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 November?
November ended up being a battle to keep gold prices above $1,850. Bulls managed to run a rally above $1,850 for seven straight sessions in mid-November, but gold bears started selling into every rally for the rest of the month.
The bears, assisted by Fed boss Jerome Powell, succeeded in dragging prices lower to end the month at $1,776 an ounce. The high for spot gold in November was $1,867.30, hit on the 17th. The spot gold low for November was $1,769.30, on the 3rd.
Factors Affecting Gold This Month
The US, UK, Europe, and China were all coping with much higher than expected inflation this month, with consumer inflation hitting 30-year highs in many instances.
Wholesale prices in the US hit an all-time high in November, rising 8.6%. Like most other economies, the main culprits were food, gasoline, and energy. The CPI report showed retail inflation hitting a 31-year high of 6.2%.
On the same day as the CPI numbers were released, the dollar hit a high for the year, and the yield on the 10-year TIPS inflation-adjusted Treasury bond hit an all-time low of -1.243%. The yield on the 10-year TIPS is often used as an indicator of real interest rates.
CHINESE HOUSING MARKET CONTAGION
The slow-motion implosion of giant Chinese real estate developer Evergrande continued in November. Many people are still unconvinced that the Chinese government can control the meltdown since many other developers are also overleveraged. Several smaller companies have already defaulted on their loans.
Stabilization of the real estate market is vital for the Chinese Communist Party since it accounts for nearly 25% of the nation’s economy. The failure of the real estate market could provoke social unrest that may challenge the Party’s grip on power.
The Fed is worried that a real estate crisis in China could jump the Pacific and cause an economic crisis for the US. Chinese real estate corporations are not only in debt up to their eyebrows, they’ve expanded into many different areas. If Evergrande collapses, it will drag several other market sectors with it.
CENTRAL BANK INACTION
Uncertainty over just when the major central banks will start raising rates is keeping gold prices on the back foot. A widespread view by markets in November was that the world’s central banks needed to catch up with reality and realize that inflation is not, in fact, transitory. Most analysts agree that rate hikes (not just tapering) MUST come sooner than the central banks are telegraphing.
DEUTSCHE BANK calls this global loss of confidence in all the central banks at the same time the largest global financial shock since the Bretton Woods agreement in 1944.
As expected, the Fed left interest rates alone in its November meeting on the third. It did, however, announce the expected start of tapering its $120 billion per month purchases by $15 billion a month. At this rate, QE should end next June.
Fed Chairman Jerome Powell re-emphasized that ending QE does not automatically mean that the next move is a rate hike. He also kept pushing the idea that the US was still not at maximum employment, and that inflation was still being caused by temporary supply bottlenecks.
Former Federal Reserve governor Robert Heller says that Powell is being too timid with his tapering policy. Telling CNBC that “There shouldn’t be any purchase of mortgage-backed securities in this booming housing market,” he called on the Fed to stop dragging its feet and cut the taper by 50% a month to end QE in two months. He also said that if it was up to him, he’d have the first interest rate hike early next year, to get things back to normal faster.
On November 30th, Powell crushed a $25 gold rally with his remarks in testimony before the Senate. Changing his views on inflation, he admitted that high inflation was no longer transitory, and agreed with other Fed officials that they should discuss accelerating the taper at the December meeting. At the same time, Powell’s words shot the dollar straight up from a low of 95.55 to 96.63, further weighing gold down.
ECB boss Christine Lagarde says that the central bank will stick with its accommodative policy, despite inflation in the EU running at more than 4%. She asserted that tightening policy would do more harm than good right now. Lagarde cited extreme energy prices over the winter and the fragility of the economic recovery in Europe as reasons to hold off on tapering.
BANK OF ENGLAND
In a surprise move, the Bank of England left interest rates at 0.1% in November, after talking for weeks about raising them. Even though the Bank took no action, BoE boss Andrew Bailey told reporters that “the warning signs are there” on inflation.
The larger worry for the central bank is that Brexit-induced damage to the economy could lead to stagflation. It’s far easier to fight inflation than stagflation, so they decided to take a “wait and see” approach on interest rates.
RESERVE BANK OF AUSTRALIA
The RBA yielded to market pressure this month and abandoned its policy of trying to control the yield curve on the nation’s bonds. This action reduced the odds of an imminent rate hike by the Bank of England or ECB.
Central Bank Gold Purchases
This month’s central bank gold report from the World Gold Council covers September.
The Reserve Bank of INDIA showed up big in the gold market again in September, buying 19.6 tons. This follows 14 tons purchased in August. POLAND is working towards its goal of adding 100 tons to its gold reserves by the end of next year, but it will take larger purchases than the 1.6 tons in September to meet that goal. RUSSIA added 3.1 tons of gold, which might be from domestic sources. UZBEKISTAN kept up its steady pace of building up its gold reserves, adding 8.4 tons. This is the third month in a row that the Uzbek central bank has purchased at least 8 tons of gold.
In late-breaking news this month, the central bank of SINGAPORE is just now revealing that it purchased 16.4 tons of gold in May this year, and 9.95 tons in June.
The central bank of TURKEY had to dump 20.8 tons of gold onto the market in an attempt to prevent the Turkish lira from becoming completely worthless. As long as President Erdogan keeps his Bizarro World idea that high interest rates cause high inflation and low interest rates mean low inflation, the Turkish economy is taking the express train to hyperinflation.
Gold-backed ETFs saw a net 25.5 tons of outflows in October, with most of the losses coming from North America and Europe. Asian gold ETFs saw minor inflows, mostly from Chinese investors preparing for a continued economic slowdown.
North American gold ETFs saw 14.7 tons of outflows, with most of that naturally coming from US firms (-14.4t). British investors once again led the charge out the door in Europe in October, with 7.7t of outflows. The rest of Europe combined saw 12.3 tons pulled from gold ETFs for the month, while Asia saw 1.3 tons of inflows.
The World Gold Council notices that the amount of physical gold stored in LBMA-approved vaults worldwide increased at the same time gold ETFs were seeing these outflows. This is perhaps an indication that some of the gold ETF investors are cashing in their “paper gold” for the real thing.
Dollar and Forex
The dollar worked its way up from a low of 93.86 on November 3rd, to a high of 96.88 on the 24th. This strength in the greenback was fueled in large part by a euro that saw pressure from several fronts. This included new COVID lockdowns and a central bank that refused to react to EU inflation hitting a 30-year high.
The British pound, which is the second-largest component of the DXY dollar index, had troubles of its own. Astronomical gasoline and energy prices are causing an economic slowdown and erosion of public sentiment. Threats by the UK to unilaterally cancel parts of the Brexit agreement have soured relations with the EU, and further threaten Britain’s economy.
On The Retail Front
The US Mint continued to see strong gold bullion demand in November. It sold 126,000 ounces of American Gold Eagles of all sizes and 39,000 one-ounce Gold Buffalo bullion coins. This totaled sales of 165,000 ounces for the month, bringing the YTD total to a 12-year high of 1,541,000 ounces.
Sales of American Silver Eagles weren’t especially strong this month, with 1,447,000 ounces sold. This brought YTD ASE sales to 28.8 million ounces. Sales totals for 2021 have been greatly hampered by shortages caused by the switch to a new ASE design. This led to no Silver Eagles being sold at all in May.
Famous fund manager Bill Ackman says that it’s way past time to take away the free money sloshing around in the stock market. He calls for the Fed to start tapering QE and to start raising rates NOW.
Billionaire hedge fund manager Ray Dalio says “Cash is not a safe investment, is not a safe place because it will be taxed by inflation.” He also says that the trillions of dollars of new money that the Fed has printed have caused the stock market to become overheated.
“You can’t raise living standards by raising the amount of money in credit in the system because that’s just more money chasing the same amount of goods… It won’t raise living standards in an important way. As inflation then begins to bite, it has political consequences.”
Mike Larson of Weiss Ratings says that everything is overpriced except precious metals and mining stocks. He thinks that fears that the Fed will have to hike interest rates earlier than planned to fight spiking inflation is keeping gold prices down.
He expects that gold will break last year’s record high price by hitting $2,200 to $2,400 an ounce next summer.
Billionaire CEO of Twitter Jack Dorsey tweeted recently that “Hyperinflation is going to change everything. It’s happening.” Later he added that it would start in the US, then spread to the rest of the world.
Swiss gold exports to China hit a 4-year high in October.
An analyst at Goldman Sachs says that the reason gold isn’t $2,000 an ounce right now is that most people in the market believe the Fed that the current high inflation is “transitory.” Once it becomes obvious that inflation is here to stay, gold will regain the $2,000 mark. He expects that to happen early next year.
JP Morgan has settled yet another class-action lawsuit over its manipulation of precious metals prices. It’s paying $60 million this time to make it go away.
There’s a growing consensus that gold prices will recover as soon as COVID lockdowns in India and other Asian nations are lifted, which will cause gold jewelry demand to jump.
Looking Ahead To Next Month
We’re approaching the end of the year, when everyone rushes to use up their paid time off, fund managers rebalance their portfolios, and investors start making moves to minimize their tax liability. This will all combine to make for shallower markets, where determined big players can move prices more easily. It may pay to be nimble, even in the gold market, if an opportunity presents itself.
I have two stories to end the month. In a stark illustration of how bad illegal gold mining is in South America, more than 400 illegal gold dredging barges converged on a river in Brazil, after rumors of a gold discovery there. Tied up together in long lines, they worked the riverbed in plain sight before rumors of a government raid caused them to flee. Of the 400-ish barges, Brazilian law enforcement only caught sixty-nine.
Our treasure story comes from Bavaria, where workers were enlarging a waterway after it burst out of its banks during the recent deadly floods in Germany. The workers dug out more than 5,600 ancient Roman silver denarii, weighing around 33 pounds! The stream runs near the site of a major Roman fort that evolved into the city of Augsburg, which is now the third-largest city in Bavaria. The oldest coins date from the reign of Emperor Nero.
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