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 December?
The gold market was a volatile battlefield in December, with bulls and bears waging war around the $1,800 level. Rallies were routinely sold into, which bulls saw as a buying opportunity. Some of this selling, best seen in gold ETF outflows, was likely due to margin calls as stocks stumbled under the dual expectations of recession and stagflation as the Fed showed no sign of stopping in its quest to sacrifice consumers in its efforts to stop inflation.
Investors stampeded out of both stocks and bonds during the month, providing a tailwind to the dollar. The higher dollar in turn was a headwind to gold.
Factors Affecting Gold This Month
INFLATION
Inflation news continued to dominate all markets, due to the influence it would have on Fed rate hike policy. For example, CPI came in lower than expected on December 13th, 7.1% versus estimates of 7.3%. This shot gold up by $40 to break above the 200-day moving average before settling at $1,825. The dollar went the other way, gapping down from the 104 range to the 103 range.
Things went the other way on December 22rd, as the final reading of third-quarter GDP came in hotter than expected, signaling that the economy (and inflation) were still running hot. Third quarter GDP rose by 3.2%, compared to the previous reading of 2.9%. This increase locked in further rate hikes for 2023. Markets reacted as expected, with the dollar zooming higher, gold losing $30, and stocks falling.
CENTRAL BANKS
The Fed tossed a bomb into the markets at this month’s FOMC meeting when the “dot plot” of Fed officials’ forward guidance on interest rates showed that most saw rates rising higher than 5% next year. Everyone was caught off guard because the Fed had slowed down the rate of interest rate hikes to 50 basis points as expected, but certainly did not expect this.
The market reaction got worse when Fed Chairman Jerome Powell said that the Fed was not planning to cut rates until 2024.
The Bank of Japan gave global markets a HUGE shock when it loosened strict yield curve controls on the 10-year bond with no warning. The BOJ doubled the allowed trading range on the 10-year yield from 25 bp to either side to 50 bp. BoJ president Kuroda said the emergency measure was taken to correct “yield curve distortions.”
The news immediately smashed the dollar and sent gold up $20 in the Asian trading session on safe haven demand. The dollar hit a 4-month low versus the yen, and the yield on the Japanese 10-year bond shot to 0.46%, the highest yield since 2015. Shares in Asia and Europe plunged on the news and bond yields spiked. The 10-yr Treasury yield in the US jumped from 3.6% to 3.7%, and gold ended the day $27 higher.
MARKET LOSSES
Equity and bond fund outflows hit multi-year highs as investors fled the stock market plunge and climbing bond yields. Equity funds saw the largest outflows in three months during the first week of December, as the Dow had its worst week since September.
This was just the tip of the iceberg, as investors moved en masse out of stocks and bonds and into cash. The third week of the month saw equity funds drained by 33.6 billion dollars – the worst week for equity fund outflows since the COVID stock market crash in March 2020. Bond funds also saw massive outflows for the week, down $14.1 billion. Much of that money went into money market funds, which saw $41 billion of inflows for the week.
The risk-off atmosphere over market gyrations fought with dollar strength to influence gold prices, leading to excessive volatility leading into the new year.
Central Bank Gold Purchases
Central bank gold purchases reached 31.2 tons in October. The top buyer was the United Arab Emirates, buying 9.3 tons. Turkey followed with 8.9 tons, with Uzbekistan right behind them at 8.7 tons of gold purchased.
Other central bank gold buyers were Kazakhstan (2.6 tons), India (0.9 tons), and Qatar (0.8 tons). There were no sellers.
The World Economic Forum notes that central banks bought the most gold in 2022 since 1967, when the world was still on the Bretton Woods gold exchange standard, where the US pegged gold at $35 an ounce.
Gold ETFs
Global gold Exchange Traded Funds (ETFs) saw outflows in all regions in November. This was the seventh consecutive month of net outflows. The only region with net inflows for the year is Europe, where rampant inflation and food and energy shortages have kept safe-haven demand high.
North American gold ETFs saw 20.6 tons of outflows.
European gold ETFs saw 11.2 tons of outflows.
Asian gold ETFs saw 1.5 tons of outflows.
“Other” gold ETFs saw 0.7 tons of outflows
(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE.)
On The Retail Front
There were no bullion coin sales at the US Mint in December, as production shifted to having enough 2023 Silver and Gold American Eagles to meet demand in January. (I’ll bet a dollar that they will run out before the end of January again.)
Michael White, spokesman for the US Mint, said that bullion coin production stopped back in September in order to start striking 2023 coins.
—————
The Perth Mint sold 114,304 troy ounces (oz) of gold and 1,315,293 oz of silver in minted product form during November. This was a drop of 38% and 34% from the previous month, respectively.
Market Buzz
Gerhard Starsich, CEO of the Austrian Mint, told Reuters this month that “demand for gold has never been as high as this year.” Long lines form at the Mint’s retail store daily. “At the moment, every gold coin that comes off the coining press has already been sold,” said Starsich. “Right now we could sell three times as many as we are able to produce.”
The Gold Philharmonic by the Austrian Mint is the most popular gold bullion coin in Europe.
————
Michael Widmer at Bank of America doesn’t see gold taking off from the current $1,800 channel until the second half of next year. He expects gold to be back above $2,000 by the end of 2023.
“Nobody is going to be comparing bitcoin to gold. Nobody is going to be talking about it as digital gold, as a safe store of value, as an inflation hedge. Everybody has pretty much come to the conclusion that it is a speculative asset.”
————
Goldman Sachs agrees, saying in a research note that it expects gold to outperform bitcoin in the long term. Calling gold “a useful portfolio diversifier,” they say that bitcoin is only good for speculation. They note that while gold is useful as a hedge against inflation and dollar devaluation, bitcoin acts like a “risk-on high-growth tech company stock.”
———–
The crypto market as a whole has lost more than $2 trillion in market value from a previous $3 trillion market cap. This doesn’t count the almost $3 billion of investors’ money lost in the cascading failures of large crypto exchanges such as FTX. Neither does it count the more than $3 billion in crypto stolen by hackers this year.
Looking Ahead To Next Month
January is traditionally the biggest month of the year for retail silver sales, and the only thing that will prevent next month from being close to a record is the fact that there simply isn’t that much silver available.
The ongoing silver shortage likely played a role in the US Mint’s decision to end 2022 American Silver Eagle (ASE) production in September, in an attempt to have enough 2023 Silver Eagles to meet demand in January. I expect them to run out before the end of the month, just as they have every January for the last several years.
We end the year with a look at a gold ATM set up in Hyderabad, India, that lets people buy little gold bars with a debit or credit card. A spokesman for the company, Goldsikka, says that the ATM can hold up to 11 pounds of gold.
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.