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 coming off its best quarter since the second quarter of 2020. In contrast, Wall St had a terrible start to the year, posting its worst quarter since the April 2020 COVID market crash.
The 2-year / 10-year bond curve briefly inverting several times the first week of April kept gold bouncing between $1,925 and $1,945 an ounce. Gold prices churned in a narrow $10 range between $1,975 and $1,985 for the next week, then shot upwards on Monday the 18th to more than $2,000 an ounce.
This triggered a huge wave of selling the very next day, with gold plummeting $90 settle below $1,900 the next Monday. The month ended as a battle between the bulls and the emboldened bears below the $1,900 mark.
Gold ended the month with short covering and safe-haven demand helping prices gain against spiking bond yields and the dollar, which was at 20-year highs for the last week of April.
Factors Affecting Gold This Month
INFLATION
The month started with core Personal Consumption Expenditures (PCE) for March coming in at 5.4%, the highest it’s been since the 1980s. The Fed uses core PCE to set monetary policy.The PCE for April was announced on the 29th, showing the core PCE down to 5.2%, giving hope that inflation may be topping out. The headline PCE was 6.4% in March, rising to 6.6% for April.
Those numbers weren’t as bad as more common inflation indicators. CPI for March was up 8.5%, with core CPI at 6.5% Producer prices were up 11.2%, with core PPI rising 7%. Rising gasoline prices accounted for fully half of March’s increase in inflation.
Retail inflation in the European Union was 7.5% both in March and in April, after rising 5.9% in February. European investors have to take the development with a pinch of salt, as the EU is set to ban oil imports from Russia.
Russia had already cut gas exports to Poland and Bulgaria for refusing to pay in rubles instead of euros like the contracts say. With energy prices already accounting for over a third of the rise in inflation, EU economies will feel the pinch even more.
Inflation in the UK hit 7% last month, up from 6.2% to another 30-year high. Despite crazy high natural gas and fuel prices in Europe, inflation remains much higher in the US.
INTEREST RATES
The yield on the 10-yr Treasury note started the month at 2.35% and hit a high of 2.96% on April 20th. The 10-year yield pushing to just under 3% has pulled real interest rates positive for the first time in more than two years. This has pushed 30-year fixed rate mortgages to a 12-year high of more than 5%. With real wages falling, this is locking more people out of home ownership.
RECESSION WATCH
Economists polled by Reuters gave a 40% chance of a recession. Goldman Sachs is nearly as downbeat, saying that there is a 35% chance of a recession in the next two years. Former Treasury Secretary Larry Summers, whom everyone ignored when he said inflation was coming, predicts that the Fed will have to cause a recession on purpose to bring things back to normal.
FOMC minutes revealed that the only reason the Fed did not hike 50 bp in March was concerns over how badly sanctions against Russia would affect the US economy.
The first estimate of first quarter GDP showed a contraction of 1.4%. Analysts were expending the economy to have expanded by 1%. Wall St is already in recession mode, especially the overpriced tech stocks on the Nasdaq. The Nasdaq fell 9.5% this month, and down 19% for the year. The S&P 500 fell 5.4% in April (down 11.5% for the year), and the Dow fell 2.2%, down 7/7% YTD.
China expanded fiscal stimulus at the end of the month to fight against their economy falling into recession due to more massive COVID lockdowns.
Central Banks
FED: There is a growing consensus across Wall St that if inflation keeps rising as rapidly as it has, the Fed will have no option than introducing a “Volcker Recession” to get it under control. The question now is whether it will be a “Mini Me” Volcker Recession, or a “Godzilla” Volcker Recession.
St. Louis Fed president James Bullard says that the comparisons between the economy today and that of the late 70s/early 80s “is not that far off,” pushing for an excessively aggressive series of rate hikes by the Fed. Bullard wants rates to be 3.5% by the end of the year, which would require at least one 75 bp hike.
Some Fed officials are pushing back against such an extreme proposal, afraid that it would damage the credibility of the Fed if it hikes too aggressively, and then is forced to cut rates again.
Cleveland Fed president Loretta Mester said in essence that Bullard needs to cool his jets about 75 bp rate hikes. She says that the Fed will still need more than one 50 bp hike to reach 2.5% by the end of the year, which is high enough.
Fed Chairman Jerome Powell in a speech at an IMF meeting said that there are advantages to “front-loading” rate hikes, and that a 50bp like next month is a possibility.
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ECB officials have been hitting the press circuit, hoping to counter market concerns that the central bank is ignoring spiking inflation that has been made worse by far higher prices for energy and food.
This has been a hard sell, since the ECB declined to raise rates in April. They have succeeded in getting the market to believe that the ECB will abandon its long-standing Negative Interest Rate Policy (NIRP) and have rates back to zero by the end of the year. The first ECB rate hike may be as soon as July.
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The Bank of Canada caught markets by surprise this month by hiking interest rates 50 bp to double rates to 1% – the largest rate hike on record for the central bank. It also announced that it would no longer replace any maturing debt on its balance sheet, letting the total drop on its own. (The Fed still replaces some of the maturing debt on its balance sheet.)
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The Russian central bank cut its interest rate twice in April, to 17% then 14%, It had doubled interest rates to 20% after the economy was hit by sanctions over the Russian invasion of Ukraine.
The head of the Russian central bank, Elvira Nabullina, pulled off a monetary miracle by rescuing the ruble from record lows and bringing it back to pre-war levels. She was assisted by the government passing capital controls that forced Russian coporations to convert most of their overseas profits into rubles, pushing up demand for the currency.
Central Bank Gold Purchases
This month’s Central Bank Gold Purchases report covers February.
Globally, central bank gold reserves fell by six tons. This is the second month in a row for a net decline in central bank gold reserves.
Uzbekistan was once again the largest seller of gold, shedding 22.1 tons to bring its total to 339 tons. The Qatar central bank sold 6.1 tons of gold in February. Kazakhstan was also a gold seller, selling 5.1 tons. Mongolia sold 1.1 tons and Germany sold 0.6 tons of gold.
Turkey was the big gold buyer in February, purchasing 24.8 tons. India bought 2.6 tons of gold, while Ireland continued to build its gold reserves, adding 1.2 tons. The Irish central bank confirmed that it has doubled its gold reserves from 6 tons to 12 tons over the last 12 months.
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In other news about central bank gold purchases, the Russian central bank announced that it would purchase gold from domestic banks at 5,000 rubles per gram. This policy was abruptly canceled after the ruble rallied to pre-invasion levels.
Gold ETFs
Runaway inflation and a land war in Europe send investors running to gold ETFs in March. The 187.3 metric tons of inflows globally was the best month for gold ETFs since February 2016.
North American gold ETFs saw 100.6 tons of inflows in March, with European ETFs gaining 82.7 tons. Gold ETFs in the UK accounted for 70.9 tons of that, bringing in 38% of all global ETF inflows for the month.
Asian gold ETFs saw their first net inflows of the year in March, dominated by China. There was a total of 2.6 tons of net inflows in the region. The “Other” category saw 1.4 tons of inflows, Australia accounting for 1 ton, and South Africa for 0.4 tons.
On The Retail Front
The global silver shortage continued to choke off Silver Eagle production at the US Mint in April. Only 850,000 Silver Eagles were sold during the month. Some of that demand might be spilling over into gold purchases, as American Gold Eagle sales remain strong. 88,000 ounces of AGEs were sold this month, along with 27,000 Gold Buffalo bullion coins.
The Perth Mint sold 121,977 oz of gold coins and bars in March, an increase of 68% over February. The global silver shortage has some retail investors switching to fractional gold. The silver shortage saw Perth Mint sell 1,649,634 oz of silver coins and bars, only 17,000 oz more oz than in February.
Market Buzz
TD Securities says that Fed rate hikes should affect stocks more than gold, noting that gold has been outperforming other inflation hedges.
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The Reserve Bank of Australia sent an auditor to check on the 80 metric tons of gold that it keeps in the vaults of the Bank of England. This is done every six years or so, according to the RBA, but the auditor is only going to physically check 10% or so of the total amount.
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The central bank of Lebanon is also conducting an audit of its gold reserves – the first one in more than 30 years. The sticking point on this is that they are only counting and weighing the bars, not testing their purity. Given the breathtaking levels of corruption in the Lebanese government for generations, if any central bank has painted tungsten bars in its vaults it would be them.
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The London Platinum and Palladium Market Association has finally joined the LBMA in banning Russian refiners from the spot market. There were only two accredited Russian PGM refiners. Since Russia supplies nearly 20% of the world’s palladium, expect this action to turbocharge the rally in palladium prices.
Looking Ahead To Next Month
Rising interest rates and tighter credit loan requirements are combining with continued supply disruptions and a stronger dollar to destabilize the stock market. The global shortage in investor silver products continues, even as fabricators work extra shifts to meet demand. (How many millions of American Silver Eagles would the US Mint have sold this month if they had had the silver to make them?)
Looking ahead, the biggest headwinds for gold are going to be the incredibly strong dollar, and rising bond yields. The biggest tailwinds will be safe haven demand and demand for inflation hedges.
Our treasure story this month is about a 55-year old father of three finding a super-rare 1,300-year old medieval gold coin [1]. The coin brought nearly $25,000 at auction. The finder will split the proceeds 50/50 with the farmer who owns the field where the coin was found.
– Steven Cochran of Gainesville Coins [2]
Note: This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.