January 2024 in Precious Metals, by Steven Cochran

Welcome to SurvivalBlog’s Precious Metals Month in Review, presented by Gainesville Coins. Each month, we take a look at “the month that was” in precious metals. We cover gold’s performance and the factors that affect gold prices.

What Did Gold Do in January?

Spot gold started the new year at around $2,060 an ounce. It dropped as low as $2,023 in the second week of the month as everyone rushed to dial back over-optimistic expectations of an interest rate cut in March.

Prices recovered to above $2,050 on the 15th before the bottom fell out, recording a $49 drop from $2,054 to $2,005 on the 16th and 17th.
Factors Affecting Gold This Month

Investors all realized at once in January that they had jumped the gun on expecting imminent rate cuts from the Fed, and prices had gotten ahead of the facts. They rapidly repriced assets across the spectrum, retrenching their bullish bets that the Fed would make its first rate cut in March.
The reversal hit its worst in mid-January, as everyone went into panic mode. The dollar hit a one-month high, Treasury yields jumped, and the odds of a March rate cut fell from 80% to 65% in one trading day. (Note: odds of a March rate cut are only THREE percent as of January 31st.)
Gold was caught up in the turmoil, falling from $2,051 to $2,006 over two days on the 16th and 17th. Prices stayed below $2,030 until the last of the month when April gold futures jumped to $2,067 before closing just before the FOMC announcement. Spot prices fell into the red in the aftermath of Fed chairman Powell’s press conference but rallied to just above unchanged by the end of the day.

The economy in January fed into the Fed’s narrative that it was too early to consider rate cuts. While inflation was lower than the second half of last year, it has begun stalling out. Meanwhile, the economy is still running hotter than expected with interest rates where they are now. This makes the Fed nervous about what the reaction of the economy would be if they cut rates.

The Fed’s caution seemed to have been on the money when December CPI inflation came in at 3.4%, the biggest jump in three months. Core CPI fell slightly to 3.9%. This reinforces the mantra that rates need to stay where they are until inflation shows a sustained drop. This is likely to keep bond yields and the dollar range-bound, muting the support they lend to gold.

Late January saw the specter of a regional banking meltdown return. New York Community Bancorp, which had helped with the wind-down of Signature Bank, announced a surprise $252 million loss in the fourth quarter and slashed its dividend. The market reaction was swift and decisive. NYCB’s stock price fell by 45%, and the US regional banking index was sharply lower.

The news saw gold jump as high as $2,057 before the FOMC meeting and Powell press conference pulled prices into the red to end the day.

Central Banks

The Fed announced on January 31st that it would keep rates at 5.25 – 5.5% as expected, but went out of its way to quash any thoughts of a March rate cut.
The Bank of Canada kept rates at 5.0% for the fourth month but warned of “the persistence of underlying inflation.”
The ECB also stood pat but acknowledged that the ongoing recessions in Germany and France may force it to cut rates before it wants to.
The Bank of England and UK Treasury released a paper saying that they are considering going ahead with a Central Bank Digital Currency (CBDC) that would be known as the “digital pound.” Of course, the new currency has already attracted the nickname of “Britcoin.”

Central Bank Gold Purchases

November was a relatively quiet month for the world’s central banks in the gold market, with them adding a net 44.8 tons to their reserves.

Turkey led the charge, restocking their reserves by adding 25.0 tons of gold. Poland was next, buying 18.7 tons. China was once again in the buyers’ column, purchasing 11.8 tons of gold (that we know of.) The other major central bank gold purchases were the Czech Republic (2.8t) and Kyrgyzstan (1.2t.)

The sellers were the same two central banks we’ve seen on the selling side for several months now. Uzbekistan sold 11.2t, and Kazakhstan sold 3.5t.

Gold ETFs

The World Gold Council Gold ETF report shows 5.3 tons of net outflows for global gold-backed ETFs in December. North American gold ETFs flipped to modest losses of 3.1t, while European ETFs shed 3.2t. That’s much better than the 20t of outflows in November.

Asia was the only bright spot in December, seeing 1.1t of inflows (all in China.) The “Other” nations saw a tiny 0.1t in outflows.

The big losers in December were:
US, seeing 3.1t of net outflows;
UK, with 2.8t of net outflows; and
Germany, shedding a net 1.3t.

(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE)

On The Retail Front

Since the US Mint reports bullion coin sales with a lag, I report the final numbers for the previous month before going into the preliminary numbers for the present month.

Since US Mint bullion sales in December are just clearing out the remainder of the year’s production, there was no change to the numbers we reported last month.
525,000 Silver Eagles;
17,000 oz of Gold Eagles in all sizes; and
5,500 Gold Buffalos.

2024 Silver Eagle sales in January stood at 4.9 million ounces, according to US Mint numbers.  This amount will certainly be higher, as the Mint cannot fill wholesaler requests fast enough. If the Mint pushes that number just a little higher to break 5 million, they can beat 2017’s 5,127,500, hitting a seven-year high. That would be a nice way to start the year!

Sales of 2024 American Gold Eagles of all sizes stand at 119,500 ounces, another number that will likely end higher. 2024 Gold Buffaloes total 46,000 ounces so far. We’re expecting that final number also to be higher.
Perth Mint bullion sales in December were another disappointing month. Bullion gold coin and bar sales were 36,297 oz., down 32% from November and 40% from December 2022. December silver bullion coin and bar sales totaled 681,490 oz. That was up 1% from November but down 58% from December 2022.
Reuters reported that Perth Mint’s annual bullion sales for 2023 were at a four-year low.

Market Buzz

The South China Morning Post reports that gold jewelry and bullion sales hit a record last year as the middle class fled a falling stock market and a weaker yuan in favor of gold to preserve their wealth.
Vault inventory at both COMEX and the Shanghai Gold Exchange are at the lowest levels since 2020.
The Lunar Year of the Dragon begins on February 10th, pointing to one reason for the scarcity of gold in China. That said, gold premiums have fallen to just $3 per oz above the London spot price.
Gold prices have held above $2,000 for ten straight weeks. We may have already become spoiled due to multiple all-time highs for gold, as we have started stressing here when the price gets below $2,025!
Analysts at JP Morgan said, “The only structural bullish call we hold is for gold and silver.” in a recent report. Falling inflation and a weaker dollar are tailwinds for precious metals, but they expect the rate of disinflation to slow, reducing its boost to bullion prices.
In a separate report, JP Morgan calls for a “breakout rally” for gold in mid-2024, with an expected peak of $2,300 as the Fed starts cutting rates.
Ole Hanson expounds on his market views at Saxo Bank with a lengthy quote:
“Following on from a surprisingly robust performance in 2023 we see further price gains in 2024, driven by a trifecta of momentum chasing hedge funds, central banks continuing to buy physical gold at a firm pace, and not least renewed demand from ETF investors.”
Bloomberg Intelligence senior Commodity strategist Mike McGlone is all-in on gold this year. “Gold outperforming most commodities and the S&P 500 on a year-over-year basis to Nov. 29 may show inklings toward our base case: A great reset worthy of the biggest liquidity-pump-then-dump in history,” McGlone said.

In a rare statement for a big-time analyst, McGlone holds out the possibility of gold hitting $3,000 this year.
The Indian Finance Ministry announced a surprise 50% hike in import duties on scrap gold this month, bringing the tax into line with the duty on bullion bars. Officials say that importers were bringing in scrap gold at a 10% duty in preference to bullion, which had a 15% fee.
A bill passed by the New Jersey legislature eliminating state sales tax on investment coins and bullion was not acted upon by Governor Phil Murphy. The pocket veto comes after estimates showed that it would cost the state between $3 million and $7 million in lost revenue.
A bill introduced in the Kentucky Senate would exempt the sale of precious metal bullion from the state sales tax.
More evidence that “they” don’t want to let us know the truth about the death of the Gold Standard in the 1970s: Gainesville Coins’ Jan Nieuwenhuijs revealed the following on X:

“I asked the US national archives to declassify a letter from Bundesbank President Karl Klasen to Fed Chair Arthur Burns regarding a gold agreement in the 1970s that was missing from a folder for national security reasons.

“They will get back to me in about 10 years.”


Looking Ahead To Next Month

Now that the great unwinding of over-optimistic rate cut expectations is over, we will hopefully have less drama in February. Looking ahead, we see the Middle East heating up, with the US and Iran moving closer to the brink of war. As part of that, Iranian-backed Islamic militias in south Yemen are lining themselves up for more pounding from US and British naval forces if they keep shooting missiles at ships in the Red Sea.

Economically, we’re watching the same old things. The dollar doesn’t appear to be getting stronger, which, while not helping gold, isn’t hurting it either. If 10-year bond yields could get back down below the psychological barrier of 4%, it should provide a boost for gold.

This month’s treasure story is about plans to finally salvage the treasure from the wreck of the RMS Republic, known as the “Ship of Millionaires.” It sank in 1909 off Nantucket Island with treasure estimated worth $10 billion today. It included 45 tons of Gold Double Eagles belonging to the Tsarist government of Nicholas II, which was payment to New York banks on the nation’s debts.

If the US, UK, and France had not secretly bailed out Russia, the government would have collapsed in 1909 instead of 1917, and Germany would have likely won World War I.

– Steven Cochran of Gainesville Coins

Disclaimer:  This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.