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 July?
Gold started July at $1,770 an ounce, which would be the low for the month. Gold’s price action would be determined by two things in July: the strength of the 10-year Treasury note, and the strength of the dollar.
Gold grinded higher the first week of July, closing at $1,802 on the 7th. This was gold’s first close above $1,800 since mid-June. The yield on the 10-year Treasury tanked to 1.25% on July 8, from above 1.4% to start the month. Gold spiked to $1,819, which triggered a wave of profit taking. Prices settled down less than two dollars, at $1,800.
Gold gained $29 over the next five days, peaking at a $1,829.00 settlement on the 15th. Gold prices eased over the next few days, until it settled at $1,799.2 on the 26th. It spent the next three days flat at $1,799 until the 29th, when it burst $31 higher to settle at $1,835.80, the high for the month. It gave up half of that on the 30th, to end July $45 higher, at $1817.20.
Factors Affecting Gold This Month
The 10-year Treasury note saw heavy buying through the month, never even seeing a 1.5% yield. Perhaps even more than the dollar, Treasury yields had a large effect on gold prices in July.
Low yields for the 10-year Treasury note means that yields on corporate debt have fallen as well. Not only is AAA corporate bonds paying next to nothing, even high-yield junk bonds are paying less than 5%.
All in all, the bond market doesn’t see inflation being a long term problem.This continues to confound analysts who expect inflation to remain high. Economists say that these abnormally low yields give the Fed no other option but to keep the money printer going.
The Delta strain of COVID that was discovered in India has steam rollered over Europe and North America, leading to renewed lockdowns mask mandates.
Several analysts are saying that the delta COVID outbreak has lowered economic expectations, but not as much as the original outbreak did. This is because many people have gotten the COVID vaccine. Because delta is a new strain, “breakthrough infections” are being reported among vaccinated people, but cases are mild enough that they don’t require hospitalization.
Supply chain disruptions are still the scapegoat for present inflation rates, but things don’t seem to be getting back to normal as quickly as hoped. Home prices and car prices are two of the obvious culprits for recent inflation spikes, but get ready for food shortages soon, as droughts and floods and extreme weather destroy crops. Some restaurants are beginning to take scallops and other seafood items off the menu, due to sharply higher prices.
But, looking at bond yields, the market seems to believe the Fed that this is all temporary.
Dollar and Forex
The dollar moved from strength to strength in July, until the last couple of days of the month. The DXY dollar index dropped from 92.7 on the 28th, to a low of 91.78 on the 30th, before recovering marginally. This dollar strength for most of the month suppressed gold demand overseas, as it made it more expensive in native currencies.
It isn’t just gold that’s being led around by the nose by real or imagined Fed policy.
Fed Chairman Jerome POWELL said that inflation is higher than the Fed expected, but he still thinks it’s temporary. Treasury Secretary Janet YELLEN said earlier in the month that she expects “several more months of rapid inflation,” which likely made Powell’s work at calming the stock market more difficult.
Minutes of the Fed’s June meeting highlighted some differences of opinion on tapering. “Various participants” said that the Fed should start tapering sooner than it originally intended, while a “substantial majority” saw inflation risks “tilted to the upside.”
In his press conference after the July FOMC meeting, Powell said “we have a perfect storm of high demand and low supply.” He admitted that the economy has “made progress”, but not far enough to consider tapering. Inflation remains higher than expected, and is lasting longer than expected, but Powell maintains that it WILL slow down.
CANADA’S central bank voted to taper its weekly bond purchases from $3 billion (CAD) to $2 billion. They anticipate that their first interest rate hike will not happen until the second half of next year.
AUSTRALIA’S central bank announced last month that it would start tapering, but backed off those plans after the delta COVID virus put half the nation’s population into lockdown.
The TURKISH central bank estimates that inflation will be 14.1% by the end of the year. This will increase the urgency of the public to trade their depreciating lira for gold or US dollars.
Central Bank Gold Purchases
The latest central bank gold statistics cover the month of May. Some central banks reported gold transactions early this time. This gives us figures for June from select nations.
MAY CENTRAL BANK GOLD PURCHASES
THAILAND was the big gold buyer in May, as news reports mentioned last month. The Thai central bank added 46.7 tons of gold to reserves. BRAZIL also made a strong showing in May, adding 11.9 tons of gold. TURKEY came in third place, purchasing 8.6 tons. KAZAKHSTAN, regular as clockwork, increased its gold reserves again, this time by 5.3 tons. POLAND’S central bank bought 1.9 tons, making good on promises to increase the role gold plays in its forex reserves.
Sellers in May were led by UZBEKISTAN, dropping 11.5 tons of gold on the market. The KYRGYZ REPUBLIC sold 4.5 tons, while the PHILIPPINES sold 2.2 tons and GERMANY sold 2.0 tons.
JUNE CENTRAL BANK GOLD PURCHASES
Brazil more than tripled its gold purchases in June, compared to May. A massive 41.8 tons of gold entered central bank coffers. India was also a buyer in June, adding 9.4 tons. Poland kept plugging away at dollar-cost averaging their holdings higher, adding 1.2 tons.
Uzbekistan bought back almost half of the gold it sold in May, purchasing 5.3 tons in June. Turkey sold 6.8 tons of gold in June, almost all of the 8.6 tons it bought the previous month. A surprise seller was Kazakhstan, which sold 19.8 tons.
All told, global gold ETFs posted a net inflow of only 2.9 tons in June. North America did the heavy lifting, adding 10.5 tons to assets under management. European ETFs lost a net 9.4 tons. Asian gold ETFs added 2.3 tons, almost all of it in China.
North America: +10.5 tons
Europe -9.4 tons
Asia +2.3 tons
“Other” -0.5 tons
On The Retail Front
The 2021 Type 2 American Silver Eagle and Type 2 American Gold Eagle designs were released in mid-July, and sales were naturally brisk. With the launch of the Type 2 silver and gold Eagle coins behind them, the US Mint has once again started updating its production numbers. Most of July’s totals will be for the two weeks or so of Type 2 sales, as the Type 1 ASE and AGEs were discontinued.
As of July 30th, 3.1 million Type 2 American Silver Eagles had been sold, 58,500 oz of Type 2 American Gold Eagles of all sizes, and 14,500 1oz American Gold Buffalo bullion coins.
The ROYAL CANADIAN MINT released bullion sales numbers for their first quarter this month. They sold 328,500 ounces of gold, up 65% from the previous quarter. Silver bullion sales totaled 9.9 million oz, up 52% from 4Q20.
The PERTH MINT sold 72,910 oz of gold and 1,823,029 oz of silver bullion in June.
The state of OHIO will remove sales tax on gold, silver, platinum, and palladium, effective October 1st.
House Democrats in CONGRESS say that mining companies on Federal land should be paying the same 12.5% royalties that oil and gas companies on Federal lands do. Right now, they pay zero.
The gold price manipulation trials of two former Merrill Lynch commodity traders began in Chicago on July 22. Edward Bases and John Pacilio worked together to spoof precious metals contracts, bragging in chat about how easy it was.
The LONDON BULLION MARKET ASSOCIATION reports that as of June 30th, silver held in London vaults reached an all-time high of 36,706 metric tons, worth $30.4 billion. Gold holdings in loco London were at the second-highest amount ever, at 9,587 metric tons, worth $543.5 billion.
A US Bankruptcy Court has held the government of the KYRGYZ REPUBLIC in contempt for not responding concerning its seizure of the Kumtor gold mine. The Kyrgyz legislature ordered the mine seized from Centerra Gold without remuneration. This put Centerra’s Kyrgyzstan subsidiary out of business.
The government of the United Kingdom has won a court appeal blocking Venezuelan president Nicolas MADURO from taking the $1 billion of Venezuelan gold from the possession of the Bank of England. The UK recognizes Juan GUAIDO as the rightful president, maintaining that Maduro stole the 2019 presidential election. The case is now being appealed to the UK Supreme Court.
SIBANYE announced that it is looking to shutter all three of its gold mines in South Africa over the next decade. It’s become too expensive to dig that deep for the returns they are seeing.
Speaking of gold production, FITCH SOLUTIONS estimates that global gold production will rise 5.7% this year, as gold mines that had to shut down last year due to workers getting COVID start coming back online.
The government of EGYPT has awarded four exploration contracts to Barrick Gold, to search for gold in the Eastern Desert. This region has supplied gold to Egypt since the time of the earliest Pharaohs.
TD SECURITIES thinks that the stock market is being overly hawkish on inflation. They believe that the current inflation spikes will retreat as supply lines are unkinked. It expects gold to get back to $1,900 an ounce once the markets realize that they’ve overestimated future inflation.
Joe Foster at VANECK takes the opposite view on inflation. He doesn’t expect the inflation rate to moderate anytime soon, and thinks that the Fed may wait too long to react. He says in that case, gold has a decent shot at $2,000 by year’s end.
Different inflation views, but both see higher gold prices.
Economist Peter BOOCKVAR says “the Fed is playing a game of chicken that they are going to lose” with inflation.
CREDIT SUISSE analysts note that the last time Treasury yields were so negative in real terms, gold was pushing up against $2,000. They say that they see no reason it shouldn’t turn around soon and make another run.
SHARPS PIXLEY has revisited their January precious metals forecast, and now expect gold to reach $1,975 an ounce, and silver $29.50 by the end of the year.
China is importing gold through HONG KONG again. Net gold imports through Hong Kong were 21.8 tons in May, and 30.9 tons in June. A total of 130 tons of gold was imported by China through Hong Kong in the first half of 2021.
To keep a lid on speculation, Chinese banks have started refusing to open new commodity spot trading accounts for investors.
INDIA imported $7.9 billion of gold in the April-June 2021 quarter. This compares to $658 million in gold imports during the same quarter last year.
Looking Ahead To Next Month
Gold prices usually start to recover from their summer lethargy in August, but “normal” left the economy more than a year ago. If we continue to get “good but not great” economic news in August, bond yields should stay low, and the dollar should see some weakness. Both would be good for gold. (Not investment advice!)
We may be getting another spending bill from Congress next month. At least this one is supposed to rebuild all the bridges that are falling down. Regardless, it’s more money being pumped into an economy that’s drowning in it.
There’s no FOMC meeting in August, so investors and analysts will be watching the annual meeting of central banks at Jackson Hole, Wyoming for monetary clues.
ON THE HYPERINFLATION FRONT…
What do you do when your money is totally worthless? If you are an artist living in Venezuela, you glue it to a board and use it as a canvas to paint on.
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