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.
What Did Gold Do in November?
There were many different factors steering gold prices in November, but the two major influences were also the most controversial: the COVID epidemic and the Presidential election.
Gold gained in early November, as COVID infections and deaths rose in the US and Europe. The possibility of a contested Presidential election was an even larger factor in the early November gold rally. Prices were further supported by continued dollar weakness. The gold price weakened as the Democrats failed to capture a majority in the Senate, breaking the “Blue Wave” that some had predicted.
The announcement in the middle of the month of three different COVID vaccines passing human clinical trials sent stocks shooting higher, and depressed safe-haven assets such as the dollar and gold. The last brick supporting gold prices fell when President Trump allowed the GSA to release transition funds to Joe Biden’s team.
Gold dropped more than $100 over the next two weeks, hitting a five and a half month low of $1,770 before the US open on November 30th. November was the worst month for gold in nearly four years.
In contrast, the Dow Jones Industrial Average had its best month since 1987, while the SP 500 and Nasdaq had their best months since April.
Factors Affecting Gold This Month
COVID SECOND WAVE AND VACCINES
COVID infections and deaths surged across the nation in November, once again straining hospitals to the breaking point. Pfizer announced on November 9th that its COVID vaccine had successfully passed human trials. The news sent the Dow 1,300 points higher at the opening bell. Gold fell by $67 at the open. December gold futures lost $98 on the day to settle at $1,854 an ounce. Spot gold closed at $1,863, down $86.
The next Monday, a second successful COVID vaccine was announced by Moderna. This time, the gold market had a muted reaction, leaking $20 lower on other news over the course of the week.
November 23rd saw a third COVID vaccine announced, this time by Astrazeneca and the University of Oxford in the UK. Gold investors, shaken by a new vaccine being announced three weeks in a row, headed out the door and into the stock market. By Black Friday, gold prices had fallen another $90 an ounce, breaking below the important $1,800 level.
The economy is expected to rapidly recover as vaccines roll out.
Doctors are urging the CDC to be more active in notifying the public over possible side effects of the new COVID vaccines. Much like flu vaccines can cause temporary flu-like symptoms, side effects of the COVID vaccine can mimic a mild case of COVID
Doctors are concerned that some patients that experience side effects will not get the second dose, which will make the coronavirus stronger over time.
Doctors say that mass vaccinations are needed to get us to herd immunity so lockdowns and shutdowns can end. They estimate that to have herd immunity, at least 70% of the population need to be vaccinated, or have antibodies in their system from surviving COVID.
The big news for everyone was the Presidential election. The election held some surprises for everyone. The gold rally that some on Wall St were expecting on a Biden win failed to materialize in the days immediately after the election. Democrats not only did not win control of the Senate, they lost seats in the House of Representatives. A Republcan Senate will be a roadblock to the more ambitious plans of the Democrats.
Stocks think that a divided Congress is the best of all possibilities since the Republican Senate will also block most attempts at re-regulating Wall St. Gold is not so happy, as it means that the same Senate will block any meaningful “Main Street” style fiscal stimulus.
Gold prices were mainly steered by COVID news as lawsuits over ballot issues in several states went to court. On November 24, gold fell sharply as President Trump ordered his administration to begin working with the Biden transition team. Gold prices briefly fell below $1,800 an ounce before recovering.
FED and Central Banks
The Fed kept up its warnings in November that it could not rescue the economy alone (unless the government wanted to give them more power.) Dallas Fed president Robert Kaplan warned that the next two quarters will be “very difficult” as COVID cases hit new highs, and Congress refuses to pass stimulus measures and small business relief.
After three COVID vaccines announced successful human trials. St.Louis Fed president James Bullard was able to take a more cheerful approach. He said that the markets can now see the end of the COVID crisis coming, and the economy should improve above recent trends in 4Q20 and 1Q21.
The European Central Bank warned that deflation would continue in the EU through the rest of 2020, and growth in 2021 would be slower than previously thought. That said, the ECB expects inflation to turn positive as COVID vaccines bring the epidemic under control.
Central Bank Gold Purchases
This month’s Central Bank Gold Reserves report covers September. Forex news was dominated by the Turkish central bank fighting forex markets to prevent a total collapse of the lira.
Part of Turkey’s money stabilization efforts included selling 45.5 metric tons of gold. Even with full-out intervention, the Turkish lira fell to a record low of 8 to the dollar.
Gold dumping by Turkey more than wiped out the small purchases made by other central banks. Once again, gold purchases were concentrated in Central Asia.
Kazakhstan added 1.7 mt, Uzbekistan added 8.4 mt, and Mongolia added 2.4 mt. Qatar was the only other nation with gold purchases of note, adding 1.6mt
Inflows into gold ETFs last month hit the lowest levels of the year. European gold ETFs took the lead from North America. Inflows there totaled 20.1metric tons ($1.4 billion). North American gold-backed ETFs saw very little growth, rising only 1.8 mt. Asian gold ETFs were nearly flat, with 1.1 mt of inflows, and “Other” gold ETFs saw 2.8mt of outflows.
On The Retail Front
The China Gold Association says that Chinese gold demand rose 28% from July to September to 224.8 mt, compared to the second quarter of the year. Gold bar and coin demand made up 65.5 mt of that demand, up 66.7% from the second quarter.
In India, jewelry merchants are celebrating a busy Diwali, and are busily restocking gold ahead of an active wedding season. People had deferred buying gold jewelry for wedding gifts while the nation was locked down during the worst of the COVID epidemic. Lower gold prices as November progressed lured many buyers into the market.
Even after Turkish president Erdogan fired his minister of finance and head of the central bank over the destruction of the Turish lira on the forex markets, Turks aren’t buying his prediction that things will get better.
What they are buying is gold. In just two weeks after Erdogan’s purge, Turks had purchased $2.2 BILLION of gold.
The US Mint is still behind on its sales reports, but we know that at least 4.281 million 2020 American Silver Eagles were sold in November. US Mint combined bullion coin sales (American Gold Eagle and Gold Buffalo) for the month was 99,000 troy ounces.
Year to date, sales of ASEs are 28.8 million ounces, and gold bullion sales are just over 1 million ounces. This is by far the best year for US Mint bullion products since 2016.
The London Bullion Market Association (LBMA) is the trade group that oversees the London gold market,which is the world’s largest. They are the ones that set the international standards for the gold industry
The LBMA is threatening to blacklist gold from Dubai, amid continued evidence they are ignoring blood gold and gold mined with child labor that is coming into their market. Dubai has long been accused of turning a blind eye from the source of much of the gold coming out of Africa. A blacklisting by the LBMA would mean that any refiner that bought gold from Dubai would have their Good Delivery certification pulled.
Dubai charges that this is a case of the old power structure of the international gold market lashing out at them, because Dubai is rapidly growing their market share and importance.
Study shows that Indian’s ancient habit of buying gold to survive tough times was a winner again, as citizens took out personal loans using gold as collateral to survive nationwide lockdowns over the summer.
Fitch Solutions expects rising gold prices over the next ten years to make more gold mines profitable. It sees Russia and Australia leading the increase in gold production, while China’s gold mining industry remains stagnant.
Goldman Sachs and CITI have adjusted their gold forecasts in light of the recent market breakdown, saying that they see gold “over $2,000” sometime next year.
Canadian bank CIBC still sees $2300 gold sometime next year.
ANZ isn’t quite as optimistic, estimating gold to hit $2,100 in the next 12 months.
On the other hand, Australian bank Westpac believes that mass inoculation against COVID will bring the global economy back to normal, while breaking gold’s back. They predict that gold will be below $1,760 an ounce this time next year, then fall to $1,633 an ounce by the end of 2022.
CPM Group says that if gold falls below $1,750 (it came close at the end of the month),it has one chance at $1,725 before $1,700 is hit. If $1,700 is breached, prices may not stop until they reach $1,650.
Lawrie Williams thinks people who have bailed on gold should be having second thoughts:
“It would seem that vaccine optimists may be getting out of gold in the expectation that economic growth may start to return to normal once a mass vaccination programme is implemented. However, as we note below, hopes of a speedy vaccine rollout and a rapid return to anywhere near normality may still be months, if not years, away yet and once this realisation sinks in the effects on equities (negative) and gold (positive) could well begin to influence the overall picture.”
Looking Ahead To Next Month
As we wrap up the year next month, there are few things to watch for. The stock market may have gone too far, too fast, in November’s vaccine-fueled rally. Those vaccines are going to be in very short supply for several months, meaning that the economy may not recover as quickly as some people think. Even if COVID inoculations start before the end of the year, most of the good news on the vaccine front has already been baked into stocks.
The gold market will be pinning its hopes on a few, interrelated things as it battles back from prices in the mid $1,700 range.
One of these is a meaningful stimulus bill from Congress that doesn’t just help billionaires and corporations. The odds of that are slim to none, with the Republicans still in control of the Senate. Mitch McConnell blocked any stimulus bill this fall when Trump was President. He certainly won’t change his tune with Biden in the White House.
Something that is more certain is continued suppression of benchmark interest rates by the Fed. Now that Janet Yellen is Treasury Secretary, she will work with her former #2 at the Fed, Chairman Jerome Powell, to implement QE to Infinity.
This will have a far greater effect on what the gold market wants: a weaker dollar and negative real inflation.
We end this month with the story of a newly-discovered “EID MAR” (Ides of March) gold coin struck by Brutus, famed conspirator in the assassination of Julius Caesar (“Et tu, Brutus?”). The coin shows two daggers to commemorate Caesar’s murder. Brutus had them minted to proclaim himself as the hero who saved the Roman Republic from tyranny.
This is only the third gold Brutus EID MAR known to exist, and is the only one in private hands. The winning bid at the October 29 auction was $4.188 million!
This column is intended for educational purposes only. It is not intended as investment advice.
– Steven Cochran of Gainesville Coins