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 affect gold prices.
What Did Gold Do in October?
Gold gained $139 in October. Unfortunately, most of those gains were paid for in the blood of Israeli civilians.
Gold hit a 7-month low of $1,831 on October 5th. It gained $58 on the 10th to break above the $1,900 mark to settle at $1,941. By the 19th, it was permanently above $1,980. Spot gold prices jumped more than $20 to close above $2,000 on Friday, the 27th, as Israel announced an imminent ground invasion of Gaza for the upcoming weekend
Factors Affecting Gold This Month
ISRAELI-HAMAS WAR
At 6:30 am on a holiday Sabbath, more than 3,000 Hamas terrorists burst through the border of the Gaza Strip and massacred 1,400 Israelis, mostly citizens. This was the largest single-day death toll in Israel’s history. Israel immediately launched a massive counterattack.
Gold prices surged nearly $100 an ounce over the next week on widespread fears that Hezbollah (which is ten times the size of Hamas and has actual military units) would take the opportunity to invade Israel from Lebanon and Syria in the north while the IDF was in the south. Aside from limited rocket attacks (Hezbollah) and airstrikes (IDF) a northern front has failed to materialize.
BOND YIELDS
The biggest domestic effect on gold in October was from bond yields. Yields, in turn, were driven by market estimates of inflation. Big moves in bond yields in October triggered big moves in the opposite direction by gold, reinforcing the traditional negative correlation between the two.
Geopolitical safe haven demand sparked by the Israeli-Hamas war temporarily reversed that negative correlation a few times this month, but hot economic and inflation data remained the primary driver for both. The yield on the 10-yr Treasury note started the month below 4.6% but made several runs at 5% yields later in the month over panic that the Fed would reverse its decision to pause rate hikes on November 1st.
DOLLAR
The dollar, in contrast, kept up a positive correlation with gold for most of the month. The unusual linked behavior meant that a rising dollar during gold rallies suppressed the highs for the month, but a falling dollar helped cushion the lows.
The DXY dollar index began the month at 106, briefly popped from 106 to 107 midweek, and then spent the rest of the month oscillating between 105.5 and 106.5.
Central Banks
FED
Federal Reserve Governor Christopher Waller said this month that the Fed can afford to stand pat on rates while it observes the delayed effects of previous rate hikes.
Philadelphia Fed president Patrick Harker said that the Fed is unlikely to raise rates on November 1st after the massacre of Israeli citizens by Hamas and the Israeli counterattack had upended global markets.
Atlanta Fed president Raphael Bostic said that he did not anticipate a Fed rate cut until the end of next year.
NO MORE 2%?
San Francisco Fed president Mary Daly says that perhaps that target rate of 2.5% is too low. She says that the “neutral rate,” where interest rates are neither too easy nor too tight, may have already risen to 3%.
This is a minority opinion, at least for now. Most current and former Fed officials believe that changing the neutral rate in the middle of their fight against inflation would ruin the Fed’s credibility and force other central banks to follow suit, even though it would cause major problems in their own fight against inflation.
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The Bank of Canada held rates steady at 5% again but forecast greater inflationary pressures going forward as spending by the Federal and provincial governments pushes demand higher than supply. Housing affordability, in particular, was flagged as a continuing problem.
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The European Central Bank paused its interest rate hike this month after ten straight hikes. Officials said that while inflation would stay too high for too long, the ECB was seeing enough improvement to not raise rates further at this time.
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The Bank of Japan made a surprise intervention in their bond market at the start of the month, buying up billions of dollars of government debt to prevent the 10-year yield from hitting 1%. Keeping 10-year yields below 1% is a major policy point for the BoJ.
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The Russian central bank raised interest rates from 13% to 15% in an attempt to rein in inflation and counteract ruble devaluation.
Central Bank Gold Purchases
Just about everyone dipped their toes into the gold market in August, according to this month’s Central Bank Gold report from the World Gold Council. Ten different central banks combined to purchase 76.9 tons of gold.
The big buyer in August was China, at 28.9 tons. We all know that this is only a fraction of what they’re really buying. They are using these official numbers to send a message about supporting de-dollarization.
Poland and Turkey were next, buying 14.9 and 14.7 tons, respectively. The Uzbekistan central bank shows up in the buyer’s column next, with 8.7 tons. Russia is in 5th place, adding 3.1 tons of gold to its reserves.
India (1.9t), the Czech Republic (1.7t), and Singapore (1.6t) all come in between 1 and 2 tons, with two other ‘Stans (Kazakh and Kyrgyz) with minor purchases of 0.5 and 0.7 tons.
The only central bank to sell gold in August was Mexico, again at only 100 kg. This is likely another gold transfer to the Mexican Mint for the fabrication of bars and coins to sell to the public.
Gold ETFs
It was another big month of outflows for global gold ETFs in September. North American funds lost 35.3 tons, European gold ETFs lost 28.2 tons, but Asia gained 4.6 tons, probably due to gold shortages in China.
(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE.)
On The Retail Front
Gold bullion coin sales were much larger in October compared to September. Sales of American Gold Eagles of all sizes in October totaled 102,500 oz, more than twice as much as in September. America Gold Buffalo sales were 33,500 oz, almost twice September’s 18,500 oz.
Sales of American Silver Eagles were 3,306,000 oz, the best month since January’s 3.949 million oz.
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Gainesville Coins is selling Random Date American Silver Eagles for $3 less than our major competitors right now.
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Perth Mint silver sales in September hit their highest level since June, while gold sales were only marginally higher than in August.
September sales of gold bullion bars and coins totaled 36,530 oz, 4.75% higher than August. This was 59% lower year-on-year.
Perth Mint sales of bullion silver coins and bars in September were 1,111,779 oz, 45% higher than in August. However, this was still 57% lower year-on-year.
The September sales report noted that sales of 2 oz silver bullion coins exploded in the US, with more than 550,000 coins shipped.
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The Pobjoy Mint suddenly announced that they were shutting down. Pobjoy was famous for many coin minting innovations, as well as their Golden Noble and Manx Cat coin designs.
Competition from larger mints that adopted those same innovations, notably the Royal Canadian Mint, ate away at Pobjoy’s market share.
Market Buzz
IS THE BOTTOM IN FOR GOLD PRICES?
This was the question being asked right before the outbreak of war in Israel. This theory is supported by the apparent top in the dollar rally.
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Global central banks have been snapping up record amounts of gold since the start of 2022 – a trend that should continue as countries look to move away from an “overconcentration” of reserves in the dollar, according to State Street Global Advisors.
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The Russian Finance Ministry announced that it would spend $4 billion in October on gold and foreign currencies (except for the dollar and euro).
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Commerzbank dropped their prediction of the end-of-year gold price by $100 this month to $1,900. They still see $2,100 by the end of next year.
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Jan Nieuwenhuijs takes a look at the gold market last month: Gold Held Up Extremely Well in September Against Rising Real Rates (At gainesvillecoins.com)
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PGM GLUT
PGM prices are down 50% in dollar terms and about 30% in rand terms since the start of 2023.
Amplats earnings dropped by 70% in the first half of 2023, which has led to them announcing the postponement of their Limpopo mine expansion. Implats and Sibanye-Stillwater are in the same boat, warning of layoffs.
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The ongoing collapse of the Treasury market is the worst in the 247-year history of the United States, according to Bank of America.
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ZIMBABWE has made its gold-back crypto token an accepted payment method. It will be subject to half the normal currency exchange tax.
Looking Ahead To Next Month
We’re pretty much winding up the year next month. The US Mint usually stops making Silver Eagles in November to get a head start on next year’s mintage. January is traditionally the largest month for Silver Eagle sales.
Assuming the Fed doesn’t raise rates on November 1st, their next chance doesn’t come until January 31st next year.
Gold is up 8.6% this year so far. If we have a good November, there will surely be some profit-taking in December.
Our treasure story this month is a follow-up to the secret FBI confiscation of the Dents Run Civil War gold hoard:
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