Welcome to SurvivalBlog’s Precious Metals Month in Review, by Steven Cochran of Gainesville Coins where we take a look at “the month that was” in precious metals. Each month, we cover the price action of gold and examine the “what” and “why” behind those numbers.
What Did Gold Do in April?
Gold started the month under $1,220 an ounce and went on a roller coaster ride. Luckily, there were more ups than downs. Gold prices spent the last week of the month bumping up into the $1,290 range, a thirteen month high.
Silver woke from its slumber and got down to it this month. Silver started April barely above $15 an ounce, before blasting up more than 17% for the month.
Factors Affecting Gold This Month
Deflation Fears In Europe
A blanket of anxiety still covers Europe, as negative interest rates and expanded QE from the European Central Bank seems unable to lift the EU out of the economic sickness that has been gripping it. A good way to see how negative interest rates do the opposite of what central banks want is this graphic at the Wall Street Journal. With all the evidence that NIRP hurts economies instead of helping them, you have to wonder why so many central banks keep using it.
Austrian Bank Bail-in
A big sign that the European banking system is worse off than they pretend, is the news that the Austrian government has declared a bail-in of Heta Assets Resolution. This is the “bad bank” formed from the non-performing loans held by failed bank Hypo Alpe Adria. Senior bondholders, who are first in line for reimbursement on a bank failure, just had a 50% haircut applied to them by Austrian financial regulators. At the stroke of a pen, the value of the bonds they hold was cut in half. We explained the whole tangled mess of this “bad, bad bank” in a news article soon after the bail-in was announced. Unlike some other banks that have failed due to overexposure to risky trades, the Hypo executives were accused of all sorts of wrongdoing.
April 15 was the official start of the campaigning over the EU referendum in the UK, otherwise known as the Brexit vote. The question for British voters is simple: does the United Kingdom remain in the European Union or leave? A vote to leave would throw global markets into turmoil.
The unofficial campaigning has been going on for months. It has split Prime Minister David Cameron’s Cabinet; Brexit has split families and friendships. The “Leave” side is accused of wearing rose-tinted glasses when declaring that there will be little economic hardship from severing ties with Britain’s largest export market. The “Remain” side is accused of scare mongering and acting as pawns of the elite and Big Banks.
The “Leave” side got a morale boost early in April when Dutch voters vetoed an EU treaty creating closer trade and defense ties between the EU and Ukraine. In a shocker for the establishment, the “No” votes outnumbered the “Yes” votes two to one. Any agreement between other nations and the EU as a whole have to be approved by every EU member nation.
And just because Brexit passions in the UK just weren’t high enough, U.S. President Barack Obama flew into London to threaten Britons if they voted to leave the EU. This put the “Leave” side into a frenzy over this blatant interference by a foreign head of state in domestic British affairs and only fanned the flames against outsiders dictating laws to the UK.
Even some in the “Remain” camp thought Obama’s actions were heavy-handed and intrusive. At the end of the day, the “Leave” side may have gained more support than the “Remain” side. Thanks, Obama!
Fed Whiffs Rate Hike
The Federal Reserve did not hike benchmark interest rates this month, just like everyone expected. They are running out of time if they still think they are hiking rates this year. Any talk about a June hike is ridiculous, because the June Fed meeting is only eight days before the Brexit vote. That really just leaves September and December as the only remaining months where the Fed can hike rates.
Oil Glut Talks
Saudi Arabia, the rest of OPEC, and Russia all played the “make vague statements about cutting production so oil prices go up” game in April. The big con came from a meeting arranged in the Qatari capital of Doha to agree on a grand bargain to cut production. Everyone presumably was on board with the notion that Iran would be allowed to get its oil exports back to normal levels before freezing production. However, Saudi Arabia sucker punched everyone the morning of the talks by insisting that Iran freeze output at current levels.
The Saudis immediately began blaming Iran for the failure of the conference, but Russian energy minister Aleksandr Novak was hearing nothing of it. “How can Iran be the reason for the talks’ failure, when it wasn’t even here?”
Shanghai Gold Fix
China, tired of speculators in the West setting the price of gold, has opened a Shanghai gold fix. Twice a day, a yuan-denominated gold price will be benchmarked using only physical gold transactions. This removes the distortions caused by speculators betting with COMEX gold futures with no intent to ever deliver.
Contracts are for .9999 fine gold 1 kilo gold bars, quoted in yuan per gram. Some analysts believe that this will put more pressure on the COMEX to clean up its act or, at the very least, steer more focus to the disconnect between paper gold and physical gold prices.
On the Retail Front
Russia is in the gold news again, but this time the gold is going out instead of coming in. Russia’s second-largest bank has begun bullion shipments to China. VTB Bank says the first shipment was for one metric tonne. It plans to ship between 800 and 1000 metric tonnes of gold to China per year.
Gold and silver sales at the Perth Mint continue to rise. Year on year sales of gold bullion rose 40% in March, while year on year sales of silver bullion rose a giant 175%.
American investors aren’t sitting on their hands. At press time, the U.S. Mint reported that over 4.07 million American Silver Eagles had been sold in April. That’s slightly lower than March’s 4.1 million but just under 43% higher year on year.
The Mint sold 105,500 ounces worth of Gold Eagles in April. That’s 177% higher than last month, and 127% higher year on year for Gold Eagles.
The India Times notes that the average Indian household spends 8% of all daily consumption on gold. This is nearly the same percentage as medical expenses.
Last month we told about the spike in demand for safes in Japan, as citizens react to negative interest rates by keeping their cash at home. This month, we see it isn’t just fiat money being hoarded. Japanese gold demand in the first quarter increased 35% due to NIRP.
With gold entering a bull market, the mainstream press can’t ignore the performance of precious metals any longer. Even CNBC is buying a clue. They interviewed George Milling-Stanley, the man behind the world’s largest physical gold ETF– the $33 billion SPDR Gold Trust (GLD). Asked for a gold forecast, he says he sees gold at $1375 by Christmas.
He shoots down a favorite crutch of the anti-gold crowd, that gold doesn’t pay interest, by noting: “For 40-something years, since I first got into gold investing in the 1970s, people have been saying it doesn’t pay a return. Well, guess what? Not much else does these days, either. People are charging you to store money. GLD costs less at 40 basis points [0.40%] annually than holding Swiss francs.”
John Browne at EuroPacific Capital, chimes in on how negative interest rates take away the fiat cheerleaders’ barb that gold doesn’t pay interest. He also notes that negative interest rates could end up killing banks instead of helping them.
Another news story that got the mainstream financial press’s attention was that of the anonymous trader who placed a $2 million bet on GLD options. His bet is that the price of gold will go up by 10% by the end of July. Looking at gold prices above $1,280 an ounce right now, he is already almost there!
Perhaps the biggest news for physical gold investors is that Deutsche Bank has admitted to gold manipulation. In an out-of-court settlement, the bank will not only give the plaintiffs monetary compensation but will roll over on the rest of the gold manipulating banks by turning over correspondence and records between DB traders and those at other banks.
James Rickards talked to MarketWatch this month on the subject of “To Big To Fail” banks getting even larger and the risks of another financial crisis. He says that another 2008-style event will cause the collapse of the global monetary system, and only those nations with large gold reserves will be the ones to dictate the new monetary system.
Speaking of nations hoarding precious metals, SRSrocco asks, “What’s with the huge stockpile builds of silver in China?”
Eric Sprott reminds readers that in a world of negative yields, bonds have no hedging power against a falling stock market. What does? Gold, of course.
Stepping off into Fantasy Land, Casey Research explains how the mainstream media is being used by central banks to float the trial balloon of “helicopter money.” Let’s not be naive and think this money giveaway will ever end up in our pockets. Once Congress gets a taste of truly free money to fund graft and corruption, it will never let the Fed stop the printing presses.
A surprising editorial from Harley Bassman at PIMCO suggests that the Fed will find that not even negative interest rates will save America from another downturn. Instead of buying Treasuries from the Big Banks to fight deflation, the Fed should instead change its Quantitative Easing policy and go on a gold buying spree instead.
John Mauldin says that Congress should change the Fed so that the next round of stimulus goes to improving the broader economy instead of bank balance sheets. His idea is to have the Fed issue bonds to cover fixed duration infrastructure projects that can pay the bonds off.
Well, there’s no Fed policy meeting in May, but the airwaves will be full of Fed officials giving opposite forecasts and stressing the markets out. The European Central Bank and Bank of Japan both are forcing negative interest rates onto the system, but their currencies are going up, not down. What kind of desperate scheme will they inflict on their people next?