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.
This is an abbreviated Month in Precious Metals column, due to Hurricane Ian striking southwest Florida.
Factors Affecting Gold This Month
INFLATION
Inflation indicators resumed their climb in September after some slightly encouraging signs that it might be topping out in August.
Average inflation in the EU hit a record 10.0% this month, putting the ECB in a tough spot in its efforts to break the grip of stagflation. Any EU nation that isn’t already in a recession is on the cusp, while the continent-wide energy crisis is choking industrial production. It’s also practically eliminating discretionary consumer spending, as an increasing number of households will face the nightmare of deciding between heat and food this winter.
RATE HIKES
The Fed hiked interest rates another 75 basis points in September to 3.25%. The upsetting part was the anonymous Fed “dot plot” of future rates. This revealed that Fed leaders expected interest rates to be around 4.5% by the end of the year.
Since there are only two more FOMC meetings this year, this predicts at least one more 75bp hike before Christmas.
U.S. DOLLAR
The dollar continued to rampage through the currency markets like Godzilla through Tokyo in September. The collapse in the Japanese yen forced the Bank of Japan to intervene, the euro fell far below parity, and the surprise unfunded spending plans of the new UK government pushed the pound to $1.03 (while causing a financial crisis.)
Central Bank Gold Purchases
August is usually one of the slowest months for gold, and this held true for central bank gold purchases. Central banks added a net 19.6 tons of gold to their reserves in August, but it was all from just three buyers: Turkey (8.9 tons), Uzbekistan (8.7 tons), and Kazakhstan (2.0 tons). There were no other buyers or sellers of note.
Gold ETFs
Gold ETFs saw approximately 51 tons of net outflows in August, as rising bond yields and interest rates pressured gold prices.
North American gold ETFs saw 39.9 tons of net outflows, mostly from US ETFs.
Europe saw a net 4.7 tons of outflows, dominated by the UK (-3.0t).
Asia saw 7.5 tons of outflows, all from China.
The “Other” category (Australia, South Africa, Turkey, Saudi Arabia and UAE) saw a net 1.2 tons of inflows.
On The Retail Front
The global silver shortage continues to bite at the US Mint, which has been unable to satisfy demand for the American Silver Eagle for most of the year. Only 833,000 ASEs were sold in September. 50,000 ounces of American Gold Eagle bullion coins were sold in September, down slightly from the 51,500 oz in August. 38,500 American Buffalo gold bullion coins were sold over the same period, compared to 22,500 the previous month.
Market Buzz
Bridgewater Associates chief investment strategist Rebecca Patterson says “Stagflation is going to kill you.” She sees gold outperforming other assets during stagflation, calling it a bargain at current prices.
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The government of Zimbabwe has introduced a 1oz bullion gold investment coin to the public. 95% of the 8,000+ coins were purchased with Zimbabwean dollars. By allowing people to buy the coins with Zimbabwean dollars, the program has already sucked up enough excess currency to notably strengthen it against the dollar. A 1/10th oz gold coin will be released in November.
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Jan Nieuwenhijs tracks the evidence from Bretton Woods to today, showing that Western Europe has been preparing to implement a gold standard since the 1970s.
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The Chinese government misjudged gold demand this quarter, setting import quotas too low. The resulting unmet demand led to Chinese gold prices spiking.
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With the global silver shortage still gripping the market, it’s little wonder that LBMA and COMEX physical silver inventories have dropped 21%. What Patrick Heller at Numismatic News tells us the numbers are much worse than they look. Half of the silver in LBMA and COMEX vaults is controlled by silver ETFs and investment banks going long on futures.
Looking Ahead To Next Month
Winter is coming, the main pipeline bringing natural gas from Russia to Europe has been sabotaged, and OPEC just cut production to bring oil prices back above $100. Prices for natural gas is set to spike worldwide this winter, even in the US, as Europe and China get into a bidding war for LNG cargoes.
Europe is in stagflation, the new Liz Truss government turned the UK economy into a basket case in its first week, and China’s economy continues to worsen. Until they all can get their house in order, the dollar will remain at historic highs. This will continue to suppress gold and commodity prices.
There’s no FOMC interest rate meeting in October, but there’s little doubt that it will bring another .75% rate hike.
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Desperate people in Lebanon are robbing banks just to get their own money. Large cash withdrawals have been banned for nearly three years. One woman has been imprisoned for withdrawing at gunpoint enough of her own money to pay for her sister’s cancer treatment.
– Steven Cochran of Gainesville Coins
This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.