Quarterly Report | Thursday January 19, 2023

The SA Bullion Gold Report | Fourth Quarter 2022

    The SA Bullion Gold Report    Fourth Quarter 2022   Analyst: Hilton Davies & Clint O’Brien Date: 20 January 2023 GOLD PRICE ACTION   In the fourth quarter, in US Dollar, gold had a flat October and a strong November and December. The price per troy ounce rose from $1,654.80 to $1,817.75 for … Continued


  The SA Bullion Gold Report

   Fourth Quarter 2022


Analyst: Hilton Davies & Clint O’Brien
Date: 20 January 2023



In the fourth quarter, in US Dollar, gold had a flat October and a strong November and December. The price per troy ounce rose from $1,654.80 to $1,817.75 for a resounding performance of 9.8% in three months. In the 23 years since the start of this century, the price appreciation of gold has been an impressive annualized 8.3% per annum in US Dollar.

In South African Rand, gold had a very strong quarter, producing a gain of 5%. Similarly, in Rand, gold has delivered a very strong performance over the longer measurement periods. This century gold has rewarded South African investors with a compound annual return of 13.3% per annum, thus validating the long-term proposition for South Africans.

As a tangible commodity gold represents low risk, yet even as a low risk alternative to cash in the bank, the precious metal has delivered stellar returns for our clients and our thesis has proven to be robust.




We have entered our 18th year of operation, and this is our 55th quarterly report. To date, all of our quarterly reports have been written by myself. As your gold bullion manager it is time for some changes to long running formats. (Long term clients would know that we are very slow to make changes to core processes at SA Bullion!). SA Bullion Group director and CFO Clint O’Brien is climbing into the driver’s seat to write the ‘meat’ of our quarterly report. What follows is Clint’s first contribution, and then SA Bullion Company News written by myself as per usual.




The world economy began 2022 in fundamentally good form. Global GDP growth in 2021 was 6.1 percent, a solid rebound from the pandemic-induced contraction of -3.1 percent in 2020.

Manufacturing was expanding, trade levels reached new all-time highs, employment was expanding, all in all January 2022 global macro indicators were positively postured for the year to come.

Amidst a globally coordinated pandemic policy response of excessively loose monetary policy, inflation was fast becoming the canary in the coal mine. It was economics 101; demand pull from monetary policy stimulus ushered in a wave of financial liquidity which simply overwhelmed supply; this, as global supply chains broke-down under persistent lockdowns and global shortages. Asset prices were running hot, and inflation was fast becoming a tinderbox.

On 5 January 2022, the S&P500 peaked at a level 122% higher than the pandemic induced low of March 2020. Asset prices had formed a bubble.

Then, on February 24, Russia invaded Ukraine. Millions fled the country, on a scale unseen since the Second World War, prices spiked for gold, oil, natural gas, in fact; for the entire commodity complex. Stock markets shuddered, and this was the match that lit the tinderbox.

From January to March, Oil Prices rose 75%. For the period of January to August, Natural Gas prices rose 163%. Coal ended the year 80% higher than at the start. Truly astonishing numbers. [See Figure 3: Commodity Price Changes in 2022]

A further startling statistic is that by April of 2022 food prices had soared by 75% over two years. By June, inflation in many countries hit levels not seen since the 1980s. Poorer populations were being squeezed by the higher prices for life’s essentials: energy, shelter, clothing and food. By way of example see Figure 4: Egg Prices 2022.

It was time for action from policy makers. Enter the Fed. After driving interest rates to near zero in response to the pandemic, the Fed reversed course altogether in 2022. In an effort to stave off runaway inflation, Jerome Powell as Chairman of the FED, commenced with a policy of tightening financial conditions. For the year under review the Effective Federal Funds Rate went from just 0.08% in March, to 4.33% by December. Put in simple terms, interest rates rose 53-fold in 12 months. This policy change was motivated in order to support the working class by directly confronting inflation.

As a consequence, asset prices would have to bear the pain of higher borrowing costs, and ultimately this pain would end up being inflicted on Wall Street, so that government could be seen to be assisting the consumer with unbearable prices on Main Street.

By October the S&P500 index had cratered 27%, and the NASDAQ Index by 37%. By the end of 2022 Wall Street would wrap up the year with its worst performance since the period of the global financial crisis in 2008/2009.

The largest single contribution to this total reversal in the value of financial assets was the path of US interest rates, largely driven by the actions of the US Federal Reserve and its interest rate policy path.

As the US raised interest rates, the demand for dollars surged, the Dollar Index (which is a measure of the strength of the US Dollar against a basket of other major currencies) appreciated by 28% in the months to September 2022, reaching levels last seen twenty years ago.

A strong US Dollar feeds into inflation pressures abroad. The cost of most imports rise, because agricultural produce, energy and most commodities are priced in US Dollars. It also makes the debt servicing costs of emerging economies climb as most global borrowing is in US Dollars.

In response to rising rates in the US, central banks in emerging economies respond by raising rates in their own currencies, and this has the effect of further slowing economies, and perhaps leading them into recession.

A recent study(1) found that a 10% dollar appreciation leads to a real GDP decline of roughly 1.5% in emerging market economies. Consequently, emerging economies suffered the most in 2022. Take for example, Argentina where inflation runs above 50% per annum presently, or Turkey at 70% per annum.

The changes that we’ve witnessed in recent years are not of the pedestrian variety:

First, a global pandemic caused markets to be driven down into misery, then up to euphoria, and as things stand it would appear we’re headed back down again.

Inflation may still prove to be a genie that is out of the bottle and impossible to contain without great pain and suffering, and all the while the global geopolitical order is transforming in ways that may very well be irreversible. Overall 2022 was yet another year of upheaval. For 2023, only one thing seems certain, and that is that things are becoming increasingly uncertain.




2022 was a textbook example of gold’s stable and uncorrelated performance to other asset classes amidst market turbulence.

In USD gold posted a small gain in 2022 which is no mean feat given the unprecedented rise in US interest rates and an exceptionally strong US Dollar. Worth repeating, is the performance in the final quarter wherein gold surged 9.8%.

In emerging market currencies gold performed exceptionally well. In the case of the South African Rand gold appreciated+11%, in Chinese Yuan +10%, some exceptional outliers would be the appreciation in Turkish Lira +44%, and the Argentine Peso where the price climbed +80%. The outliers illustrate the point, gold is a very effective hedge against violent currency depreciation and monetary debasement.

Data from the World Gold Council indicates that while institutional demand was weak, it was offset by retail investment, driven largely by inflation concerns and geopolitics, while central banks had an exceptional year of net buying.

Remarkably, the third quarter of 2022 saw global central bank demand surge by 400 tons (+115% on the previous quarter), to mark the largest single quarter of demand from this sector on record.

Notably, China continues to accumulate gold with its sovereign holdings having increased from roughly 400 tons at the start of the century, to roughly 2000 tons today. That’s a rate of accumulation of nearly +8% each year for 22 years.

What is the bond market signalling?

While policy makers have levers such as monetary policy and quantitative easing or tightening, at their disposal to influence asset prices in the short run, they hold very little sway over economic forces in the long run.

It is for this reason that most economists and investment managers view bonds as the ‘smart money’. An examination of the yield curve of the bond market can be very revealing. The Federal Reserve may be able to control short term interest rates (the short end of the curve), but have little control over long term interest rates (the long end of the curve).

The bond market is a great predictor of inflation and the direction of the economy, both of which directly affect the prices of everything from stocks and real estate to wages and consumer staples such as food. So, what was the bond market signaling at the start of 2022, and what is it signaling today?

In January of 2022 the yield curve was signaling stable economic conditions. This is where yields (interest rates) are lower for shorter term debt, and yields increase steadily as the time to maturity of the debt increases.

While inflation is effectively a form of fiat monetary debasement, investors can stay above water if the return they receive on bonds pay out more than the rate of inflation. However, in the environment we find ourselves today, bond yields are far away from keeping up with inflation. For investors, these implications are profound.

Today, the yield curve is inverted and is therefore signaling an altogether different outlook for economic conditions in the future. An inverted yield curve is rare and is strongly suggestive of severe economic slowdown.

Historically, an inverted yield curve has been a warning that a recession is coming. Today, long term bonds (the smart money) are effectively telling us that the Federal Reserve can try to continue to raise rates in the near term, but it will come under pressure to drop those rates back to zero pretty quickly. This is because the negative structural forces in the economy are just way too strong.

Key to this conundrum, is that although we have a world that needs to confront extremely high inflation, we also happen to have a world that also needs to confront extraordinarily high debt levels in every sector, both public and private.

High interest rates in the short term will simply become unbearable in the longer run, and unless rates are reduced, the financial tightening of higher rates will create cracks and fissures in the economy, and eventually things will begin to break.

This transmission effect of tightening monetary policy, may eventually feed through to the real economy and result in undesirable outcomes: property prices may collapse, insolvencies may rise, mass layoffs could result, and an overall deterioration of economic conditions the world over may ensue.

Macro-Analyst, Lyn Alden made the following remarks which we believe are very relevant to our clients:

“The combination of higher inflation and stagnant bond yields is a very good environment for hard assets, because cash or bonds are being sharply devalued relative to something, and that something is real assets, things that are finite,” Alden said. For gold investors, these remarks echo our long-standing thesis and position:

‘The world lead by the United States is in a Debt Trap. In order to escape the Debt Trap, the US will ensure the depreciation of the Dollar so as to repay debts in debased currency. Due to competitive forces one can expect that all currencies will race down the depreciation slope. All except one. Gold.”




At SA Bullion we have held a long term vision for our business – to be, in essence, a ‘bullion bank’ but without a bank license. We do not mean to be an actual bank, which is a deposit-taking institution, but we mean to be similar to the bullion division of an actual bank – the division known as a ‘bullion bank’.

There are many parts to a ‘bullion bank’ enterprise and these parts involve many regulatory licenses, dealer agreements, products and services, systems, and clients.

The principal parts to our ‘bullion banking’ business that we have developed since 2005 and that have been in operation for many years are:

· Discretionary investment products in South Africa;

· Discretionary investment products internationally;

· Retail trading services in gold and silver investment products; and

· Retail trading services in secondhand, non-investment precious metals.

In our Second Quarter 2021 report we proudly announced the birth of our hedging programme, run in conjunction with Absa Alternative Asset Management. We subsequently also referenced how the hedging programme has powered our online retail shop.

It gives me great pride to now announce our latest development. Since our previous quarterly report we have concluded a Structured Trade Commodity Finance (‘STCF’) deal with Absa Bank. This development, that is extremely significant for us, has enabled us to become a true ‘Liquidity Provider’- and the only bullion liquidity provider in South Africa.

The combination of a hedging programme together with a very significant line of credit (the STCF), has given us the opportunity to become the intermarket dealer to all dealers. We have become ‘the’ Liquidity Provider of South Africa. There is almost no gold bullion transaction, whether buy or sell, that has become too large for us. And in creating this critical component in a ‘bullion bank’, we have been able to take some friction costs out of the system, thereby helping to develop a more efficient and more liquid market, to the good of gold producers, dealers and clients.

In the six weeks of our liquidity provider operations we have done many multi-million Rand transactions and we have dealt with almost all of the major dealers in South Africa. This is a very exciting development for us and I must thank SA Bullion directors (and brothers), Imran O’Brien and Clint O’Brien for two years of tireless work in getting the STCF over the line, and Helen Davies for designing and coding the backend – thank you!

The year ahead is very exciting for us. We are developing a B2C app that will empower clients for trading and storage 24/7. And with our Liquidity Provider model now a reality, we have the tools to bring something special to the pension fund and LISP markets.

We are excited about 2023 and we look forward to enriching your life in the gold and silver space. Thank you for your patronage in 2022 and wishing you a healthy and successful 2023.


Hilton Davies

20 January 2023

Download Fourth Quarter 2022 Report

SA Bullion Management (Pty) Ltd. Copyright 2020.
All rights reserved.

Privacy Policy | Terms of Service