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 April?
Gold started April around the $1,720 mark, and spent the first half of the month in choppy trade below $1,750.
This changed on April 15, when Joe Biden unloaded a pile of sanctions against Russia for cyber espionage and election interference. This gave gold the breakout it had been looking for. Gold hit a six-week high early, breaking heavy resistance of $1,760 an ounce. That $1,760 barrier became a solid floor for the rest of the month.
The gold breakout and risk-off mood on the 15th finally pushed the yield on the 10-year Treasury note below 1.6%.This removed a psychological barrier which gold prices had been fighting for weeks. Gold rallied more than $40 an ounce on the 15th and 16th, for the best week of 2021 so far.
Gold jumped to a seven-week high of $1,789 the following Monday, which finally triggered a wave of profit taking. Two days later, markets made a run at the $1,800 level, falling a mere 80 cents short. Futures ended the day at $1,793, settling above the 50 DMA.
Gold prices quieted down for the rest of the month, trading around the $1,775 – $1,780 region.
Factors Affecting Gold This Month
COVID
COVID continues to be the major factor suppressing the world economy. EUROPE seems incapable of stopping the surge of infections and deaths, putting the EU further behind the curve economically. The EU economy as a whole fell back into recession in April, mostly due to mass lockdowns as vaccination efforts failed.
It’s a different story across the English Channel, where the UNITED KINGDOM has vaccinated more than twice the number of people than Germany or France. Forty million Britons have gotten at least one COVID vaccine shot, putting the UK in fourth place worldwide. The British government has started reopening their economy, joining the US, China, and Israel as the only nations getting back to normal.
The US is doing the second-best job in the world at beating the virus, if we accept Chinese reports that put them in first place. Most theaters, restaurants, and other venues fully opened for business in April.The FDA in late April relaxed most restrictions on people who have been completely vaccinated, saying that they could attend gatherings and public outside events like concerts.
The major COVID-related impact on gold prices in the near future will be in INDIA, where the virus has gotten completely out of control. The major COVID strain there is what scientists are called a “double mutant”. Two mutated strains have combined into a version that has both enhanced contagiousness and higher lethality.
The number of daily deaths has overwhelmed the nation, with around 3,500 people dying of COVID every day. India is out of vaccines, hospital beds, even oxygen. Mass cremations of bodies are taking place in makeshift funeral pyres set up in major cities.
With no possible estimate of when life in India will return to normal, gold demand from the world’s #2 gold importer will be weak.
ECONOMY
The pace of economic recovery in the US quickened in April as the month progressed. Blowout non-farm payrolls for March showed 916,000 new jobs were created. This was far more than the estimate of 675,000. Retail sales in March (up 9.8%) were fueled by new stimulus checks for consumers. This threw a lifeline to the bars, restaurants, and small businesses that have managed to survive. Manufacturing reports also beat estimates across the board.
Industry hasn’t been able to completely take advantage of the unexpectedly strong demand. Shortages of everything from microprocessors for automobiles to softwood lumber to build homes has resulted in shortages and higher prices. If you don’t absolutely need a new car or a new home, you will be better off waiting for supply to catch up to demand.
These supply-related shortages are causing higher prices at the retail level, and supporting physical gold and silver demand. Precious metals have historically been the preferred hedge against growing inflation. Speaking of which…
FEARS OF INFLATION SPIKE
There was plenty of inflation to keep track of in April. Inflation as measured by the Personal Consumption Expenditures (PCE) index spiked in March. (The Fed prefers using the PCE over the CPI to track retail inflation when making policy decisions.)
PCE rose by 2.3% as measured year to year. Core PCE, which removes food and energy, was up 1.8% y/y. Personal income was up 21.1%, thanks to the latest stimulus checks. Wage growth for the first quarter of 2021 was the most since 2001!
This is bringing forward estimates of when the Fed will start tapering its Quantitative Easing policies. Where many observers had penciled in “late 2022”, these economic reports now have analysts expecting the Fed to start tapering before Christmas.
BOND YIELDS
The yield on the 10-year Treasury note continued to be the most important driver of gold prices in April. (Yields increase as demand decreases.) The great economic news and record stock performance in April had people dumping bonds and jumping into equities.
This changed mid-month, as Biden’s expulsion of Russian diplomats and piling on of sanctions drove markets to safe haven assets. The 10-year yield remained below 1.6% until late in the month, when a raft of better than expected economic news was released.
Central Banks
FED: Chairman Jerome Powell says that supply chain bottlenecks will cause a temporary spike in inflation as the economy revives, which he says the Fed will ignore.
Powell also said he wanted to see actual evidence of a strong economy before he would even consider pulling back from its loose policy stance.
The FOMC minutes from the March meeting were released on April 7th. The consensus was that the economic recovery was far from complete.
Secretary of the Treasury Janet YELLEN refused to label China as a currency manipulator in the latest report.Both Democrat and Republican administrations are sensitive to the possibility of economic warfare with China, if it was called out on its yuan manipulation.
Most Fed officials followed Powell’s lead, until blowout economic numbers were released at the end of the month. This led Dallas Fed President Robert Kaplan to break ranks and tell reporters that the Fed will have to rethink its taper timetable if the economy continues to run this hot.
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The ECB kept quantitative easing policy unchanged this month, though it hasn’t helped much. They may be forced to do even more bond buying, as EU nations are running out of money trying to stop COVID outbreaks.
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Central Bank Digital Currencies
The explosion of Bitcoin in financial markets has nations working on official crypto versions of their own national currencies. Since cryptocurrencies are the ultimate fiat currency, the only problems for central banks to implement a digital currency are all technical.
The Chinese are REALLY pushing their “digital yuan” as a state-backed cryptocurrency system. Some observers say the goal is to use it as an international financial weapon that exists outside of SWIFT, to blunt US power in the global financial system.
To further that goal, the Chinese government may force suppliers of raw goods to China to settle contracts using the digital yuan.
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The Fed is doing preliminary research on what it would take to create a “digital dollar”, in case Congress decides to act on it. Proponents of the measure point out that the Fed could instantly send stimulus money to people or companies this way. Fed Chairman Powell thinks that existing cryptos are nothing more than “vehicles for speculation.”
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The ECB conducted a survey on what consumers found most important in an official digital currency. Privacy was the #1 concern, with 43% of respondents citing it as the most important feature of a future CBDC. Security from hacking was the most important thing for 18%, and 9% said that not having to pay a surcharge when using it as a form of payment was most important.
The Finance Minister in the UK recently requested that the Bank of England look into what it would take for the nation to have its own CBDC, which has already been dubbed “Britcoin”.
The Swedish central bank is among those running into technical problems with implementing its own CBDC.
Central Bank Gold Purchases
The latest available February data shows central banks tipped back into net purchases during the month, with 8.8t added to global gold reserves. Buying from India (11.2t), Uzbekistan (7.2t), Kazakhstan (1.6t), and Colombia (0.5t) countered the only notable sale of gold, by Turkey (-11.7t). Year-to-date, this puts total global central bank net sales at 16.7t, the weakest start in over a decade.
The Hungarian central bank revealed that they have increased the nation’s gold reserves by 63 metric tons so far this year.`
Gold ETFs
Gold ETFs continue to bleed, as investors chase stock prices. Worldwide, gold ETFs were down 107.5 metric tons in March. Once again, most of the bleeding was from the big US gold ETFs. North American ETFs lost 68.5 mt for the month. Gold ETF redemptions were spread across Europe, with 45.3 mt heading out the door. Asian funds (mostly Chinese) saw good gains, increasing AUM by 7.2 mt.
On The Retail Front
The World Gold Council says that March gold imports by INDIA totalled 160 tonnes. They also reported that Chinese gold jewelry demand in February was up by 2.6 times the same month last year.
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CHINA: Jewelry sales over the Lunar New Year were higher than either 2019 or 2020, as Chinese consumers return with a vengeance. Net gold imports by China through Hong Kong hit a 15-month high, due to the Chinese central bank loosening gold import quotas. This also sent overall private Chinese gold imports to a 14-year high.
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US MINT: The US Mint continues to lag in reporting American Silver Eagle sales this month. Official ASE production figures haven’t been updated in almost three weeks. April 2021 ASE sales stand at a mere 1,053,000 ounces. This may actually be a case of the Mint moving production over to the Type 2 ASE, which is due to arrive in a couple of months.
They have been more prompt when it comes to gold bullion coin totals. 2021 American Gold Eagle sales for April was 38,500 ozt. This was all 1 oz AGEs, as production of fractional sizes was suspended as the Mint builds stock for the release of the Type 2 AGE this summer.
11,000 2021 American Gold Buffalo 1oz coins were sold in April. That brings the total US Mint gold bullion sales for April to 49,500 troy oz.
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The PERTH MINT announced investment gold sales of more than 130,000 troy ounces in March, and almost 1.6 million ounces of silver. A Perth Mint executive noted “Interest in silver is outstripping our capacity to convert plentiful supplies into finished goods.”
This is the same situation that private mints in the US find themselves in. The “silver shortage” is a case of demand outstripping production capabilities. There’s plenty of raw silver. This has been the situation for several months now.
Market Buzz
“INDIA’S gold imports in March surged 471% from a year earlier to a record 160 tonnes. This was sparked by a 1.75% reduction in import fees by the government in February. Helping matters, gold prices in rupees hit a one year low in March.
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SINGAPORE: Silver Bullion Pte Ltd is building a warehouse in the duty-free zone near Changi Airport that will hold 15,000 metric TONS of silver. Singapore continues to be a trading hub for East Asia, and their stable government entices large investors who want to hold bullion overseas.
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Buyers in SOUTH KOREA are loading up on gold, as a combination of lower prices and economic uncertainties increase its appeal. Volume on the Korea Gold Exchange through April 9 was already half of 2020’s full-year trading, with 10,780 kilograms (23,800 pounds) changing hands. Deliveries of physical gold were delayed about a week on temporary shortages.
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TD SECURITIES says there’s still no catalyst for gold prices, one way or the other, except for the dollar’s effect on foreign prices. They don’t expect the situation to change until the last half of the year. They believe that a sustained break above $1,750 is unlikely, unless something drastic happens.
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The SILVER INSTITUTE forecasts that silver demand will hit 2015 levels this year.
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GOLDMAN SACHS says that it sees gold making a run at the $2,000 mark in the next six months.
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COMMERZBANK says that a breakthrough above $1,800 is imminent.
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CREDIT SUISSE thinks that an eventual price of $1,835 this year is not out of the question.
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Peter Grosskopf, CEO of SPROTT, says that gold prices holding above $1,800 is just one big risk-off day away, but hitting $2,000 will require an actual correction (10% loss) in stocks, Treasuries, or junk bonds.
Looking Ahead To Next Month
With the US economy heating up, all attention is going to be on second-guessing when the Fed will start tapering its bond buying. Chairman Jerome Powell is going to be hard put to convince the markets that this spike in inflation is only because of temporary supply shortages, and will calm down soon.
Same as always in 2021, we’re looking at Treasury yields and US dollar strength to steer precious metal prices.
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This month’s treasure story is in the US for a change. A western Massachusetts family wanted to know if an old family legend of hidden treasure was true or not, before they sold the old family home. They contacted metal detectorist/ treasure hunter Keith Wille for help. He triumphed where many others failed, deciphering a clue that led to the discovery of a lockbox under the floorboards of the attic — a lockbox stuffed with $46,000 of silver certificates and bills from the 1930s to 1950s still in bank wrappers!
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