Welcome to SurvivalBlog’s Precious Metals Month in Review, authored by Steven Cochran of Gainesville Coins, 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 December?
First, some end-of-year numbers.
Gold set several new all-time highs in 2020, capped by an intraday peak of $2,081.80 an ounce. Gold prices gained 24% for the year, recording the largest annual return in ten years. Spot silver rose 47.6%, also a ten-year high. Precious metals were helped in part by the US dollar weakening in the last part of the year. The DXY dollar index lost 7% in 2020.
Despite starting the month on the back foot, gold made healthy gains. Spot gold started at a five-month low of $1,776.20, and closed on December 30th at $1,894.30 – a gain of $118 for the month.
This sets up a run to break important resistance at $1,900 to start the new year.
Conflicting factors made sure that neither bulls nor bears had a big advantage this month. The bulls had central bank money printing, a weaker dollar, and a new, more contagious COVID mutation on their side. The bears had near-daily all-time highs in the stock market, rising bond yields, and the UK and EU finally reaching a Brexit agreement.
Bulls and bears each had one good breakout in December. Bears rode a surging dollar and stock market records on December 9th to send prices down $30 to $1,838 an ounce. The bulls had their breakout in the middle of the month, when gold gained $58 an ounce in a three-day rally. Spot gold ended the rally at $1,886 on Dec 17th.
Factors Affecting Gold This Month
COVID once again had a large effect on all markets. Investors joyful over news of three new vaccines bet on the economy reopening quickly. But logjams in getting the vaccines distributed as COVID cases hit new record highs dimmed that sunny outlook.
Markets are now coping with news of a new strain of the coronavirus that is 70% more contagious. It first emerged in Britain, but has made its way into several other nations, including the US. This has helped gold prices even as the stock market hits new highs.
The stock market rally has gotten ahead of the “real economy”,trading as if the COVID epidemic has ended. New records were set by the major indices several times during the month. This, despite COVID infections and deaths being at the worst levels seen in the pandemic so far.
The “fear of missing out” (FOMO) on zooming stock prices drained safe havens such as bonds, the US dollar, and gold. The voices of irrational exuberance on the financial TV shows say that yes, the market does look like the dot-com bubble right before it burst. But they say not to worry, because the economy will boom after COVID is defeated.
Margin levels in the stock market rose 9.5% in November, as more people bought more stock on credit. This has brought margin exposure to all-time highs, according to the Financial Industry Regulatory Authority (FINRA). The next drop in the stock market could set off a collapse in prices as cascading margin calls force liquidation of positions at any price.
The battle in Washington over economic stimulus continued in December. Nancy Pelosi found herself forced to fight for a deal that was much worse than the one she rejected in November. Talks of more stimulus to help small businesses and people who had lost their jobs from COVID helped depress the dollar.
The Fed did what the Fed does best in December. Print massive amounts of money out of thin air. By buying commercial debt in addition to Treasuries, the Fed has made it easier for big companies to borrow at lower interest rates. This is helping fuel the stock market bubble.
Also, the Fed’s QE to Infinity continues to devalue the dollar, making gold cheaper for foreign buyers. This is especially important in the giant gold market in India, where buyers are very price sensitive.
Fed money printing, higher deficit spending, and a drop in short-term safe haven demand – all served to weaken the dollar in December. From multi-month highs hit in early December, the DXY dollar index fell to 2-1/2 year lows later in the month. This was a major factor in limiting losses in gold this month.
Bitcoin prices hitting new highs attracted large numbers of speculators from the gold and silver markets in December. This likely prevented gold prices from regaining the $1,900 mark
The European Central Bank is dealing with the worst numbers of COVID infections and deaths Europe has seen. On December 10th, the ECB announced that it was extending and expanding its bond purchasing program. The central bank is now buying government bonds faster than European governments issue them. This is keeping bond yields negative across the EU.
The Fed hasn’t gone that extreme yet, but continues to reassure the market that it will do whatever it takes to support the economy. The Fed continues to call for increased government stimulus for ordinary people and small businesses. The Fed can’t reach these people to restart the economy. What the Fed can do is keep interest rates near zero, so the government can borrow more money for stimulus projects.
Biden’s pick of Janet Yellen as Treasury Secretary has some people worried that he will try to merge the Treasury Department and the Fed. Since Yellen’s #2 man, Jerome Powell, is now Fed Chairman, it probably wouldn’t be that difficult. It would also allow the Federal government to totally monetize its debt, paving the way for Modern Monetary Theory.
Central Bank Gold Purchases
The December 3rd Central Bank Gold Purchases report covered the month of October. A net 22.8 tonnes of gold was purchased in October, with only one seller of note. Mongolia sold 2.5 tonnes. Central bank buyers were Uzbekistan (8.4t); Turkey (6.9t); the UAE (6.2t); Qatar (2t); and India (1.9t).
The central bank of Zambia announced that it will start buying gold from domestic mines to diversify national forex reserves. “During periods of market stress – when assets would be losing value – gold would be adding value, thereby shielding the whole portfolio from large losses,” Bank of Zambia Governor Christopher Mvunga said.
The COVID pandemic has hit Zambia hard. It was forced to default on a bond last month, when it couldn’t make the interest payment. Zambia has not held gold in its national reserves since 1995. It was forced to sell all its gold during a currency crisis in the 1990s.
Uzbekistan has begun selling sealed gold bars with QR codes through its central bank. The hope is that the public will use the government-guaranteed gold bars as A MEDIUM OF EXCHANGE alongside the nation’s regular currency. This is the first nation in the modern age to establish gold as a parallel currency.
November marked the first month in 2020 that gold ETFs saw net outflows. Investors pulled out of safe havens of all sorts to rush into the stock market after COVID inoculations started. A cumulative total of 107t ($6.8bn) of gold exited ETFs world-wide. This exodus was the second-largest monthly outflows from gold ETFs on record.
North American and European gold ETFs both saw outflows of 2.9%. This amounted to 62t ($3.7bn) in North America, and 43t ($2.9bn) in Europe. Asia only saw 0.4t of outflows, while the “Other” category saw 2t of outflows.
One notable event was that iShares Gold Trust saw *inflows* of 0.8t ($57mn). In comparison, the SPDR Gold Trust, the world’s largest gold ETF, saw 62.9t ($3.7bn) of outflows for the month. This accounted for nearly all the outflows from North American gold ETFs.
In related news, Goldman Sachs has purchased the Perth Mint’s physical gold-backed ETF. Goldman has renamed the fund the Goldman Sachs Physical Gold ETF, and has removed the option to redeem your ETF shares for real physical gold. I’m sure this is a blow to many shareholders, as it was the only major gold ETF to allow redemption. The sale to Goldman also removes the guarantee of the ETF by the government of Western Australia.
Dollar and Forex
Dollar weakness was the forex theme for December. The dollar hit successive 2-1/2 year lows in the latter part of the month, to end below 90 on the DXY dollar index. The weaker dollar has helped cushion downward pressure on gold prices as stocks hit record highs.
A Brexit agreement finally being reached boosted both the pound and the euro. Commodities-based currencies like the Canadian and Australian dollars have also strengthened against the US dollar as global economic prospects brighten.
Other headwinds for the dollar included the final passage of a stimulus bill by Congress, the Fed continuing to print money at the fastest rate in history, and the approval and rollout of COVID vaccines. As global economic forecasts improve, the dollar has lost much of its short-term safe haven demand.
On The Retail Front
US MINT SALES FOR 2020
The US Mint had its best year for precious metals since 2016. 2020 American Silver Eagle sales broke the 30 million oz barrier, double the 14.9 million ASEs sold in 2019.
US gold bullion coin sales for 2020 blew the previous three years out of the water. Total American Gold Eagle sales for all sizes in 2020 totaled 844,000 oz. Combined with the 242,000 Gold Buffalo coins sold, the US Mint sold a total of 1,086,000 ounces of gold bullion in 2020. This compares to a mere 213,500 sold in 2019.
DECEMBER US BULLION SALES
American Silver Eagles = 751,000
American Gold Eagles = 49,500
American Gold Buffaloes = 10,500
2020 ANNUAL US BULLION SALES
American Silver Eagle = 30,089,500
American Gold Eagle = 844,000
American Gold Buffalo = 242,000
Total Gold Bullion 2020 = 1,086,000
Note that the US Mint ran out of 2020 Silver Eagles on December 9th, limiting sales.
The Royal Canadian Mint released its third quarter 2020 bullion sales results, which show equally impressive gains. 300,000 oz of silver was sold 3Q20 compared to 96,300 the year prior. 8.2 million oz of silver was sold in the third quarter, compared to 6.6 million oz over the same period last year.
Perth Mint gold bullion sales in November more than doubled over the previous month, to 84,158 oz. November silver bullion sales were impacted by reduced capacity, due to factory maintenance. This resulted in a slightly lower silver production of 1,119,269 oz, compared to October.
Asian jewelry sales picked up in November. Economic recovery in China, and a good Dhanteras and fall wedding season in India boosted demand. Gold imports into China through Hong Kong rose by more than 80% in November. Gold demand throughout Asia picked up in December, as jewelers begin production ahead of the Chinese New Year.
Credit Suisse considers the August weakness in gold prices a correction in a bull market, but warns that this weakness may persist. $1,966 is seen as a huge wall of resistance that blocks further runs at new records. They say a break below $1,819 will negate the whole rally, setting off a deeper correction.
Commerzbank continues standing by their rosy precious metals price predictions. They still see gold hitting $2,300 an ounce by next December, and expect silver prices to rise by 30%. This would put silver at $32 an ounce.
TD Securities expects silver to outperform gold in 2021, hitting $30 an ounce. They note that 60% of silver demand is industrial. They expect demand to rise with the push toward solar power.
Lawrie Williams is just as upbeat on gold and silver. He predicts $2,150 gold in six months, and $2,225 by the end of 2021. He sees silver at $31 in six months, and $32.25 by the end of next year.
Jim Rogers warns that a stock bubble has already formed in some sectors, noting “I’ve seen this movie before.” He recommends iron ore, copper, silver, and gold as good plays going forward. He says that as soon as the correction in precious metals prices is over, “I will buy more gold. I will especially buy silver because silver is down 50% or 60% from its all-time high.”
Silver investor Thomas Kaplan says that gold and silver were already in a bull market before COVID hit. He expects silver to follow gold for a while, then zoom past it.
As COVID is brought under control in Latin America, silver and copper mines should resume full production. Silver is a major by-product of copper mining. As China’s economy continues to recover, more copper will be mined. This will help ease a looming silver shortage.
The fight between the UAE and the London Bullion Market Association over alleged “blood gold” and money laundering continues. The UAE has launched its own Good Delivery standards. For its part, the LBMA obtained guarantees from the top 10 major gold markets to support the Association’s conflict gold and anti-money laundering rules. This could prevent the UAE from moving gold in international markets.
As a result, the UAE government announced a tightening of gold import laws as well as restricting cash transactions for large gold shipments.
The Canadian government has blocked the sale of a large gold mine in the Arctic to a Chinese government-owned company, citing national security concerns.
If you’re worried about Peak Gold, part of the solution may be to grind up old computers and other electronics. Studies show that computer motherboards can have from 10x to 100x the amount of precious metals than mined ore. It’s still not something you want to do in your garage, though. It is estimated that it would take one ton of mobile phones to yield 3.5 kg of silver, and 340 grams of gold.
Looking Ahead To Next Month
The major factors that will affect gold in early 2021 will include:
• Progress in eliminating COVID.
• Dollar strength (or weakness).
• How much of Biden’s agenda the Republican Senate can block.
• The Fed possibly abandoning QE to control rising inflation.
• The continued record highs in Bitcoin pulling speculators away from gold.
Our treasure story this month takes us to Brussels, Belgium. On December 24, two sewer workers blew out a clogged drain, only to see two gold kilobars come shooting out the pipe!
They promptly notified police of the Christmas miracle. If the owner of the gold cannot be found, AND if the gold was not stolen, the two sewer workers will split 50% of the value of the 2 kilograms of gold.
This column is intended for educational purposes only. It is not intended as investment advice.