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 January?
Gold kicked the current rally into overdrive in January. Starting the year at $1,829 an ounce, spot gold closed at $1,923 an ounce on January 30th. It began the year hitting a six-month high near $1,850 early on January 3rd before easing, only to claim that level the next day.
Prices marched higher during the second week in January, to close at $1,920 on the 13th. Despite two two-day pullbacks over the rest of the month, prices never closed below $1,900. The closing post high for the month was $1,946 on January 25th.
Factors Affecting Gold This Month
As sticky inflation resists the Fed’s efforts to rein it in, markets and investors see an increasing possibility of recession. The Fed’s rate hikes are pushing consumer debt to crisis levels. The textbook way to reverse inflation is by killing jobs and killing demand. That is, to deliberately push the nation into recession.
Consumer confidence is falling as inflation combines with higher credit card and mortgage payments. Nearly two-thirds of Americans are living paycheck to paycheck, while the value of their stock portfolios and retirement accounts plunge.
There’s little wonder that gold and silver demand (especially silver) continue to exceed supply.
The markets were once again pinning their hopes and dreams on a Fed pivot this month. Rate hike hawk James Bullard once again made the media circuit, but this time with a more conciliatory approach. He said rate hikes were almost as high as they need to be to bring down inflation.
Kansas City Fed president Esther George was a bit hawkish this month, saying that interest rates needed to stay above 5% “well into 2024.” Atlanta Fed head Raphael Bostic said that there was “much more work to do on inflation,” saying that he could go either way on supporting a 25 bp hike instead of a 50 bp hike if the labor market eased up.
The dollar lost its grip in January, boosting domestic commodity prices while giving a little relief to foreign buyers. This helped gold and silver demand, while lending strength to US inflation. Part of this may be investors cutting their exposure to the dollar ahead of the debt ceiling fight in Congress. This is denting the safe haven appeal of the dollar at the same time gold and silver prices are rising.
Central banks around the globe are getting murdered over high interest rates and forex positions gone bad. The Swiss national bank lost 132 billion francs last year, which was 18% of total GDP! The Bank of Canada has posted its first-ever loss, and the Australian central bank basically ate through its capital reserves with a $36 billion loss.
The British government is on the hook for 133 billion pounds through 2028 to save the Bank of England. The Bundesbank stopped sending money to the German government two years ago, and the central banks of Belgium and the Netherlands say that they’re racking up losses as well. The ECB won’t say how much money they’re losing.
The Fed started losing money in September, losing more than $22 billion in the fourth quarter. Losses are expected to top $100 billion a year going forward, until the economy stabilizes.
This is a stark contrast to the time when central banks made money, and remitted their profits to the government.
Central Bank Gold Purchases
Central bank gold buying came up big in November, posting nearly 51 tons of net purchases. This was 47% higher than in October. These gains were almost all due to three nations: China, Turkey and Kyrgyzstan.
The Chinese central bank reported purchasing 32 tons of gold in November. This is the first time China has officially reported gold purchases since September 2019. This was followed by another announcement in January that they had bought 30 tons in December, bringing the “official” total to 2,010 tons.
The second-largest purchase in November was the Turkish central bank, buying 19.3 tons. The only other buyer of note was Kyrgyzstan, which bought 3.3 tons. The central bank of the Czech Republic bought a tiny 400 kg.
The sellers’ column featured Kazakhstan (-3.7 t) and Uzbekistan (-1.6 t).
2022 ANNUAL CENTRAL BANK GOLD PURCHASES
The World Gold Council reports that the world’s central banks purchased a net 1,136 tons of gold last year. At the present spot gold price of $1,927/ounces, that’s $70 billion ($70,380,299,161.16) worth of gold. This is by far the highest year for central bank gold purchases since 1967, when the world’s central banks dumped dollars on the US to buy gold at the below market value of $35 an ounce.
Reuters notes that “Central banks like gold because it is expected to hold its value through turbulent times and, unlike currencies and bonds, it does not rely on any issuer or government.” If the institutions that control currencies are hedging against currencies, perhaps we should all take heed. They certainly don’t seem to have faith in the global economy.
Before we start with December’s numbers, let’s take a look at the World Gold Council’s “Gold ETF Year in Review”:
Globally, physical gold-backed ETFs saw net outflows of 110 tons ($ billion USD) in 2022. Net holdings were 3% lower, at 3,473 tons. It was an up-and-down year for gold, with the Russian invasion of Ukraine causing a surge in safe haven demand. This trend reversed as the war bogged down, and the focus shifted to interest rate hikes by the Fed. Now that it seems that the rate hikes will end soon, these outflows will continue to ease. With gold prices holding above $1,900, interest in gold ETFs should increase.
On to December: Gold-backed ETFs saw net outflows for the eighth sequential month in December. North American gold ETFs broke a losing streak stretching back to April this month, with net inflows of 8.8 tons. European gold ETFs saw a hefty 13.8 tons of net outflows, while Asian gold ETFs saw a scant 800 kg of net inflows. Gold ETF activity in the “Other” sector was basically flat, with 200kg of outflows.
(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE.)
On The Retail Front
On the bullion front, 2022 was a tale of two mints. The US Mint saw disappointing gold and silver demand for the year, while it was the best of times for the Perth Mint, which saw record sales for its gold and silver bullion products.
The US Mint did not release 2023 American Silver Eagle bullion until January 10th this year. Opening day sales hit 3.5 million coins. As of press time, the US bullion sales matrix seems like it hasn’t been updated in a while, as it shows 3,949,000 2023 ASEs sold.
Over on the gold side, 131,000 ounces of 2023 American Gold Eagles were sold on the first day, but the current total on the US Mint bullion page shows just 146,500 ounces sold for the month.
44,000 2023 American Buffalo .9999 fine gold coins were sold on the first day, with the tally sitting at 53,500 coins.
Due to the reporting delays, I will include updated January US bullion totals next month.
Climbing gold prices dented sales at the Perth Mint in December. The total 60,634 ounces of minted gold coins and bars sold was a whopping 47% lower than November, but 10.5% higher than in December 2021. The story was the opposite for Perth Mint silver sales. A little more than 1.6 million ounces of minted silver coins and bars were purchased in December. That was 24.3% higher than last month, but 5.5% lower year-over-year.
The big difference between US Mint sales and Perth Mint sales is that the Perth Mint owns its own refinery and makes its own coin blanks. The US Mint outsources their coin blanks, putting them at the mercy of private refiners who can often get better prices for their silver on the open market.
Over in the United Kingdom, the Royal Mint is busy changing the design of all the nation’s coins to feature King Charles III. This is the first time in nearly 70 years that the “coins of the realm” have not featured the visage of Elizabeth II.
Wrapping up 2022, the Royal Mint said that gold sales in December 2022 were 25% higher than in December 2021. Andrew Dickey, the Royal Mint’s director of precious metals investment, said that there was a significant increase in the number of small gold investors, with the 1 gram and 5 gram gold bars particularly popular as Christmas presents.
British silver also outperformed, increasing by 29% from a year ago. The report revealed that bullion sales to Germany shot 70% higher than the same month last year, while shortages in the US saw sales rise 29%.
The World Gold Council estimated that governments bought nearly twice the amount of gold that they reported in 2022. So, who in the heck gobbled up all that extra gold? The obvious culprits are China and Russia, as they continue to work on de-dollarizing their official reserves. China especially will use government entities other than the central bank to buy gold in order to keep the purchases off the official tally.
Nicky Shiels, metal strategist at MKS PAMP, noted that gold would have been trading $75 an ounce lower if China had really only bought 32 tons.
Jan Nieuwenhuijs discusses “Zoltan Pozar, the Four Prices of Money, and the Coming Gold Bull Market” at Gainesville Coins.
The Peoples’ Bank of China has released 13.6 billion yuan worth of its “digital yuan” into circulation. (That’s only 0.13% of the money supply.)
You’ve heard of blood gold and blood diamonds, but what about “blood tin”? It isn’t a joke. As Western companies are pressed to validate their supply chains for precious metals to insure that they aren’t supporting terrorist groups, the same criminals have moved into base metals such as tin and tungsten.The EU is working on unified standards to root out these “conflict metals” that fund terrorists and criminal cartels.
The analysts over at Bloomberg Intelligence say that all the attention on inflation is masking the real threat – disinflation. They blame the Fed in large part, due to their departure from the bond market. This is driving liquidity dangerously low. Combine this with rate hikes, and commodities and risk assets are facing a monetary doom.
In a bright spot for us, they say that gold is going to hit $2,000 “and never look back” this year as the Fed pivots on interest rates and starts easing.
Ghana, which is seeing a big devaluation in their currency, has started tapping into their natural riches and using gold to buy oil. The first shipment in their Gold for Oil program was 41,000 tons of oil, valued at $40 million.
Speaking of African nations using gold to help with a currency crisis, Zimbabwe’s legal tender gold coin continues to be a rousing success. Fractional coins were introduced in November to help ordinary people who couldn’t afford a one ounce gold coin to preserve their wealth.
Remember how India hiked gold import fees late last year, and everyone said smuggling was going to explode? Yep. When you add all the import fees and sales taxes, Indians are paying 18% over retail for gold. Heavy pressure from all corners are pushing the Modi government to reverse the import duty hike in the next budget, due to be released next month.
The continued silver shortage has some experts predicting that silver prices could break above $30 an ounce, which would be a nine-year high.
Traders in gold futures standing for delivery hit an all-time dollar record this month. More than $1 billion worth of contracts are being redeemed. This is 15% higher than the previous record set last January. Somebody’s really going to be on the hook, now that people actually want the gold that they’ve been selling back and forth in futures contracts.
Looking Ahead To Next Month
It’s Nazi Treasure Time again, this time in Holland. Each year, the National Archives of the Netherlands releases documents that were previously unavailable to the public. This year, the most interesting document is an honest-to-God treasure map drawn by a German soldier during WWII.
It supposedly shows where German soldiers buried ammo boxes full of treasure near Ommeren, Holland. The treasure, supposedly consisting of watches, cut and uncut diamonds, and jewelry were looted from the Rotterdamsche Bank in Arnhem when the vault was blasted open during a bombing raid by Allied forces.
– Steven Cochran of Gainesville Coins
Note: This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.