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 gold’s performance, and the factors that affected gold prices. – Steven Cochran of Gainesville Coins
What Did Gold Do in June?
Gold buyers proved more than willing to step in and buy the dips in June. This bargain hunting became more pronounced as the month went on, and forecasts of an imminent run at all-time highs increased.
Spot gold ground higher in June, starting around $1,700, and running into tough resistance around the $1,765 level by the end of the month. August gold futures followed roughly the same trajectory, just $10 an ounce higher. Bargain hunting stepped in several times over the month, reversing early losses.
A surprisingly positive non-farm payrolls report on June 5th showed that the nation had added 2.5 million jobs, instead of the expected 7 million job loss. This crushed safe haven plays, including gold. For the week ending June 5th, spot gold lost $44 an ounce to $1,684, while gold futures fell $69 to $1,683. It wasn’t until the third week of June that prices had made a firm recovery back above the $1,750 mark.
Gold staged a major breakout on June 30. August gold ended the month at $1,800.50, the highest settlement since September 2011. Gold futures were up 13% for the quarter, marking the best quarter in 4 years. This sets up a run at the all-time high of $1,920 an ounce. This big surge $20 higher was partially due to coronavirus fears, and partially due to end-of-quarter fund rebalancing.
September silver futures added 57 cents on June 30, capping a huge 32% gain for the quarter and more than wiping out its first quarter losses.
Normally, late May through the first week of September is the annual “dead zone” for gold. Things are different this year. The COVID epidemic and outlandish central bank stimulus actions have distorted markets across every sector.
Factors Affecting Gold This Month
A resurgence in COVID-19 cases led to at least 11 nations reimposing restrictions, quarantines and shutdowns in June. Coronavirus infections in the US spiked in June, with daily infection rates doubling. This pushed state governments to stop and even reverse steps towards reopening businesses.
The virus is also reappearing in areas where it had supposedly been wiped out. This includes Beijing, where hotspots of infection popped up all over the city. Authorities locked down entire residential districts, forcing people to stay in their homes while they tried to stop the spread. As soon as one area was cleared, the coronavirus would appear in another district.
This economic uncertainty has been a tailwind for gold prices. On the retail level, demand for silver is near a fever pitch, but the growth in investment demand has not been able to counteract a fall in industrial demand. This has kept silver prices under $18 an ounce.
On a positive note, medical researchers in the UK have discovered that a common anti-inflammatory medicine can save up to a third of COVID patients that are on ventilators, and a fifth of the people on oxygen (but not yet intubated). The medicine, called Dexamethasone, is inexpensive and available world-wide.
Chinese Takeover of Hong Kong
Communist China passed a national security law on June 29 that strengthens Beijing’s grip on Hong Kong. The move has been condemned by many Western democracies. The US promptly enacted measures to restrict the special trading status Hong Kong has enjoyed for decades. Prime Minister of the UK Boris Johnson had previously offered political asylum to up to 3 million Hong Kongers if China passed the security law.
This move by Chinese president Xi Jinping is aimed at crushing pro-democracy movements in Hong Kong, but runs the danger of “killing the goose that lays the golden eggs.” The move is seen as a breach of the 1997 agreement signed between China and the United Kingdom that handed over the island. Investors and financial businesses have been moving operations out of Hong Kong in anticipation of this move.
Central Bank Action
The Fed has joined the ECB and Bank of Japan in buying corporate bonds. Fed Chairman Powell says that they will buy as much corporate debt as it takes to revive the market. What this means, is that the huge multinational corporations can continue to get cheap loans, because the Fed will buy the bonds if no one else does.
This has led to concerns that the Fed will follow the other central banks in artificially controlling the yield curve. Powell has said as much. If he follows through with this, expect deeply negative real interest rates and soaring gold prices.
Negative real interest rates worldwide have reduced the opportunity cost of gold. In Europe especially, negative interest rates on large bank deposits practically push investors into assets like gold.
The yield on the 10-year government TIPS bond (Treasury Inflation-Protected Security) is a good indicator of real interest rates. Except for the yield spike caused by a bond selloff in mid-March, it has been negative for the entire year.
Worldwide, gold ETFs saw net inflows of 154 metric tons in May ($8.5 billion), once again setting an all-time high of 3,510 metric tons. Total Assets Under Management (AUM) for the world’s gold ETFs stands at $195 billion. With the year not yet half over, gold ETF inflows in 2020 total $33.7 billion. This trounces the previous record high for annual inflows of $24 billion, set in 2016.
North American Gold ETFs led the pack in May, seeing 102.2 metric tons of inflows, at a dollar value of $5.6 billion. Europe, which was firmly in the grips of the COVID pandemic, saw 44.7 metric tons of inflows, priced at 2.44 billion.
Asia, which includes the #1 and #2 gold markets of China and India, have still not recovered from the total lockdowns implemented by their governments. They only saw 4.8 metric tons of inflows, worth $261 million
According to the World Gold Council, collective holdings of gold ETFs have now surpassed Germany’s official gold reserves and exceed the official gold reserves of every country except for the US. Over the past 12 months, AUM has nearly doubled, rising by 90%
Central Bank Gold Purchases
World Gold Council Central Bank Gold Purchases reports have a two month lag, so today we’re looking at the numbers for April.
- Turkey was the big buyer, adding a big 38.8 metric tons to their gold reserves.
- Ecuador added 7.5 tons, but this was replacing the 7.5 tons of gold they sold in March.
- Kazakhstan sold 4.1 tons of gold, after selling 7 tons in March. They’re using all that gold they have accumulated over the years to support their economy and currency during the COVID outbreak.
- Uzbekistan was the only other central bank making a move of more than 1 ton, selling 2.2 tons of gold.
On The Retail Front
US Mint bullion sales for the month of June, through June 29, showed big increases from May. The Mint sold 44,000 troy oz of American Gold Eagles of all sizes in June up from 11,500 in May. 7,500 1 oz Gold Buffalo bullion coins in June was a big step up from the 2,500 sold in May.
American Silver Eagle sales for June totaled 1,378,000 oz, compared to just 490,000 in May. That depressing number for May might be due to the West Point Mint being closed for two weeks for disinfecting.
The Perth Mint in Australia sold 10,790 oz of gold bullion in May, and 681,582 oz of silver.
The Royal Canadian Mint only reports sales quarterly. For the first three months of the year, the RCM sold 198,100 oz of gold, and 6.6 million oz of silver. This compares to 123,800 and 5.5 million oz for the same quarter of 2019.
Citizens in China made up for time lost to coronavirus lockdowns, Gold purchases rose 54% in May, compared to April.
Speaking of China, Chinese mining companies are going on an acquisition rampage, snapping up gold miners whose stock prices have been hurt due to lockdowns and mine stoppages related to the COVID-19 epidemic.
India has seen gold prices rise 20% in the first half of the year, driven in part by the weakening rupee. Strong gold demand has been helped by broker discounts to help take the sting out of a 12.5% import tax imposed by the government. Demand has also been fueled by military confrontations between India and China at their common border in the Himalayan mountains.
Bank of America has moved its forecast of when gold will break all-time highs. Previously, they had called for record gold prices by the end of the year. Now they’re saying it will be before October.
Citibank was watching gold prices at the start of June, and said that $2,000 gold will happen a year later than BoA says: the third quarter of 2021.
Credit Suisse also seems behind the times, seeing $1,560 to $1,750 gold in the third quarter 2020, and $1,600 to $1,775 in the fourth quarter.(The last time gold was under $1,600 was April 1st.)
Goldman Sachs sees gold at $1,800 in three months, $1,900 in six months, and $2,000 in 12 months. They also made sharp upwards revisions to their silver forecasts, targeting $19 in three months, $21 in six months, and $22 in 12 months.
Things have changed so drastically since the first of the year (who saw a global pandemic and the Fed buying corporate debt back then?) MKS PAMP felt compelled to take a mulligan and rewrite their annual gold forecast. Taking into account more than $15 Trillion in central bank stimulus, negative interest rates, massive unemployment and global instability, they see $1,770 gold in Q3, $1,830 gold in Q4, and gold breaking the $2,000 barrier by next summer.
Lawrie Williams at Sharps Pixley runs down the list of the Top 20 gold mining nations, noting that Russia has dethroned Australia for the #2 spot.
Mining.com says, give Russia another ten years, and they will displace China for the top spot.
Abhishek Shrma at Techocodex explains how the COVID epidemic and big US banks pulling back from big gold trades has led to a fracturing of the global gold market. He runs down the new regional players who are replacing London and New York in their markets.
Paul Ploumas notes that Swiss gold exports to the US hit a record high of 126.6 metric tons in May, breaking the record of 111.7 tons set in April. The 238 tons of gold sent to the US from Switzerland in these two months is 15 times larger than all of last year.
Back to China, a major gold processor was using 83 metric tons of gold bars as collateral on $2.8 billion of loans. When the company defaulted, the banks found that whoops! All the gold bars they were holding as collateral were gilded copper bars!
Jan Nieuwenhuijs is probably the world’s best China gold expert. This month he debunks a rumor making the rounds and says “No, China does not keep gold at the New York Fed.”
A former head of British spy agency MI6 says that new evidence shows that part of the gene sequence of novel coronavirus was likely man-made. The report claims that COVID-19 is “likely to be the result of a laboratory experiment to produce “chimeric viruses of high potency”.”
The former MI6 chief, Sir Richard Dearlove, believes the virus accidentally escaped from a medical research lab in Wuhan, where work is being done to find defenses against coronaviruses.
If you left three kg of gold on a train, wouldn’t you try to get it back? Swiss authorities have tried since October to find the owner of the gold. I think he probably doesn’t want to be found.
Looking Ahead To Next Month
To end the month, we note that the famous Forrest Fenn treasure has been found. Mr. Fenn verified the claim of an anonymous man after being sent a photo of the treasure chest’s contents.
This column is intended for educational purposes only. It is not intended as investment advice.
– Steven Cochran of Gainesville Coins