Welcome to SurvivalBlog’s Precious Metals Month in Review, by Steven Cochran of Gainesville 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 March?
Gold had a bit of a roller coaster ride in March. Prices surged after the Fed did not raise benchmark interest rates at its March 16th policy meeting. Later in the month, a series of very hawkish speeches by five Federal Reserve regional presidents pushed gold down from its mid-month highs, but it recovered on a very dovish March 29th speech by Fed Chairwoman Janet Yellen. Yellen explicitly left open the door for QE4 (a fourth program of money printing and bond purchases) if needed.
Negative interest rates across the world and the lack of a rate increase by the Fed has gold recording its best quarter since 1986.
Factors Affecting Gold This Month
ECB Pulls Out The Stops
March 10th was the date of the European Central Bank’s policy meeting, which was more than anyone expected. ECB President Mario Draghi not only pushed benchmark interest rates even deeper into negative territory, he announced an expansion of the ECB’s quantitative easing program. Central bankers in Europe are losing their minds as their economies teeter on the brink of a deflationary spiral. Their policies of punishing banks and savers for daring to keep money on deposit has not had the expected outcome of spurring growth.
Noting all the global economic risks in play (Brexit, China debt crisis, U.S. elections), Bank of American analysts decreed the ECB policy announcement as “Quantitative Failure”. They note that “gold is one of the good investments left”.
Fed Rate Hike Speculation
Speaking of dovish central bank meetings, the Fed did not disappoint. Not only did it not raise interest rates again in March, but forward guidance showed that the majority of committee members had cut the expected number of rate hikes for 2016 from four to two. Gold went vertical on the news. In fact, all precious metals gained nearly 2½% in the first hour after the Fed statement. Crude oil gained 5%, while the dollar tanked.
Speculation on a rate hike next month went into high gear, as five of the 12 regional Fed presidents went on a hawkish media blitz in late March. All five talked up a very real possibility of an April rate hike, sending the dollar climbing and commodities lower.
On March 29th Chairwoman Yellen shot down this hawkish talk. Not only did she note global risks that were weighing on the U.S. economy, she opened the door to a possible QE4, if needed. She called present economic conditions worse than they were in December, when the Fed raised interest rates for the first time since the 2008 economic crisis.
Those interest rate hawks may want to check the GDPnow tool, run by the Atlanta Federal Reserve. From an original estimate of first quarter economic growth at 1.9%, it slipped to 1.4% last week, and 0.6% this week. Another research tool, the CME FedWatch tool, uses Federal Funds futures to predict Fed rate moves. At the end of the month, it gave only a 5% chance of an April rate hike. The odds don’t reach 50/50 until September, though these numbers change constantly.
Helicopter Money
The resounding failure quantitative easing, zero, and even negative interest rates has failed to raise inflation. After negative interest rates, which were supposed to be impossible, have failed to turn the European and Japanese economies around, the next step over the line is being discussed. Called “Helicopter Money,” the idea is to send checks directly to the public (perhaps as some sort of tax refund), or monetize Federal debt as a means to finance repairs to infrastructure. This is supposed to be a one-time event, if it is chosen. However, if the second option is chosen, it will be a replay of what happens every time the government gets ahold of the printing press. More and more money will get printed, to finance every Congressman’s pet “pork” projects, until the currency is so debased that we go into hyperinflation.
The Bank of International Settlements (BIS), called the “central bank of the central banks”, reprimanded the reckless behavior of central banks playing with negative interest rates. When New World Order entities, such as the BIS and International Monetary Fund, start criticizing your actions, you know that monetary policy has gone too far.
Brexit
The terror attacks in Brussels this month are strengthening the hand of the anti-EU side in Britain’s upcoming referendum on whether to remain in the EU or cut loose and go their own way. The “Stay” side is dominated by banking and industrial interests, while the “Leave” side is riding a populist wave of discontent over the flood of immigrants and the “encroachment” of EU laws superseding UK ones.
A “Brexit” will cause turmoil in markets on both sides of the Atlantic and be a huge headache for British companies doing business in Europe (i.e. most of them.) Proponents of leaving the EU say that the initial rough patch of breaking away will be worth the benefits later. While the two sides are running neck and neck right now, things will be certain to change before the June 23rd vote.
Dwindling Dollar
Even though the dollar has gotten temporary boosts this month (like hitting a two-week high on the hawkish Fedspeak in late March), the USD is having its worst month in 5½ years, hitting a 9-month low at the end of the month. This was hammered home by Yellen’s dovish speech on the 29th. Reuters went further, saying this is the dollar’s worst quarter since 2010.
On the Retail Front
Sales of the 2016 Silver Eagle bullion coin hit a year to date total of 14.8 million coins, as it seems set to make a run at another all-time annual record. The Perth Mint in Australia reported that it has had the best six months in its 117-year old history. Not only were coin and bar sales through the roof, but the Mint’s refinery processed 150 metric tons of gold and 300 metric tons of silver in that six months.
CoinWorld warns investors about a new wave of counterfeit PAMP Suisse one ounce gold bars. While the best protection against fakes is buying from a reputable precious metals distributor, a device like the Sigma Metalytics “Precious Metals Verifier” allows you to quickly test the purity of a coin and bar, even through the packaging.
Central bank gold action sees Russia, Kazakhstan, and China all adding to reserves again this month. Russia added 11.1 metric tons, for a total of 1,447 tons. Kazakhstan bought 2.7 tons, which was a 13.5% increase to their reserves, which now stand at 22.6 tons.
China’s gold reserves increased by 9.95 metric tons last month, as the big drain on foreign reserves continued. China has been selling dollars, bonds, and other currencies to fund intervention in the stock market and yuan currency market.
Market Buzz
Former Federal Reserve Chairman Alan Greenspan says negative rates are nonproductive and encourage misuse of capital. A drop in productivity is causing the current economic stagnation, he says, and calls on the U.S. to rein in entitlements to restore that productivity.
Bond King Bill Gross is on the same page: “The reality is this. Central bank polices consisting of QE’s and negative/artificially low interest rates must successfully reflate global economies or else. They are running out of time. Or else what? Or else markets and the capitalistic business models based upon them and priced for them will begin to go south. Capital gains and the expectations for future gains will become Giant Pandas – very rare and sort of inefficient at reproduction.”
Super investment firms Blackrock and Pimco are both warning clients that inflation will start picking up soon. According to them, oil prices will start rising as higher-cost producers are forced out of the market, which is the worst kind of inflation to have. Blackrock, which has $4.6 trillion under management, advises people “We like inflation-linked bonds and gold as diversifiers.”
Stan Drukenmiller is one of the most successful hedge fund managers in the world, and he’s betting big on gold, too. He has put 30% of his fund assets into the SPDER Gold Trust ETF.
The World Gold Council says that negative interest rates will likely boost demand for gold.
Speaking of gold, where is America’s gold going? According to SRSrocco Report, most of it is going to only four countries.
We know where Venezuela’s gold is going– Switzerland.
Jewelers and bullion dealers in Indiawent on strike March 1, after a surprise excise tax was levied on gold products. Negotiations with the government led to many jewelers returning to work, while others demanded something more than the words of a government official before ending their strike.
In a tale of the dangers of digital money, the Bangladesh central bank SWIFT account, which connects it to the global banking network, was hacked. This allowed criminals to make off with $100 million from the central bank’s account at New York Fed, which was then laundered through Philippine casinos. At first, the Bangladeshi Central Bank threatened to sue the NY Fed for the $100 million, but it later came out that the breach happened in Bangladesh.
Speaking of things happening at central banks that shouldn’t, the Fed is finally under investigation for being controlled by “Too Big To Fail” banks, like Goldman Sachs. Called regulatory capture, it means that the regulatory agency turns a blind eye to abuses of the businesses it is supposed to be monitoring, or shapes regulations to favor them.
In a move that is sparking a huge backlash, the Royal Mint has blocked redemption of legal tender collectible coins. Its position is that, even though they are legal tender coins, collectible coins are not released into circulation, so they aren’t “real” legal tender coins. The RM has instructed banks not to accept them. This isn’t a law passed by Parliament; this is something the Royal Mint decided on its own. This will probably lead to the collapse of the domestic commemorative coin market in Britain.
Looking Ahead
While no one really believes the Fed could possibly raise interest rates in April, a good non-farm payrolls report could make markets antsy. There is no FOMC meeting in May, so the next chance for a rate hike would be June.
April is also supposed to be the grand meeting of the world’s top oil producers (except the U.S.) to negotiate a freeze to output levels. There’s a snowball’s chance in Saudi Arabia of a production cut, and not much more of a chance for even a freeze. In any case, oil markets will react badly.
You get an extra 72 hours before you have to cough up your tribute to Uncle Sam this year, as Tax Day isn’t until April 18 this year. You can thank the District of Columbia’s celebration of Emancipation Day for the reprieve.
And finally, we have a story that may be evidence that the terrorists have won:
A man with multiple sclerosis was transferring money from his Chase Bank account to his dogwalker and he put the 9-year-old pitbull’s name, “Dash,” in the memo line. The bank not only stopped payment, thinking that the money was being sent to fund Daesh, they reported the man to the U.S. Treasury Department’s anti-terrorism division.
The Treasury Department flagged his account until he could “explain what Dash means.” Once he cleared up the confusion, the government unblocked the payment. Unfortunately, is seems that Mr. Francis has bought into the “happily give up our freedom to save us from the terrorists” line that the government uses for expanding the police state, saying “I think anything we can do to stop the terrorists and the funding of terrorists, let’s do it.”