Welcome to SurvivalBlog’s Precious Metals Month in Review, by Steven Chochran 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?
December 30th saw gold end 8% higher for the year, for the first annual increase since 2012. The trend continued for gold in January, as prices moved upward for nearly the entire month. Starting January (and the year) near $1,152 an ounce, profit-taking and safe haven demand played tug-of-war the first week. Afterward, gold and silver trended higher, assisted by a weaker dollar, until the end of the month. Monday the 23rd saw gold book its last gain for the month. Rising business sentiment after Trump reversed the ban on the Keystone XL and Dakota Access pipelines helped the Dow Jones Industrial Average close above 20,000 for the first time ever and unleashed the “animal spirits”in equities.
Where did gold end in 2016 in major currencies other than the dollar?
- European Union: +11.9%
- United Kingdom: +29.7%
- China: +16.4%
- India: +11.4%
- Japan: +5.4%
- Russia: -9.4%
A lot of this movement was due to the performance of each nation’s currencies as well as safe haven demand. The euro was weaker across the board against the dollar in 2016, and Brexit shredded the value of the pound sterling.
The big outlier in gold prices was Russia. However, lower gold prices in Moscow are due to their ruble recovering from a currency crash caused by lower oil prices and economic sanctions. The Russian currency ended the year 21.3% higher to be one of the best-performing assets of 2016.
Factors Affecting Gold This Month
Trump Policies Push Stocks To Record
Reuters noted that stocks ended higher on the day of Trump’s inauguration, the first time in more than 50 years that a President has seen the stock market log gains on his first day in office. John F. Kennedy was the last to see this welcome economic sign. Stocks hit new records in January, riding a wave of expectations that Trump will begin enacting business-friendly deregulation soon. This euphoria on Wall St has pulled some money from gold and into equities.
From Mexico, With Love
The Mexican government gave Trump its own inauguration gift, extraditing infamous drug lord “El Chapo” Guzman in the middle of the night to face charges in the U.S. Mexico has borne the brunt of Trump’s anti-globalization remarks and would like to get into his good graces. Worries about possible trade restrictions between the U.S. and Mexico has sent the peso into a tailspin. These fears have also weighed on automakers and other heavy industries that make parts in Mexico, then ship them to the U.S. for final assembly. This has lent a bit of support for gold.
Buffett Backs Trump’s Picks
Billionaire investor Warren Buffett, who supported Hillary for President, says that he overwhelmingly supports Trump’s Cabinet picks. “I feel that way no matter who is president, the CEO – which I am – should have the ability to pick people that help you run a place.”
Even the Fed says Trump is good for the country, forecasting an accelerated economic recovery due to The Donald’s tax and stimulus policies. However, they warn that the increased inflationary pressures they will cause down the road will force the Fed to raise rates faster than first expected. The Fed needs to get on Trump’s good side, because they are going to face severe pressure from the White House over monetary policy. It may not matter, because Trump is positioned to replace most of them in the next two years.
A Trump-Controlled Fed
All the supporters of the “Audit the Fed” or even “Abolish the Fed” may be getting good news soon, as President Trump remakes the Fed in his image. There are two vacant seats on the seven-member Federal Reserve Board of Governors that Trump will be able to fill immediately. If he nominates two candidates very soon and the Senate confirms them with no delay, Trump will have two of his people voting in the March FOMC policy meeting.
If things play out right with expected resignations, Trump can control the entire Fed Board of Governors and have an unbreakable majority in the FOMC by the end of 2018.
OPEC Production Cuts Begin
Oil prices began the year on a positive note, with most traders believing OPEC statements that production cuts had really begun. Things turned a bit sour later in the month, as U.S. fracking operations began putting more rigs in service to take advantage of higher prices. This was foretold by several analysts, who say that American shale fields will expand production to take market share from OPEC, and put a lid on price gains.
On the Retail Front
US Mint Sales
The U.S. Mint had a good first day of sales for its 2017 bullion coins on January 9th. American Gold Eagles of all sizes sold the first day totaled 68,000 troy ounces. The 9999 fine gold American Buffalo 1 oz coins saw 20,500 go out the door to authorized distributors, and 3,747,500 American Silver Eagles were purchased by wholesalers.
Totals so far for January 2017 show 104,500 oz worth of Gold Eagles, 4,897,500 Silver Eagles, and 29,000 Gold Buffalos sold.
For the first time since 2014, the U.S. Mint is offering a 1 troy oz American Platinum Eagle. Initial sales totaled 20,000 coins, which already exceeds the 16,900 sold in all of 2014.
In other U.S. bullion coin developments, the U.S. Mint has confirmed that it is looking at minting fractional Gold Buffalo coins. Unlike the 22K Gold Eagles, which come in four sizes, the .9999 fine Buffalos is only offered in a single 1 troy oz size. The only time that fractional Gold Buffalos have been minted was for a special four-coin set in 2008.
Gainesville Coins is offering special PCGS “First Strike” 2017 Silver Eagles that have been graded a perfect 70 or a nearly perfect 69 by PCGS, one of the top grading companies in the world, sealed in a protective slab with a “Don’t Tread On Me” flag label.
A Russian medallion company has minted a gigantic sterling silver coin in celebration of Donald Trump’s victory in the Presidential election. Weighing more than two pounds and measuring more than five inches across, only 20 silver and five gold coins will be made. The owner of the company producing these coins has asked Russian diplomats and businessmen with connections in the U.S. to help arrange a meeting with President Trump in order to present him with the first of the coins struck.
Obama Almost Minted $1 Trillion Coin
Calling it the “scariest night of his Presidency”, Obama confided in an interview that he almost ordered the trillion-dollar coin minted to save the United States from defaulting on its sovereign debt: “I think it was the moment when it seemed that [former Republican House Speaker] John Boehner didn’t seem to generate the votes to make sure the U.S. didn’t default on our debt,” said Obama. “We had to start drafting a speech.”
Central Bank Gold
This month’s report by the World Gold Council details actions in the gold market by 25 central banks for the month of November.
China’s central bank did not officially buy any gold in November, perhaps since it was spending the money to halt a major slide in the yuan.
Turkey had it far worse, as President Erdogan refuses to allow the central bank to raise interest rates to battle the plummet in the lira. The bank’s only other course of action was to sell the nation’s gold reserves for the money to intervene in currency markets. (It didn’t work.) To fund this, the central bank sold a huge 28.77 metric tons of gold just in November. For the first 11 months of 2016, Turkey sold off 139.57 metric tons (307,700 lb) of gold to finance currency intervention. This is over 25% of the nation’s gold reserves, and the intervention shows no sign of letting up.
On the other end of the dial, Kazakhstan bought 3.07 metric tons of gold in November. The large Central Asian nation has increased its gold reserves every single month since September 2012.
Russia also continued to help its domestic gold companies and the nation’s forex reserves at the same time, buying 32.13 metric tons of gold. Russia’s gold miners are restricted by economic sanctions from selling gold in the West, so the Kremlin is picking up the slack. Through November, Russia bought 200.64 metric tons of gold in 2016.
Is Inflation Rearing Its Head?
Leading hedge fund Blackrock said this month that inflation is growing on several fronts, and investors should add gold and stocks that perform well in high inflation. Blackrock analyst Russ Koesterich believes that the Fed likely won’t see what’s happening until it’s too late. He notes we are experiencing another housing bubble, that healthcare costs did not see the slowdown promised by Obamacare, and wages are rising as the employment market tightens.
Casey Research agrees, saying that Americans are in for a ride on the Pain Train that not even Trump can prevent. They recommend dumping bonds and loading up on hard assets, like gold. “Think about it. If inflation is rising, it’s going to take more dollars to buy an ounce of gold, barrel of oil, or pound of copper.”
Schiff: Trade Deals Are Good For Us
Peter Schiff will ruffle the feathers of Trump supporters with his latest: He warns that Trump’s “America First” plans could very well put an end to the artificially high standard of living Americans have grown used to. He says that all these trade deficits are actually helping the U.S. government keep the economic Ponzi scheme going. “Trump doesn’t really understand, or underestimates the fact that, we have been riding on the global gravy train for decades. We get a free ride. The world is subsidizing America … They’re not taking advantage of us; we’re taking advantage of them. If we’re actually going to make America great again by basically severing these relationships … the biggest winners are going to be our trading partners.”
Bond King Warns On Yields
The “Bond King” Bill Gross warns folks to watch the yield on the 10-year Treasury bond.
Faber: Good Times Ahead For Gold
Marc Fabertells Fox Business News that with stocks overvalued and the dollar so strong, now is the time to move into precious metals.
India Looks To Mine Its Own Gold
Indian Prime Minister Narendra Modi’s campaign to reduce the nation’s trade deficit has government officials looking at reviving abandoned gold mines that were first worked during the British Colonial era (the Raj). The mines are thought to still hold $2 billion USD in gold ore. The Economic Times of India reports that the state-owned gold mining company was forced to cease operations in 2001 due to mounting losses, the result of a large, unproductive workforce and dated, economically unviable methods of mining.
In the 15 years since the mines were closed, the federal and state governments have fought in court over who has jurisdiction over the land. If India’s governments can overcome their socialist tendencies and turf wars, a revived gold mining industry would go a long way in reducing the $30 billion a year the nation spends on importing gold. The government is probably making a big mistake by not inviting established gold mining companies to form a partnership to bring the mines back on line. Instead, they’re making… another state-owned, socialist mining company. Good luck, guys.
Miners Say Thanks, But No Thanks To Egypt
The greedy government in Cairo is making sure that the gold of the Pharaohs stays in the ground. Egypt had hundreds of small gold mines during ancient times. Now, the government wants to sell leases to foreign mining companies to develop what may be a bonanza, not only of gold but titanium, lithium, and other valuable metals. The problem with this plan is that no mining company is willing to accept the ridiculous terms the government is offering. They want millions and millions in bogus fees and high royalties.
The Rise Of Solar
Good news for those looking to get or stay off the grid: Solar power panels are being set up at a record pace in the United States, which is bringing panel prices down. Even the traditional utility companies are getting into the act and building solar farms. For those not completely off the grid, some states allow you to sell excess power generated by your solar installation back to the power companies. Of course, the untold millions of Kilowatt hours worth of solar panels being installed world-wide will support silver prices.
VW Introduces Silver Windshield De-icer
Know those ugly horizontal copper wires in your car windshield that heat up to get rid of ice or frost? Volkswagen has invented a new type of windshield that gets rid of those filaments and replaces it with an invisible sheet of silver between the windshield layers. Not only does it heat more evenly and allow greater visibility, it is going to launch more industrial demand for silver when other car makers follow VW’s lead.
Everyone from banks to steelworkers are anticipating an economic boost from President Trump and the Republican Congress. German banking giant Deutsche Bank is already giving Trump credit for pushing back the recession that analysts were expecting by five months. Estimates now expect a recession to begin in 27 months (August 2019).
The January Federal Reserve policy meeting will be on January 31st and February 1st. There’s no policy meeting in February. Trump’s two hand-picked Federal Reserve Governors should be confirmed and present for the March FOMC meeting, which occurs on the 14th and 15th.
Coin experts are cautioning buyers not to expect a big payoff down the road for any of the many “Trump Coins” now being sold. There are plenty that are very attractive, but buy them as a memento of Trump’s historic election, not as something you will be able to flip at a profit.
We wrap up the month with a follow-up to the story of the brazen thief who walked up to the open back of an armored car in New York’s “Diamond District” last November and staggered off with an 86-pound drum of gold flakes estimated at $1.6 million. He has finally been caught by police in Ecuador, after a two-month manhunt. The gold was nowhere to be found.