they made in June. 

Whilst this decision will no doubt be welcome relief for many mortgage holders and property investors, it is another kick in the teeth for savers, who will see term deposit rates cut.

The rate cut will almost certainly fuel further demand for precious metals, with a handful of industry contacts I’ve been in contact with over the weekend telling me they had one of their busiest weeks of the year last year. 

Explaining their decision, the RBA noted that; “the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside”.

We hope this rate cut is a net benefit for the economy, but unfortunately we’re not convinced in the slightest it really will be. Those with big mortgages will keep their payments steady, whilst those trying to live off interest income will tighten their belts further. 

Markets themselves are sceptical, with current pricing suggesting another rate cut will come by February 2020 at the latest, though there are many economists who think another cut is likely this side of Christmas. 

If this were to happen, it will only reinforce the importance of the wealth preservation strategies the keynote speakers at our upcoming 10th annual Gold and Alternative Investments Conference will deliver.

Why Has Australian Dollar Gold Outperformed

GAIC Gold sponsor The Perth Mint published a terrific article last week which appeared in CuffeLinks, one of the most widely followed and respected financial newsletters in Australia. 

The article looked at the recent move in gold beyond AUD $2,000oz, and highlighted two key benefits of including gold in an Australian Investment portfolio.

Those benefits include the fact that gold has typically been the best performing single asset class in environments where equity markets fall fastest. The following table makes this clear, highlighting the returns for Australian equities in the 10 of their worst quarters ever, as well as the returns on bonds, cash and gold in those same quarters.

Of even more relevance today was the second insight from the article, which looked at the historical returns on equities, bonds, and gold, in the years that real cash rates (which factor in inflations) are below 2% in Australia. 

As you can see, gold has been the clear winner, with a real return that is almost double that of the equity market.

Australian asset class returns when real cash interest rates were below 2%

When you consider the fact that cash rates are set to fall below 1%, possibly before Christmas, and the bond market is telling us we are going to have low rates well into the 2030’s at this point, then the logic of buying gold gets more and more compelling. 

You can access the full article from The Perth Mint here.

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