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 May?
Gold started the month with a morning run at $1,800, being brought up short at $1,799.20 an ounce before settling lower. At the same time, silver briefly tagged the $27 mark.
Things trended higher for the remainder of the month. Gold made sustained breaks above the $1,800 mark on the 6th, the $1,850 mark on the 17th, and the $1,875 mark on the 19th. Gold spent the last week of the month making runs at $1,900, falling short each time.
Factors Affecting Gold This Month
Warren Buffett at this year’s Berkshire Hathaway stockholder meeting said, “We are seeing very substantial inflation” caused by supply shortages, especially lumber for the homebuilders it owns.
Treasury Secretary Janet Yellen may not be running the Fed anymore, but she can still crash markets with a verbal gaffe. Commenting at The Atlantic’s Future Economy Summit, she said, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.” She was forced to walk back that statement the next morning, to end the market freakout.
Several economic reports this month pointed towards building inflation pressures.
Core CPI is the Fed’s preferred inflation guage. It rose 0.9% in April, a 39-year high month-to-month. The year-to-year reading hit a 25-year high, at +3.0%. Overall CPI rose 0.8% month to month, and 4.2% year-to-year.
Producers were hit hard by shortages of everything from lumber to steel to computer chips. Wholesale prices rose 6.17% in May, compared to April 2020.
Dreams around the world of becoming Bitcoin Billionaires came crashing to Earth this month, dragging the whole altcoin market with it. Bitcoin’s value fell from $60,000 down to $30,000 before recovering slightly. On May 17th alone, the crypto market lost more than half a TRILLION dollars. The trauma led many investors to pivot into gold and gold ETFs.
Adrian Ash, director of research at BullionVault, told MarketWatch afterwards “any debate about Bitcoin challenging gold as a ‘safe haven’ just got a very blunt answer from the markets.” “While the precious metal isn’t immune to volatility, gold has never cut its price in half inside a week,” he added.
Matt Gongloff at Bloomberg says that this month’s massive meltdown in the crypto market proves “Bitcoin is more modern art or a religion than money.”
The Governor of the Bank of England warns Britons, “I’m going to say this very bluntly again. Buy them [crypto currencies] only if you’re prepared to lose all your money.”
The extreme volatility of the crypto market had already caught the US government’s attention even before the catastrophic drop in value.
Major crypto exchange BINANCE is under investigation by the US Justice Department and the IRS on charges of money laundering and assisting in tax evasion.
The FED has issued new regulations that cryptocurrency transactions over $10,000 must now be reported on a Form 8200, the same as precious metals. This is intended to curb money laundering using crypto.
CHINESE regulators have warned that they are cracking down on illegal crypto use. Financial institutions and payment services are forbidden from accepting crypto as payment AND may not offer products or services tied to crypto. The People’s Bank of China spokesman said that crypto “is not a real currency” and “should not and cannot be used as currency in the market.”
The Federal Reserve stuck to its guns in May, insisting that the increase in inflation this month was due to supply bottlenecks that are expected to ease. It took Fed officials hammering this point home for most of the month before the stock market began believing them.
San Francisco Fed president Mary Daly said a little inflation would do us good. “We should tolerate 2.5% inflation the same as we do 1.5%.”
Richmond Fed president Thomas Barkin says that inflation will come back down next year. He said that he personally will not vote to taper QE until the employment to population ratio is back where it was just before COVID hit the US.
In opposition, Dallas Fed president Robert Kaplan said this month that the Fed would need to start discussing tapering QE sooner than later. He believes that the taper will happen next year.
The ECB forecasts that composite EU inflation will only be 2% by the end of the year, and will drop to only 1.2% next year.
The BANK OF ENGLAND tapered monthly bond purchases this month. It is the first major bank to do so.
Isabel Schnabel, a EUROPEAN CENTRAL BANK executive board member, channeled her “inner Yellen” this month. On the subject of German inflation forecasts above 3%, she assured markets that it would just be a temporary increase.
Central Bank Gold Purchases
This month’s Central Bank Gold Purchases Report covers the month of March. Once again, Turkey was the only central bank to sell gold. This is part of the government’s efforts to stop the plunge of the lira.
Hungary purchased 63 tons of gold in March, *tripling* its gold reserves to 94.5 tons. Government officials explained that the massive increase in the nation’s gold reserves were in part to hedge against inflation.
India added 7.5 tons to its gold reserves in March. That was beaten by Uzbekistan, which bought 8.1 tons of gold. Kazakhstan added 3.5 tons of gold in March.
The big surprise was the report that the Japanese central bank had bought 80.8 tons of gold in March. This actually wasn’t a purchase. It was a transfer from the Bank of Japan to the Ministry of Finance. The gold was recorded into the ministry’s foreign reserve account
The April Gold ETF report from the WORLD GOLD COUNCIL recorded more outflows from gold ETFs. Overall, global gold ETFs saw 18.3 metric tons of outflows.
Most of the bleeding occurred in North American gold ETFs, which saw 28.4 tons of outflows. European gold ETFs erased some of the damage caused by the Americans, recording 10.6 tons of inflows.
In Asia, 0.5 tons exited gold ETFs, led by Chinese ETFs, which were down by 2 tons. Bucking the trend in Asia, Indian gold ETFs gained 1.3 tons.
This month’s crypto market meltdown had investors dumping their holdings and moving their money into precious metals ETFs, but we won’t see those numbers until next month’s report.
Dollar and Forex
Dollar weakness helped gold demand worldwide in May. This helped gold demand in China especially, as the yuan hit a three-year high against the dollar. The dollar has been hit by concerns over rising inflation and more government debt, if Biden’s new stimulus plan gets through Congress.
On The Retail Front
The US MINT basically stopped selling American Silver Eagle in mid-April. The reported total for ASE sales were 1,053,000 in April, with nothing reported in May. American Gold Eagle sales were 38,500 ounces in April, and 20,500 oz in May. Production of both Silver and Gold Eagles has switched over to stockpiling coins with the new designs, which are due to be released soon.
American Gold Buffalo .9999 gold coin sales were at 11,000 oz for April, and 41,000 for May. This is the first time I can remember that monthly Buffalo sales eclipsed Gold Eagle sales. This was caused by the shortage of AGEs this month. People just moved over to the legal tender Gold Buffalos.
The ROYAL CANADIAN MINT released their 2020 report this month. They reported that overall revenue was up 74% due to bullion sales. Circulation coinage operations showed a loss. RCM gold bullion sales more than doubled last year, to 982,800 oz. Silver bullion sales were up nearly 30% to 29.5 million oz. That was barely behind Silver Eagle sales last year, which was almost 30.1 million oz.
PERTH MINT silver sales in April grew on March numbers, but gold bullion sales lagged. Strong demand for silver products, especially the 1 troy oz Silver Kangaroo, boosted April sales to a whisker under 1.8 million oz. This was up 12.4% from March, but 15% lower than a year ago during the COVID silver panic.
Gold sales at the Perth Mint were down in April, but only because they had to divert coin presses to fill orders for the Platinum Kangaroo. Minted gold sales were 101,379 oz, 22% lower than March and 16% lower than April 2020.
Neil Vance, Perth Mint Manager of Minted Products, said that they sold every silver, gold, and platinum Kangaroo coin that they could make, and were still unable to meet demand.
The British ROYAL MINT reports that silver bar sales for April were up 540% from a year ago.
COMMERZBANK is really bullish on gold after it broke through resistance at the 200 DMA at the end of the month. They’ve moved the next line of resistance from $1,900 to $1,959–$1965, the YTD peak.
Looking into the future, they say that a breach of the long-term goal of $1,987 could open the way to new all-time highs. They’re also bullish on silver, saying that prices above $30 an ounce are just a matter of time.
ALASDAIR MACLEOD is telling people to “run to physical silver before it’s too late.”
The CEO of First Majestic Silver says that the Silver Institute’s estimate of global silver supply is wrong. He maintains that the available supply of silver is much lower.
Even more concerning, the London Bullion Market Association has admitted that it overstated the amount of silver reserves in London vaults by 3,300 metric tons when it was trying to calm silver markets during the big #silversqueeze this March. They offered no explanation of how you can count 96 million more troy ounces of silver that actually exists, other than it was a clerical error.
STANDARD CHARTERED expects silver to hit $30, but to drop back down to $25 next year as supply increases. Record prices for copper have copper mines expanding, and most of silver production is a byproduct of copper and tin mining.
METALS FOCUS sees silver hitting $32 this year, in a combination of investment and industrial growth (especially from solar panels).
GERMAN households now own more than 6% of world gold reserves! Total physical gold holdings by German citizens rose from 8,900 metric tons in 2019, to 9,100 metric tons in 2020. That’s 1,000 tons more than US gold reserves. Three out of four of those surveyed said that they intend to buy more gold this year.
RUSSIA is expected to become the world’s #1 gold producer soon, if current trends continue. Russia is increasing domestic gold production, while China is mining less. Last year, Russia mined 331 tons of gold, while Chinese gold production fell 3.8% to 368 tons in 2020.
CHINA may be producing less, but it’s buying more. Gold consumption in China was 288.2 metric tons in the first quarter of 2021, bringing purchases back up to pre-COVID levels. This is 93.9% higher compared to last year. Of course, the entire nation was in lockdown this time last year, so this is another crazy number that we will be seeing any time someone compares something to last year.
INDIA saw gold imports in the first quarter of 2021 rise 262% from the same time last year. Jewelry demand was up 38.3%, and coin and bar investment demand was up 33.8%. Easing lockdown restrictions, lower gold prices, and reduced import fees all contributed to the jump in demand. Consumers loaded up on gold ahead of a busy wedding season and Akshaya Tritiya, which was on May 14th.
Don’t count THE WORLD BANK among gold bulls. They predict that gold prices will fall 4% this year, as people dump gold ETFs in favor of the stock market and higher yielding bonds.
BILLIONAIRE INVESTOR SAM ZELL is buying gold, as he sees inflation “all over the place.” In an interview with Bloomberg, he said, “You read about lumber prices, but we’re seeing it in all our businesses.” He calls the present inflationary forecast “very reminiscent of the ’70s.”
A long-time gold skeptic, the Chicago billionaire says about buying gold, “It feels very funny because I’ve spent my career talking about why would you want to own gold? It has no income, it costs to store. And yet, when you see the debasement of the currency, you say, ‘what am I going to hold on to?’ ”
ARKANSAS became the latest state to remove sales tax from transactions of gold, silver, platinum, and palladium on April 3rd. This tax exemption will take effect on October 1st this year.
The next time someone brings up the pollution from gold mining, hit them with this: According to Skarn Associates, which tracks and helps miners reduce their carbon footprint, creating one dollar of Bitcoin creates 2.2 to 2.3 kilograms of CO2. One dollar of gold only generates 0.5kg of CO2, and it’s a real, physical thing.
Looking Ahead To Next Month
The silver rally shows no sign of slowing down. Barring something really weird happening, prices should continue to appreciate. (NOT INVESTING ADVICE.) Gold overcame early profit-taking to once again inch over the $1,900 line late on the last trading day of the month. It did this multiple times in the last week of May. We will see if it sticks after the Memorial Day weekend.
The crazy thing this month, at least to those of us old enough to remember the Arab-Israeli wars, is that the recent war between Israel and Hamas in the Gaza Strip had no apparent effect on gold prices.
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