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 March?
While gold ended March with a third monthly loss in a row, it wasn’t nearly as bad as the beating it received in February. Once again, it was Treasury yields that dominated market sentiment for gold in March, at least for the first three weeks. After bond yields settled down, it was the dollar’s turn to depress precious metals (except palladium).
Part of the weakness of gold and silver in late March is attributable to traders closing exposed positions after a large hedge fund imploded near the end of the month. Gold is usually sold for quick money when margin calls must suddenly be covered, explaining the selloff.
Rebalancing of assets by funds to account for the lower gold price sent spot gold up as much as $24 the last day of the month. When you keep X dollars of gold in your portfolio and the price falls, you have to buy more to retain that $X level.
Factors Affecting Gold This Month
Bond yields continued to be the #1 factor driving gold prices in March, having their worst quarter since 2016. It wasn’t as much that they were moving higher, but how quickly they moved higher. Higher nominal interest rates, represented by the 10-year Treasury yield, have quickly outpaced inflation forecasts. This raises real interest rates. Higher real interest rates are a significant headwind for gold prices.
The only people NOT worried about higher yields on long bonds are the Fed. Powell says higher long-term yields mean that people expect the economy to be stronger by then. It’s the short-term yields the Fed is keeping an eye on.
Higher bond yields in March helped the US dollar advance. The DXY dollar index rose from 91.5 on March 10th to break over 93.3 to close the month. An interesting statistic this month shows the effect a stronger dollar has on gold prices: The dollar was up 2.7% for March, and gold was down 2.7%. (It usually doesn’t match up exactly.)
A larger reason for the dollar’s strength was the success of the American fight against COVID, compared to the rest of the world.
A TALE OF TWO COVIDS
As the US ramped up vaccinations and began to reopen, Europe was caught in the grip of another surge of infections, forcing more mass lockdowns. As a result, the US economy is roaring back, while the EU struggles. In fact, the strength of the US recovery is expected to lift world GDP by 1% in the second quarter.
A big part of the recovery is world-leading vaccination efforts by the US. 148 million shots have been administered since the start of Operation Warp Speed, with 53.4 million people receiving both shots. This is 16.3% of the US population haven been fully immunized.
Fed chairman Jerome Powell told Congress this month that the success of the vaccination program and fiscal stimulus is allowing the US economy to reopen faster than expected.
In contrast, the European vaccination program has been a shambles. Most of Europe only has the AstraZeneca vaccine available, instead of the Pfizer and Moderna vaccines used in the US.
More than a dozen EU countries banned the use of the Astrazeneca vaccine after several elderly people died of blood clots. This brought vaccinations (and the economies) to a standstill in Europe while new COVID strains ravaged the population.
ASIA pretty much has the virus under control. As nations recover and ease lockdowns, and gold hits 9-month lows, buyers are flocking to buy gold for economic protection.
Bitcoin continued to attract speculative inflows in March, to the detriment of gold. Bank of America analysts said that they saw no reason to own Bitcoin, except for price speculation.
Billionaire investor Ray Dalio goes further, saying that Bitcoin will probably be outlawed by at least some nations, as it poses a risk to their monopoly on money. (India’s already doing this).
But on the other hand, governments can see everything everyone is spending it on by watching the blockchain. The more people use Bitcoin, the easier the IRS can track their purchases and income.
FED: Jerome Powell acknowledged that inflation may pick up “temporarily” as the economy starts moving again after COVID is licked.
ECB: The European Central Bank ramped up its bond purchases by 48% this month.ECB spokesman told reporters that “a steeper yield curve must be resisted”, reinforcing the central bank’s commitment to yield curve control.
CHINA’S top banking regulator accused the US and EU of “exporting inflation” to China due to the stock market bubbles in both markets. No mention was made of the massive stimulus spending Beijing has been doing to support the Chinese economy.
Central Bank Gold Purchases
As a group, central banks were once again net sellers of gold in January (central bank statistics are reported two months in arrears.) Uzbekistan (8.1t) and Kazakhstan (2.8t) were in the buyers lane again, while Turkey dumped 17.2t of gold on the market as it fought to support a lira cripped by a 15% inflation rate.
Russia was the only other central bank of note that sold gold in January. Moscow released 3.1t into the market.
Falling gold prices and higher Treasuries yields led to the global gold ETF market to shed 2% of assets under management in February. 84.7 metric tons of gold outflows left total AUM at 3,681t, the lowest level since last June.
The big losses were naturally in the biggest market for gold ETFs, North America. gold ETFs there saw a big 71.2t of outflows, valued at $4.1bn. European gold ETF holdings fell by 23.8t, a $1.1bn loss.
Asia was the one bright spot, as investors bought a net 10.6 tonnes worth of gold ETF shares, totally $596mn
STANDARD CHARTERED warned in March that further redemptions of gold ETF holdings could push a fragile gold market under $1,700 (and it did, temporarily).
Dollar and Forex
Rising bond yields and upbeat economic news supported the dollar’s rally in March. This was to the detriment of the euro and pound, as the economies of Europe are mostly still closed due to COVID.
The DXY dollar index started March just over 91, but quickly broke the 92 barrier on the fifth. It stayed near there for most of the month. The dollar showed greater strength later, rising as high as 93.35 to end out the month.
On The Retail Front
The only thing keeping the US MINT from breaking all-time records for bullion sales is that they can’t make enough. With the new designs coming out this summer for both the American Silver Eagle and American Gold Eagle, the US Mint has had to split its production between the old and new designs. This means that both ASEs and AGEs remain under allocation (rationed) by the Mint.
The latest sales numbers show that 3.3 million Silver Eagles were purchased in March. Over 11 million ASEs were sold the first three months of 2021, making this the best first quarter since 2016.
Gold Eagle total sales of all sizes reached 55,500 troy ounces. Year to date, that’s 401,500 oz worth of AGE sold so far in 2021. On the 24K side, 32,500 American Gold Buffalo 1oz coins were sold in March, for a year to date total of 110,000 oz. That makes 511,500 oz of gold bullion sold by the US Mint for the first quarter.
February bullion sales for Australia’s PERTH MINT were at or near all-time monthly highs.124,104 oz of gold bars and coins were sold last month, making it the best month for retail gold bullion sales on record. This was 63% higher than in January. Perth Mint silver sales in February totaled 1,830,707 oz, the second-best month on record. That was 57% more than January.
The gold market in INDIA is growing even hotter, as prices in US dollars fall under $1,700. Gold prices in India fell more than 20% in February, from the all-time highs hit last August. This boosted February gold imports by 41% yoy, to the highest level since November 2019.
The spring wedding season starts next month, and there are a year and a half of weddings set to take place. Weddings had to be postponed through all of 2020 due to virus lockdowns.
Representative ALEX MOONEY (R-WV) has re-introduced his bill in the House to remove all Federal taxes from the sale of gold and silver coins and bullion. This would eliminate capital gains taxes on the sale of physical gold and silver investments. It is HR 2284, if you are inclined to ask your Congressman to support the measure.
SCHWAB warns of high bond volatility going forward, as the 10-year yield oscillates around 1.7%.
GOLDMAN SACHS sees the yield on the 10-year Treasury note hitting 1.9% in the short term.
GUGGENHEIM analyst Scott Minerd thinks the spike in yields of over 1.6% is temporary, and expects nominal Treasury yields to hit near zero or even negative in the next 18 months.
CPM GROUP says that gold investment demand will be slightly lower in 2021, compared to the buying frenzy when the COVID pandemic hit last year. They note that global investor demand for gold was 44.5 million oz in 2020. They expect that to fall to 42.8 million oz this year.
WELLS FARGO hires ex-Scotiabank precious metals traders, to expand into the gap left by SB exiting the business. The expanded Wells Fargo precious metals desk will focus on manufacturing, chemicals, etc. and not hedge funds.
CITI says BITCOIN is at a tipping point of whether it gains mainstream acceptance or suffers a speculative implosion
BANK OF AMERICA warned of signs pointing toward a bear market in stocks, but that was before Congress passed the stimulus bill.
Russian miner NORNICKEL announced this month that its two major palladium mines in Siberia will return to operation earlier than expected – one in early May, the other in early June. Apparently, miners hit an underground river or something, which flooded portions of both mines. Turns out that it wasn’t anything that 32,000 metric tons of cement couldn’t fix.
The Chinese province of INNER MONGOLIA has banned all cryptocurrency mining as of next month, after officials there were admonished by the central government for wasting so much energy. Inner Mongolia was home to 8% of global Bitcoin mining, compared to 7.2% by miners in the US.
Looking Ahead To Next Month
The US continues to kick everyone’s butt in recovering from the COVID epidemic, but there are worries on both sides of the aisle in Congress that the danger of Biden’s $2 trillion infrastructure plan increasing inflation is greater than the benefit of the jobs it would create. Are we going to see the yield on the 10-year Treasury note hit 2% in April?
If the present vaccines can stop the new strains of COVID, the US should open up its economy even faster than it is now. Pfizer and Moderna are already hard at work on new versions of the vaccine that stop every strain known. There shouldn’t be a problem opening theme parks and movie theaters. (Disclosure: I own a very small stake in AMC Theaters.)
Our treasure story this month may not be the largest gold hoard discovered recently, but this gold ring with white enamel skull found by a metal detectorist in Wales is probably the most interesting!
This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.
– Steven Cochran of Gainesville Coins