Betting on gold and how they make the Melbourne Cup!

It was just over a year ago to the day that the aptly named Gold Trip, a French-bred six-year-old that had started the day at 18-1, stormed the field to claim victory in The 2022 Lexus Melbourne Cup.

Gold the investment asset has also been on something of a trip itself lately, briefly reclaiming the USD $2,000 per troy ounce price point in the last fortnight, and trading near all-time highs in multiple currencies, including Australian dollars.

While most investors acknowledge gold is a stayer, and handy in a crisis (that’s a great name for a horse btw) there remains no shortage of commentators who think you have to be a mug punter to bet on the precious metal, even though it has outperformed many traditional assets by the length of the straight over the past twenty years.

Looking ahead, we think there is a good chance gold will continue to lead the way, and that at the very least, investors may wish to have an each way bet on the precious metal.

While that might seem a bold statement given it is already nudging all-time highs, there are indicators suggesting gold is going to kick from here. We touched on this subject in our most recent wire which covered the continued divestment of gold from ETF investors globally, and the net short position in the futures market, with the latter a rare occurrence that often coincides with the end of a corrective period for gold.

Further insight into where the gold market sits today can be gained by looking at recent data on investment into physical gold bars and coins. According to the World Gold Council in their recently released Q3 2023 Gold Demand Trends Report, global gold bar and coin demand was just 296 tonnes in the 3 months to the end of September, down 12% in the last year.

If you look at countries like Germany, a key European gold-buying nation, demand is down 73% in the last year, and 61% below the demand levels seen in Q3 2020, when gold hit an all-time high.

Declines in investment demand of such magnitude typically happen AFTER a bubble has burst, not when a bull market is off and racing.

At ABC Bullion, while we continue to see very robust turnover amongst our Australian client base, we have also seen a shift in the balance between buying and selling, especially when compared to previous periods when gold traded near USD $2,000oz. Consider that: 

• In August 2020, when gold first traded above USD $2,000oz, 95% of retail turnover was sales to clients vs. 5% of turnover being clients selling back to ABC Bullion.

• In March 2022, not long after Russia invaded Ukraine, 90% of retail turnover was sales vs 10% of turnover being clients selling back to ABC Bullion.

• In April 2023, just after Silicon Valley Bank collapsed and we opened our Global Flagship store at 38 Martin Place, 85% of turnover was sales to clients, and 15% was clients selling.

• In October 2023, despite again nudging back above USD $2,000oz, just 70% of turnover is sales to clients, with 30% of turnover representing clients selling metal back to us.

Most bull markets end when retail money is piling in, speculators using derivatives are aggressively net long, and financial news media is full of headlines proclaiming more gains to come. Gold is shooting zero from three on these three metrics today, meaning not one of them is a bubble warning indicator at present.

It is an encouraging sign. 

What does any of this have to do with The Melbourne Cup?

ABC Bullion is not only the largest independent bullion dealer in Australia, we are a fully owned subsidiary of Pallion Group, Australasia’s largest precious metal enterprise, which includes ABC Refinery, the largest exporter located in NSW.

The Pallion Group, also includes W.J. Sanders, one of Australia’s oldest, surviving gold and silversmiths.

Since 2016, we’ve been the exclusive producer of the Lexus Melbourne Cup. It is now the very definition of Australian Made, with the gold used to make Australia’s most prestigious sporting trophy mined, refined, and handcrafted in Australia.

This year, the gold that has been used to make the Lexus Melbourne Cup was supplied by Newcrest Mining (ASX: NCM) from their Cadia mine located in Orange, NSW.

The winners of the Cup have not only had their names etched into sporting history - they have also won a prize that has almost doubled in value since ABC Bullion first began producing this iconic trophy. This can be seen in the chart below showing the price of gold in Australian dollars on every Melbourne Cup day since 2016, noting the 2023 price is of Monday 6th November. 

Watch the making of the Melbourne Cup

Fun facts about the Melbourne Cup Trophy

• ABC Bullion is the sole authorised supplier of the suite of Lexus Melbourne Cup trophies. These trophies are produced by ABC Bullion’s sister company W.J. Sanders.

• It takes over 250 hours to make the Lexus Melbourne Cup annually.

• Every element of the Cup is hand-made.

• The trophy is known as the ‘Loving Cup’ due to its design, the three handles symbolizing the relationship between the winning jockey, trainer and owner.

• The Cup weighs 3.8 kilograms and is made from 18ct Australian Yellow Gold.

• Following an independent valuation in 2023, the Cup is now valued at $600,000.

• Every team member at W.J. Sanders has a hand in making the trophy.

• W.J. Sanders has been making the Cup since 2016.

• The Cup is ornamentally hand engraved.

• There is only one Lexus Melbourne Cup Owners trophy presented annually on Melbourne Cup Day, but trophies are also presented to the jockey, trainer, strapper and breeder made from Australian Silver and gold-plated to the exacting standards set by the VRC.

• Superstition states that no one can touch the Cup before it is presented to the winner – so before that time anyone who touches the Cup must wear white gloves.

• A second Cup is manufactured by W.J. Sanders every year in case there is a dead heat.