Welcome to SurvivalBlog’s Precious Metals Month in Review, by Steven Cochran of Gainsesville Coins 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.
What Did Gold Do in January?
Gold started the year around the $1,061 mark and quickly blew that away as stocks worldwide saw the worst start to a year in nearly forever. This caught a record number of speculators short, who had to scramble to cover their bets. By the 7th of January, gold had rallied above $1,100– the best rally since last October.
Between oil falling below $30 a barrel, economic reports around the world signaling the start of another recession, and stocks bleeding all over everyone’s portfolios, gold was the best game in town. Spot prices hit an intraday high of $1,128 an ounce for January, on the 26th.
For a look back at gold’s performance in 2015, this retrospective by our own Everett Millman hits the highs and lows.
Factors Affecting Gold This Month
January was an extremely bad month for equities and oil, and most of the pain originated in China.
SHANGHAI MELTDOWN
Interventions by the Communist government in Beijing failed to mask that the economic slowdown in China is far worse than the official numbers say. In an effort to stop the big sell-offs the Shanghai stock market experienced last fall, the government implemented a “circuit breaker” to temporarily halt trading, similar to the ones used in Western stock markets. However, they set the bands way too tight, halting trading for 15 minutes if stocks fell by 5% and closing the market for the day if losses hit 7%. This led to more panic selling, instead of calming the nerves of investors.
In what may have been the shortest trading day for a major stock market in history, the Shanghai stock market closed for the day after only 29 minutes of trading. Thirteen minutes after the market open, stocks had already fallen 5%. This led to a 15 minute halt in trading, which was used by panicked investors to prepare sell orders to immediately execute when trading resumed. A frantic race to sell before trading was halted led to the market hitting a 7% loss in less than two minutes. Trading was halted for the day 29 minutes after the opening bell, with only 14 minutes worth of actual trading occurring.
NIGHTMARE ON WALL ST
The total meltdown in China combined with disappointing economic data in Europe and the U.S. caused the U.S. stock market to have its worst start to a new year ever. The Dow fell so badly that you had to go back to 1892, four years before the Dow was even invented, to find a worse start for the year for blue chip stocks. Disappointing earnings, weaker than expected economic data, and plummeting commodities (especially oil) combined for a perfect storm that sank everyone’s portfolios for the month.
OIL PLUMBS NEW LOWS
The oil glut continued to spread the pain in January, dipping below $30 a barrel at one point. Saudi Arabia’s arch-enemy, Iran, returned to the oil markets this month and immediately cut prices in an effort to win back customers in Europe and Asia. The two nations have seemed at the brink of war, with riots breaking out in Iran after the Saudis beheaded a Shiite cleric who was involved in the failed “Arab Spring” movement in Saudi Arabia. Rioters in Tehran burned the Saudi embassy, and the Saudis broke all diplomatic and trade ties in retaliation. However, the oil market is so flooded with crude that even this was unable to get prices to rise.
On the Retail Front
Once again, all the mainstream talking heads were unable to dent retail demand for precious metals. 2016 American Silver Eagles kept the ball rolling after the bullion coin set another all-time record in 2015. Forty-seven million ASEs were sold last year, compared to the previous record of 44 million. Silver Eagles have set new records in seven out of the last eight years.
Silver Eagle sales in January topped six million ounces, with Gold Eagles and Gold Buffaloes combining for a very respectable total of 156,500 ounces.
The Chinese government continues to gobble up physical gold, adding 610,000 troy oz (19 metric tons) to its reserves in December. The Germans are finally prying a decent amount of gold from the New York Federal Reserve’s claws, announcing that it repatriated 100 metric tons of gold from the Fed, and 110 metric tons from the Bank of France.
Market Buzz
Speaking of central banks, Jeff Neilson relates how Iceland broke the grip of the international banking system and even jailed some of the bank officials responsible for Iceland’s financial crisis.
The mainstream is finally getting a dose of bullion reality from their own, as top money manager Jeff Gundlach predicts gold will rise 30%.
Short-term investors are fleeing the nightmare of the stock market and increasing their exposure to precious metals. Inflows to gold ETFs have increased dramatically this month.
Famous investor Marc Faber says that if he had to choose between the Dow Jones stock index or gold, he’d choose gold.
Even “too big to fail” megabank Royal Bank of Scotland is telling its clients to “sell everything” as they see a “cataclysmic year” for 2016.
Much of that pain is in the commodities sector, as producers of everything from lead to oil struggle to survive.
Another TBTF bank is looking to exit the London Gold Fix in light of regulatory attention, as Barclays is rumored to be looking to sell its entire precious metals operation.
As the Western banks exit the gold fix, China steps to the plate. ICBC, the world’s largest bank, has purchased the London gold and silver vaults of Deutsche Bank, who abandoned its seat on the gold fix after investigations into wrongdoing focused attention on its precious metal operations.
China, which is the world’s #1 gold producer and #1 gold importer, is tired of the Western banks setting the gold price. It is starting a yuan-denominated Shanghai Gold Fix in April and will punish foreign banks that do not participate.
Looking Ahead
The dismal state of the world’s economies, including the U.S.’s, makes any more rate hikes by the Fed unlikely. The next Fed meeting is in March, but market analysts think the next rate hike, if any, will not be until July. At press time, rumors are spreading that Russia and Saudi Arabia will agree to oil production cuts. Cratering oil prices over the last year and a half have put both totalitarian regimes in danger of popular unrest, and the only cure is to get the price of oil to rise. (What! You think they’d allow democratic reforms?)
In good news in the fight against the militarization of local law enforcement and the over-aggressive behavior it seems to promote, the government is forcing police and sheriff departments across the nation to return the heavy machine guns, armored personnel carriers, grenade launchers, and bayonets they received as part of the “war on terror” on American soil. Some gung-ho law enforcement officials are upset at losing their army toys, but what does a sheriff’s department need a Ma Deuce for?