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 had a worse than usual month in July. It started the month crashing by $42 from $1,807 per ounce to $1,765. As bad as that was, things got worse as the month went on, with spot gold closing at $1,696.40 on July 20th.
The end of the month ended with a bang, thanks to the Fed. They raised interest rates .75% as expected. But in Powell’s post-FOMC press conference, he said that rate hikes were already having an effect on inflation and that the Fed could ease up on the pace of raising rates.
Gold and silver both rocketed higher after Powell’s speech. Spot gold ended the day at $1,734.80, up $17.50, and at a two-week high. It rose another $22 on Thursday to $1,756.80. This was the highest close for gold since July 6th, and marked a rally of 2.3% in a day and a half. Gold had gained another $10 an ounce by the time the futures markets recorded their last settlement for the month on the 29th.
Silver outperformed gold during the same time frame, gaining 47 cents Wednesday afternoon to close at $19.08. Silver rocketed another 94 cents on Thursday, gaining $1.41 over a day and a half for a 6.4% gain. Like gold, silver’s rally wasn’t over yet. It settled another 23 cents higher on the last trading day of the month, at $20.25.
Factors Affecting Gold This Month
INFLATION
July was full of bad inflation numbers for Biden. Consumer prices continued to climb, with the CPI rising 9.1% to a new 40-year high. Producer prices were also higher, with the PPI reading 11.3%. Oil and gas prices were responsible for 90% of that rise in wholesale prices. Core PPI, which removes the volatile energy numbers, actually fell marginally, to 6.4%.
Inflation knows no borders this summer. Inflation in the United Kingdom hit 9.4% this month, a 40-year high. Canada recorded an inflation rate of 8.1%
Putin has restricted oil and gas exports to EU countries that have enacted sanctions against Russia for its invasion of Ukraine, causing an already bad energy situation to get worse. This sent Eurozone inflation up to a record 8.9% to a 23-year high in July. This followed an inflation rate of 8.6% in June.
RECESSION
The yield curve between the 2-year and 10-year Treasury bonds inverted on July 5th, and has stayed that way all month. It ended July at its widest in decades, with the 2-year yielding more than 30 basis points than the 10-year note. This is an almost sure sign of a recession. Since 1955, every time the yield curve has inverted, a recession has followed.
According to the flash GDP estimate for the second quarter, we’re already in a recession. The -0.9% reading was a surprise to experts, who were looking for a 0.5% gain. This second straight contraction in the economy is the textbook definition of a recession. GDP fell by 1.6% in the first quarter.
DOLLAR
The dollar spent July crushing all competitors. While this made gold more expensive overseas, it depressed gold prices in the US. The greenback took no prisoners in the first half of the month, rising from a shade above 105 on the DXY index, to more than 108 in the 15th.
The dollar’s domination of the currency markets combined with recession fears in the EU sent the Euro down to parity with the dollar for the first time in 20 years. The euro was supported later in the month by the ECB finally taking action, bringing the DXY back down to a range between 107 and 106.5 to end the month.
Central Banks
All central banks continued trying to walk a tightrope between slowing down inflation at 30-year highs, while not plunging their country into recession. The Fed caught a little bit of a break this month when the dollar shot up like a rocket. This made imports, including oil, cheaper for Americans, and relieved some inflationary pressure.
The European Central Bank finally took action on the inflation front, raising rates a much-higher than expected 50 bp, and abandoning forward guidance. It is still trying to limit the government bond yield spread between distressed countries like Italy and the more stable countries in northern Europe by intervening in the market.
In Asia, the central bank of South Korea hiked rates by 50 bp to fight inflation that is at a 24-year high. The Australian central bank hiked rates by 50 basis points as well, bringing it to 1.35% Benchmark interest rates in Australia were only 0.1% in April.
Central Bank Gold Purchases
The latest central bank gold report covers the month of May. Globally, central banks added a net 34.7 tons to their gold reserves. Turkey was the biggest importer, buying 13.3 tons. The ‘stans became buyers again, with Kazakhstan adding 6.3 tons and Uzbekistan adding 9 tons of gold. The Qatari central bank purchased 4.7 tons, and India added 3.8 tons of gold.
Germany posted sales of 2.4 tons from its central bank gold reserves, but this is assumed to be a bookkeeping entry to move the gold over to the Finance Ministry for use in making bullion coins.
Ukraine’s central bank revealed this month that it has had to sell more than $12 billion of its gold reserves to buy necessities since the Russian invasion on February 24th.
Gold ETFs
The second quarter ended on a sour note for global gold-backed ETFs. June saw a net 28.5 tons of outflows, bringing quarterly net outflows to 38.8 tons. Year to date, however, global gold ETFs have seen 233.9 tons of inflows.
North American gold ETFs saw the greatest losses in June, with 25.6 tons of outflows. European gold ETFs also saw outflows, but far lower than the US. Only 4.1 tons of gold exited European gold ETFs in June.
Asia saw a small uptick in gold ETF inflows, bringing in 1.1 tons. The “Other” nations saw a measly 100kg of inflows.
On The Retail Front
Preliminary bullion sales figures from the US Mint show that 35,500 ounces of American Gold Eagles were sold in July, alongside 23,000 ounces of Gold Buffalo coins. American Silver Eagle sales show only 425,000 sold, illustrating the difficulty in the Mint obtaining silver coin blanks.
15,000 American Platinum Eagles were sold in July, according to advance sales figures. This is the second month in a row that the Mint has opened sales of the Platinum Eagles, after selling 23,500 in June.
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Britain’s Royal Mint reported gold bullion sales increased 8% in the second quarter, compared to the first quarter. Silver sales were up 47% during the same time period.
Market Buzz
A former JP Morgan precious metals trader on trial for gold price manipulation testified that everyone in the unit was spoofing prices and scamming clients for years before they were caught.
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Digging into the question of why it is taking years for the central bank of Austria to transfer its gold reserves from the Bank of England to the Swiss central bank, Jan Nieuwenhuijs found out that there was nothing nefarious going on, despite the rumors of the gold not being there.
It seems that all the gold from the Swiss central bank has been moved to an underground government bunker deep in the Swiss Alps while the bank’s vaults are being enlarged.
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Bloomberg Intelligence cites falling prices for base metals as an indication that inflationary pressures are already easing. They say that this is creating favorable conditions for gold to break out in the second half of the year.
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MKS PAMP agrees with this assessment, saying a worse-than-usual summer for gold has set up prices for a resurgence going forward.
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So much for that cut in gold import taxes in India. The government moved the tax rate from 7.5% back up to 12.5%. This is probably because gold imports in June soared to 49 tons, compared to 17 tons a year ago.
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Courts in the UK have once again blocked the socialist Venezuelan government from taking control of the $1 billion of the nation’s gold reserves that is stored at the Bank of England. They are supporting the claims of opposition leader Juan Guaido, who says Maduro stole the election, and that he is the rightful president.
Looking Ahead To Next Month
The Fed says inflation is slowing down, and it might be, for certain parts of the economy. Base metals prices are lower, for example. Consumer electronics prices are also falling, as people forego the latest iPhone or widescreen TV.
On the other hand, nationwide droughts will keep food prices high for the foreseeable future, as crops fail and livestock dies from heat exhaustion. The big oil companies aren’t helping the consumer, making the highest profits in history this quarter but refusing to lower gas prices.
Gold is looking forward to a better August, after a worse-than-expected summer slump. The fall wedding season and festivals in India are expected to push gold demand sharply higher. Domestically, the Fed’s signal that it expects to ease up on the price hikes has investors focusing more on the odds of a recession. This is putting more emphasis on gold as an alternate investment to stocks.
Silver’s recent outperformance of gold may finally be reflecting the ongoing bullion shortage. If the US Mint can ever get enough silver coin blanks, ASE sales will jump back up to where they should be to meet demand.
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This month’s bonus link is about retired real-estate developer and seismic-construction expert Howard Mintz’s 312-acre survivalist compound (really, a mansion) in remote New Mexico that has gone on the market with an asking price of $30 million. The Wall St Journal, which reported on the listing notes:
“Accessed by a long driveway in the wilderness bordering the Carson National Forest, the reinforced-concrete home has its own water supply, a year’s worth of propane, a solar energy system, multiple backup generators, and even a herd of yak.” The property includes a guesthouse, gatehouse, and a large barn and horse facility. Where’s my lotto money?
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