Welcome to SurvivalBlog’s Precious Metals Month in Review, where we take a look at “the month that was” in precious metals. Each month, we cover the price action of gold and silver and examine the “what” and “why” behind those numbers.
Gold trended lower during February, after hitting multi-year highs in January, for several reasons. Physical demand from China was lower, after the habitual gold binge in January for the Lunar New Year. The Greek debt crisis tended to swing both gold and the U.S. dollar back and forth, but the warfare in Ukraine seemed to do little for gold outside of Ukraine or Russia. Perhaps the biggest driver for gold (and the dollar) is the markets’ reactions to U.S. economic news, trying to time when the Fed would begin raising interest rates. This was demonstrated on February 26, when gold jumped over 1% after Fed Chairman Janet Yellen’s testimony before Congress indicated that any hike in rates would be late in the year.
Precious Metals Market Drivers in February
Greece Vs. EU
The showdown between the new leftist government in Greece and its creditors this month dominated the news and the economy in Europe and beyond. Demands in Athens that bondholders have more of their investments taken away and refusal to abide by previously-agreed to austerity measures, led the ECB to announce that it would no longer take Greek sovereign debt as collateral for loans to commercial banks.
The Marxist-leaning finance minister, Yanis Varoufakis, visited the finance ministries of other EU nations to drum up support, but the Greek government’s refusal to abide by the conditions of the 240 billion euro bailout and insistence that the final payment be turned over to them with no strings attached met with little support. The president of the European Commission told the Greeks that the EU would not stand for being blackmailed by Greece.
The situation led to bank runs in Greece, with one billion euros being pulled out of banks in two days by citizens afraid that the leftist government would make good on its threats to default and leave the EU. According to some estimates, 11 billion euros had been pulled out of Greek banks ahead of the January 25th election, with that amount accelerating as Greek citizens feared a Cyprus-style bank bail-in and seizure of deposits.
The Greek government’s stance led former U.S. Fed chairman Alan Greenspan to declare that Greece leaving the EU was just a matter of time, and leading banks put the chance of a “Grexit” from the EU at 50%. Finally, on February 20th, the Greeks capitulate and pledge to abide by the terms of the bailout in return for a four-month extension of aid. The EU agreed to let the Greek government change some things in the agreement, as long as the total government budget didn’t increase. Greek leaders immediately came under fire back home for betraying the mandate that they were elected under.
John Browne, writing at Euro Pacific Capital, says that Athen’s attitude is born from modern Greece never having to stand on its own. The receipt of 180 years of subsidies from Western Europe in an effort to counter Russia have left Greece expecting that there was no reason to be fiscally responsible.
Russia vs. NATO
Global gold prices weren’t much affected by warfare in Ukraine this month, though citizens both in Russia and Ukraine scrambled to buy physical gold before their respective currencies devalued even further. The Russian government itself is moving 55 tonnes of gold reserves to Switzerland, in case increased sanctions prohibit it from using domestically-held gold.
Of course, Russian sanctions against Ukraine are causing far more harm than western sanctions against Russia. The government in Kiev has instituted capital controls to prevent money flight as reserves dwindle, and promised financial aid from Europe has not materialized. The last funds were received back in September.
Both Russia and the West are treating the situation as a long-term event, with each side accusing the other of seeking to dominate Eurasia. In response to the perception that Putin is engaging in low-intensity asymmetric warfare with the West, the British announced the formation of a social media propaganda brigade of what critics call “Facebook warriors”.
Another incursion into NATO’s sphere of influence was China winning a contract to supply NATO member Turkey with air defense missiles. Due to the security risks involved, the rest of NATO refuses to allow the missiles to be integrated into the overall NATO defense network, which weakens the southern edge of the alliance.
U.S. Economy
Money is pouring into the U.S. stock and bond market, as America is seen as the only major economy that is recovering. However, opposition to “creative accounting” in government economic reports is growing louder. The CEO of polling company Gallup released an article calling U.S. unemployment numbers “the Big Lie”.
The global glut in crude oil reserves is causing a rise in unemployment, as the largest shale oil driller in the world scraps expansion plans and rig counts in Canada and the U.S. drop by 30% in three months.
This hasn’t stopped gas prices from rising 40 cents in two weeks, due to bottlenecks in the production line. Strikes at Shell refineries and a surge in demand for heating oil has meant fewer refineries producing gasoline.
A more worrying development is China dumping Treasuries, and TBTF banks hoarding $2 TRILLION of ultra-safe bonds instead of lending money or chasing yield.
Banksters Behaving Badly
While the Big Banks were successful last month in getting Congress to strike down a law prohibiting them from gambling with Federally-insured deposits, and no one at all has gone to jail over the financial crisis caused by that same kind of gambling in derivatives, the fines keep piling up.
Morgan Stanley is paying $2.6 billion in fines for wrongdoing in the mortgage-backed securities market that contributed to the housing collapse, and Bank of America is caught helping clients dodge taxes, but the Bad Boy of Banking Award this month goes to HSBC.
HSBC’s Swiss offices were raided by authorities investigating money laundering by the bank to help clients avoid taxes. The British-born CEO of HSBC, who is registered as a non-resident despite living in London, hid his own income in an HSBC Swiss bank account.
On top of money laundering, HSBC is also being investigated for gold manipulation in the U.S.
Perhaps all this is why HSBC has hired a British spy chief as a director, to help them avoid being caught again. Jonathan Evans was director general of MI5, before quitting last month to take the job at the “too big to jail” bank. The embattled CEO of the bank has stated that HSBC’s branches in the U.S., Mexico, and Brazil may be sold, unless profits pick up. All the billions of dollars in fines and legal fees tend to hit the bottom line, it seems.
HSBC isn’t the only Big Bank under investigation for gold manipulation. The Swiss anti-trust regulator WEKO has announced that multiple banks are being investigated for rigging the London Gold Fix, and the Justice Department is investigating ten banks for gold manipulation.
Global Deflation
The Israeli central bank cuts rates to record low in a surprise move late in February, becoming the 20th central bank to cut rates since January 1. The Telegraph, reporting on the new currency wars, says, “Central Banks have lost control of the world.”
On The Retail Front
Britain’s Royal Mint is seeing a surge in sales, as Greek citizens buy gold sovereigns by the boatload while their government plays chicken with the nation’s creditors and people pull all their money out of the bank to avoid seizure of deposits. Any Greek can walk into a bank and buy British gold sovereigns over the counter.
The state legislature in Arizona passed a bill making gold and silver legal tender. The governor vetoed a previous bill, citing concern that it would reduce the taxes the state gets from precious metal sales.
Gold sales in Saudi Arabia are booming, as the new king follows tradition and bestows the “king’s bonus” of two months wages to every government employee and student to celebrate his ascension to the throne.
This report from SRSrocco shows that demand for the American Silver Eagle is still high.
Market Buzz
Even though India retook the gold import crown from China in 2014, gold is still flooding into the Middle Kingdom. Mineweb reports that Chinese gold demand is up 17% so far this year. In continued attempts to prevent Western sources from tracking their gold purchases, the Chinese are importing more foreign gold directly to the mainland, instead of through Hong Kong. Spotted on Peter Schiff’s website, this article shows that monthly Chinese gold demand is outstripping global gold mining production.
Where’s China getting all this gold? A good part of it is surging gold exports from the United States, as physical gold moves from Western ETFs into Asian vaults.
Beijing must be getting close to their secret goals for sovereign gold reserves, because they have announced a plan to link the Hong Kong and Shanghai gold exchanges, in order to wield more power over the global gold price. This ties in with Eric Sprott’s forecast that we will see the U.S. dollar lose its dominance as the world’s reserve currency and see currencies backed by gold in ten years.
The Austrian government is getting antsy over the security of their gold held in the Bank of England and have been unwinding leasing agreements in order to repatriate Austrian gold reserves from London. Speaking of European gold repatriation, here’s a nice story regarding the man who forced the Bundesbank to start repatriating Germany’s gold.
The World Gold Council reports that the world’s central banks bought 477.2 metric tons of gold in 2014, making it the second-highest year for central bank gold buying in 50 years. (Full report on global gold demand can be found here.) More and more central banks are trying to diversify away from the U.S. dollar.
Grab a cup of coffee, and read through this excellent article, called “Misconceptions About Gold (Gold is Money, sort of)” Here’s an excerpt:
“Given that gold has no yield, fiat currencies can only compete with it by offering an interest return. The steepness of the yield curve affects gold for two possible reasons: it can either steepen because loose monetary policy is pushing short term rates down, or because rising inflation expectations are pushing long term rates up – both are bullish for gold (conversely, the opposite is bearish for gold). Credit spreads are an indicator of economic confidence. If lower rated debt declines relative to higher rated debt, it indicates declining economic confidence, which is bullish for gold.”
Looking at recent mine production numbers, Mineweb wonders: “Have we hit Peak Silver?”
Looking Ahead
Election turmoil in UK this spring may result in U.S. being the only “safe haven” economy in the world, driving stock prices and the dollar even higher, which will trigger interest rate hikes by the Fed to counter the “hot money”. Higher interest rates will mean higher bond yields, attracting more money.
In June, Greece should be running out of money, and the Fed will be on the cusp of raising interest rates. Extra attention, if that’s possible, will be paid to the March FOMC meeting.
We end this month with a story that shows that central bankers are so corrupt, they even steal from themselves.
– Steven Cochran is the Content Manager/Editor for Gainsville Coins