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 examine the “what” and “why” behind those numbers.
April was an up-and-down month for just about every asset class, and gold was no exception. After big boosts in the first part of the month to briefly touch the $1,220 mark, gold bounced in a tight range on either side of $1,200. After ending the week at a three-week low on the 24th, it came roaring back the next Monday to gain over $20, and built upon that. First quarter GDP showed that the U.S. Economy only grew at 0.2% from January through March, causing stock markets and the dollar to fall, and gold to hold on to gains. This was reversed at the end of the month when first-time jobless claims dropped to the lowest level since the peak of the dot-com boom in 2000.
Precious Metals Market Drivers in April
SAUDI ARABIA vs IRAN
One driver for oil prices, and to a lesser extent gold prices, has been the expanding conflict between Iran on one hand, and Saudi Arabia and the Persian Gulf oil kingdoms on the other. The ayatollahs of Shiite Iran have filled the power vacuum in Iraq after the U.S. military left, and are supporting the Shiite government of Bashar al-Assad in Syria. This forms a “Shiite Crescent” between the Sunni oil kingdoms on the Arabian peninsula and markets in Europe.
For its part, Saudi Arabia has been the major financier of Sunni rebel groups in Syria, including Al Queda and ISIS, and is fighting Iran to determine who will be the major Muslim power in the region. However, like the mad scientist bent on ruling the world who sees his creation turn against him, Saudi Arabia is now dealing with the very real threat from ISIS to its own existence.
The Sunni vs Shiite regional conflict took a new turn when a Saudi-led Arab coalition began bombing rebel positions in Yemen. The Shiite Houthi rebels had seized power, chasing the Yemeni president to Saudi Arabia for asylum. The Saudis accuse Iran of funding the Houthis, in an attempt to encircle them with hostile regimes. The situation in Yemen is complicated by Al Queda in the Arabian Peninsula and ISIS (both of whom are financed by Gulf oil kingdoms) fighting both the Yemeni government and the Houthi.
The U.S., which had been operating in conjunction with the now-overthrown Yemeni government to conduct drone strikes against Al Queda, sent an aircraft carrier to block an Iranian merchant ship convoy that was taking aid to the rebels. Later, the Iranians attempted to send a cargo plane to the Yemen capital, but Saudi Arabian fighter jets bombed the runway as the plane was on final approach.
While Saudi Arabia may be thwarting Iran in Yemen, the Persians have scored some victories of their own. Using the successful framework agreement between Iran and the major nuclear powers regarding Iran’s nuclear program as cover, Russia has agreed to send advanced S-300 anti-air missiles to Iran. These mobile anti-air systems would make any Israeli or U.S. airstrikes against Iranian nuclear facilities difficult, if not impossible. Russia, who was a major trading partner with Iran before international sanctions were imposed, is eager to beat Western oil companies to the punch for when sanctions are lifted. These missiles may also change the dynamic of the negotiations themselves, as it reduces the threat to Iran of Western attacks if an agreement isn’t reached.
GREECE
Money printing by the European Central Bank is helping EU stock markets, but the inability of Greece’s new leftist government to come to an agreement with its creditors over receiving additional bailout money is weighing on the markets (and increasing gold demand among Greeks, who fear government seizure of their bank deposits.) The Syriza party in Greece, who won January’s elections, want to maintain and even expand the nation’s welfare state, and refuses to privatize state-owned industries.
Warren Buffet replies that maybe Greece leaving the EU would be an object lesson, showing that debtor nations need to get their act together and not depend on living off the taxpayers of other nations perpetually. Portugal, who went through the same tough bailout terms as Greece and is actually repaying bailout loans early, has urged Athens to take its medicine, reduce waste and corruption, and get its economy back on track. But the abrasiveness of the college professor who is now Greece’s finance minister has alienated his counterparts in the rest of the EU, to the point where he was told to his face what they thought of his threats and lack of any real plans. This led the Greek prime minister to pull him from direct negotiations in an attempt to get a deal done before the government defaults.
The national government in Greece has resorted to seizing the cash of local governments in an attempt to cover welfare, government salaries, and debt payments, after draining the state-owned businesses of cash. The Central Union of Municipalities and Communities of Greece vehemently opposes Athens seizing the money of towns that have managed to stay solvent (translated from Greek.)
Greece right now is surviving on emergency liquidity assistance that the European Central Bank has been doling out to private Greek banks, leading the German finance minister to call Greece a “bottomless pit.” The ECB, realizing that the Greek government is using these funds to play for time against the EU in bailout negotiations, has been which will allow the collapse of the Greek banking sector.
Despite the assurances of EU governments that a Greek default and exit from the Eurozone can be “contained,” analysts expect a rush into gold by people looking to protect their money from bank failures or government seizures should the worst happen.
MANIPULATION
Big currency brokerages have adopted voluntary, unenforceable guidelines for behavior, saying “everything’s fixed now, there’s no need for government regulation of currency markets.” But James Rickards says “Until you start actually arresting people, putting some CEOs in jail, you’re not addressing the cultural issues that are at the heart of this.”
This “promise to behave, you don’t need to watch us” comes as the Justice Department goes after a criminal felony plea from Citigroup’s U.S. currency operations, which would destroy 70% of the Too Big To Fail bank’s revenue. In related news, Deutsche Bank paid a $2.5 BILLION fine for manipulation of the LIBOR rate. If they were willing to pay that much to stop a criminal probe, one wonders how much money they made.
Some precious metals analysts are suspecting that Citibank recently manipulated gold prices downward during negotiations with Venezuela’s central bank for a $1 billion gold swap deal. Gold hit a five-week low the day the deal was inked, then jumped $24 an ounce.
STOCK MARKET TOPPING OUT
More and more people are taking their money and running away from the stock market, as prices keep climbing. Investors are bailing on stocks at a rate not seen since the height of the financial crisis in 2009. Check out this chart showing the drop in liquidity. Ronald Reagan’s budget director, David Stockman agrees, calling this the most leveraged stock market in history.
He isn’t alone in this assessment. Mohamed El-Erian, one of the biggest names in Wall St, has pulled almost completely out of the stock and bond markets, saying they’re too expensive.
On The Retail Front
Gold imports in India more than doubled in March to 125 tonnes from a year ago.
The Hindu festival of Akshaya Tritiya – considered by many in India to be an auspicious time to invest in gold – was celebrated on April 21 this year, with one major jewelry retailer recording a 30% jump in gold sales compared to last year’s festival.
Australia’s Perth Mint, a major player in the bullion markets, announced multi-month highs for sales in the first quarter.
A daring armed heist in Mexico against a McEwen gold mine saw $8.5 million in gold concentrate trucked away. The company’s CEO expressed confusion over the robbery, noting that the company had an understanding with the local cartels.
Market Buzz
Russia purchased 1 million ounces of gold last month, as it continues stocking up. It isn’t just Putin’s government buying up the yellow metal. The margin requirements for paper gold contracts in Russia have almost doubled, as more and more people pile into the market.
The other Big Red Nation, China, is set to break gold import records for the first quarter.
Back in India, the government is trying to convince Hindu temples to lease out some of the billions of dollars worth of gold that have accumulated in their vaults over the last few centuries. Seeing as how that would probably require the temple offerings to be melted down, and the temples would not receive the same physical pieces of gold when the lease was over, there is a growing opposition to the measure. How would you react if your church said it was going to melt down the gold cross your grandfather donated, in order to make money off of leasing it?
One large jewelry corporation in India is looking to secure its supply chain by buying entire gold mines.
The day before this month’s horrible GDP report, someone put a huge $6 million bet on a spike in gold prices by mid-June. Guess this is one time we’re rooting for the speculators.
The governor of Arizona vetoed a bill that would make gold legal tender, citing concerns that the state would no longer be able to collect sales tax on gold transactions. The Texas legislature has stepped up to the plate, with its own bill introduced that would make gold and silver legal tender in the Lone Star State.
Casey Research notes that gold has been up in almost every currency except the dollar this year, and the fact that it was able to advance in the face of a huge dollar rally bodes well for the yellow metal. “At $1,200/oz, gold is quite reasonable considering all the black swans flying overhead. As we often stress, owning physical gold for wealth preservation is a must in our fiat-currency world.”
Former U.S. Treasury Secretary Larry Summers says the US has lost its role as economic superpower with the world’s embrace of China’s Asian Infrastructure Investment Bank (AIIB).
Ned Schmidt says that gold is at its cheapest point relative to stocks since 2007, and expects it to snap much higher. Gold prices more than doubled between 2007 and 2011, before the current correction began.
The big question everyone is asking this week is, “Why has JP Morgan increased its physical silver holdings by 11 times to 55 million oz?”
Doug Casey says, “I think what’s going to happen is that the world, not soon, but in the next generation, is going to go back to using gold as money.”
Are the Central Banks about to get blind-sided by a spike in inflation? Crude oil-fueled deflationary fears are subsiding, with oil up 40% in three months. Recovering crude prices will combine with central bank stimulus and money printing to cause a sudden spike in inflation, and force governments to cut spending and social benefits as the costs of borrowing climb.
Looking Ahead
A very contentious national election in Britain is scheduled for May 7, which could lead to a major crisis in UK and European financial markets that would doubtlessly spread world-wide. What would happen if Greece AND Britain leave the EU at about the same time?
We end this month with a question: Which would you rather have, 8 ounces of 24K gold, or an Apple Watch?
– Steven Cochran is the Content Manager/Editor for Gainsville Coins