Editor’s Introductory Note: Steven Cochran is transitioning to a new job, writing for an investment company. Starting next month, this column will be authored entirely by Everett Millman, who is also employed by Gainesville Coins.
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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 examine the factors that affected gold prices.
WHAT DID GOLD DO IN MAY?
The gold price opened the month hovering around the $2,300 level, taking a breather after notching record-high prices in mid-April.
Beginning in earnest on May 8th, both gold and silver resumed the blistering rally the two precious metals have been on in 2024. Prices rose almost continuously over the next two weeks. Gold jumped $35 per ounce on May 15th and surged another $38.50 higher on the 17th.
May 20th saw spot gold hit a new all-time high of $2,425 per troy oz. Meanwhile silver breached the $32 per oz level for the first time in 11 years.
A combination of profit-taking and normal market correction pushed the gold price back down almost 4% lower, trading back below $2,350/oz in the final week of May. Over the same period, silver saw a deeper pullback of about 6% to the psychologically important $30 support line before rebounding to close the month above $31/oz.
FACTORS AFFECTING GOLD THIS MONTH
Undoubtedly the gold market has enjoyed a consistent geopolitical premium amid the ongoing conflicts in Ukraine, Gaza, and elsewhere. Indirectly, the attendant economic sanctions against Russia and punitive U.S. tariffs against Chinese exports have also increased gold demand overseas.
Moreover, it’s not only the central bank hoarding gold in China; it’s also the Chinese public. Given the turmoil in the country’s real estate market and stock market, it makes sense that Chinese citizens are turning to gold as a safe haven asset.
Gold has also benefited from a sell-off of Treasury bonds during May. Falling bond yields help make a non-yielding asset like gold more attractive to investors.
We’re also likely seeing some portfolio re-balancing that’s driving gold higher. With stocks at all-time highs, cryptocurrencies near record highs, and “meme stock” mania taking hold again, the need for gold as a hedge against risk is becoming even more pertinent.
Gold prices will continue to react to expectations of a rate cut by the Federal Reserve sometime this year, as well. Traditionally, lower interest rates are good for gold. Yet the Fed’s messaging has been very muddled, which has caused interest rate forecasts to fluctuate from “cuts are imminent” to “higher for longer.” Also keep an eye on the Bank of Japan, which has had to intervene in foreign exchange markets to support the yen. Concerns about the stability of fiat currencies is a strong driver of investment capital into gold.
On top of all of this, we may be witnessing the beginnings of a commodities “supercycle.” This year’s price increases for other metals (copper, nickel, silver), raw materials, and agricultural commodities (cocoa, coffee, orange juice, etc.) have far outpaced inflation. These have been some of the best performing assets year-to-date. The longer this continues, the more likely it is to become a secular trend in world markets.
CENTRAL BANK GOLD PURCHASES
As they have for much of the past two years, central banks globally were aggressive gold-buyers this month. Over the first quarter of 2024, central bank gold purchases set a new quarterly record of 290 tons of gold in Q1.
The People’s Bank of China added to its gold reserves for the 18th consecutive month. PBoC gold purchases are slowing from their sky-high levels earlier this year, however.
The Czech National Bank added 1 ton of gold to its reserves in April. It similarly has been buying gold for 14 straight months.
The Bank of Poland bought 3.5 tons of gold in April.
The Reserve Bank of India added about 6 tons of gold, an increase of 24 tons year-to-date.
The Central Bank of Jordan sold over 1 ton of gold in April. It has sold almost 6 tons of gold so far this year.
Elsewhere in the Middle East, the Central Bank of Iraq increased its gold reserves by 3 tons in February, according to the IMF.
Singapore’s gold reserves rose by 4 tons in April to 241 tons total.
The Bank of Korea bought gold in March, but ruled out any more immediate purchases.
Vietnam’s central bank plans to sell gold bars to domestic banks beginning in June.
GOLD ETFs
The latest World Gold Council report on gold ETF flows covers the month of April.
In aggregate, physically-backed gold ETFs saw $2 billion in net outflows during April. 33 tons of gold left the funds, bringing inventories to their lowest level since February 2020. Yet the rising gold price actually meant that the value of gold ETF holdings rose by 3%.
The typical regional flow pattern we’ve come to expect continued to hold true: European ETFs saw large outflows of gold, while gold ETFs in Asia saw heavy net inflows. For the second straight month, North American ETFs experienced an inflow of gold, albeit relatively small compared to January and February outflows.
ON THE RETAIL FRONT
U.S. Mint sales of gold coins had a strong start to the month. The mint sold 14,597 units of the various sizes of its American Gold Eagle coins in the first week of May — and those were only the collectible proof versions. As of late May, the mint had also sold 250,828 of its 2024 Proof Silver Eagles.
The surge in silver prices during May also caused customers to buy up much of the U.S. Mint’s remaining inventory of backdated silver proof sets from 2019, 2021, and 2022. Nearly 3,000 of these sets were sold in the week ending May 26th.
In Australia, the Perth Mint continued to see a significant drop-off in its bullion sales through April. Gold sales are down 55% from the same period in 2023, while silver sales have declined about 49% year-on-year.
MARKET BUZZ
For the first time in generations, gold’s long run performance is beating Treasury bonds.
In addition to the rumored short squeeze in silver futures, COMEX copper contracts for July experienced a massive short squeeze in the middle of May.
Anglo American, the major mining company, has repeatedly rejected buyout offers approaching $50 billion from BHP Group.
Goldman Sachs finally settled a class action lawsuit from 2014 tied to manipulative behavior in the platinum and palladium market.
Gold demand among the youth in South Korea is so strong that people are routinely buying gold bars from convenience stores and vending machines.
Silver has seen increased solar demand in India, as the country imported more silver in the first quarter of 2024 than in all of 2023 combined.
The Reserve Bank of India also repatriated roughly 100 tons of gold back from vault storage in the United Kingdom, the first time it has done so since 1991.
Michael Burry (of The Big Short Hollywood fame) is taking a large long position in gold ETFs.
LOOKING AHEAD TO NEXT MONTH
Gold prices (and precious metal prices broadly) have been increasingly volatile. While that volatility has largely been the upside, with prices repeatedly hitting record highs, I do expect to see the market calm down and consolidate sideways in June. The summer months are typically a period of poor seasonality for gold demand — but given the level of geopolitical strife and economic uncertainty in the world right now, that normal seasonal pattern may not apply. This is especially so for an election year in the U.S. and elsewhere.
The BRICS countries (Brazil, Russia, India, China, and South Africa, et al) will hold their annual forum in late June. Given the group’s heavy incentive to de-dollarize and perhaps establish a gold-backed trade currency, any news from the BRICS summit will have some potential to move gold prices.
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Steven Cochran and Everett Millman of Gainesville Coins