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 the price action of gold and silver, and we examine the “what” and “why” behind those numbers.
The July closing price for precious metals were:
Gold: $1280
Silver: $20.38
Platinum: $1456
Palladium: $870
August began on a Friday, with non-farm payrolls coming in far below expectations. Gold jumped $15 to regain the losses taken on July 31, while stocks tanked 2%, as investors moved into dollars. On the 5th, gold saw a $20 jump on fears of a Russian invasion of Ukraine, despite the dollar rallying at the same time.
Geopolitics were the name of the game in August, as gold rode a crisis-driven rally into the middle of the month until a failed smackdown on the 15th. Gold recovered within hours, but the rally had been stopped. Gold’s high closing price for the month was $1312, which was actually hit three times– on the 7th, 13th, and 14th of August. Silver eased throughout August, dropping over a dollar by the end of the month.
Thin trading volumes in all markets, which are normal in August, added to volatility. When volumes are low, trades that normally don’t affect the index numbers have more of an effect.
Precious Metals Market Drivers in August
UKRAINE
Geopolitical risks and economic sanctions continued to buffet European markets in August, in a roller coaster ride of escalation and de-escalation. On August 6th, Putin announced retaliatory sanctions on the E.U. and U.S., in response to the sanctions the West imposed after the shootdown of a civilian airliner.
As the Ukrainian Army pushed back the pro-Russian rebels in eastern Ukraine, Russia gave up trying to arrange a ceasefire and decided to send over 200 trucks loaded with humanitarian aid into rebel-held Luhansk, in eastern Ukraine without Ukrainian permission. In what may have been a provocation aimed to test Kiev’s resolve, a Russian convoy of 10 APCs and supporting vehicles crossed into Ukraine while Western reporters watched. The Ukrainian Army claimed to have destroyed multiple Russian vehicles in its territory the next day, a charge Russia denied.
Late in the month, Ukrainian forces captured a Russian paratrooper company that had crossed the border in a wooded area, apparently by accident. What wasn’t an accident was rebel main battle tanks suddenly appearing near the Ukrainian coast, crossing over from Russia far from the nearest rebel-held areas. President Poroshenko of Ukraine and President Putin of Russia met in Kiev, Belarus, for talks to defuse the situation, with little progress.
This meeting was apparently so Putin, an ex-KGB colonel, could meet Poroshenko and decide how far he could be pushed. Russian Army troops invaded Ukraine, far from any rebel territory, in an apparent bid to open a land route to Russian-annexed Crimea. Another offensive was reported near Donetsk, as Russian troops, backed by artillery firing from Russian territory and advanced anti-aircraft missile systems, try to break the Ukrainian siege of the rebel-held city. Reporters have seen Russian tanks more advanced than any owned by Ukraine battling Ukrainian army forces. Rebel troops could not have obtained such advanced weaponry from overrun Ukrainian army bases, showing that Putin has decided he doesn’t care if the West knows the Russian Army is fighting inside Ukraine or not.
EUROZONE DEFLATION
The loss to European businesses from the sanctions against Russia, combined with the Russian sanctions against the EU, put the European economy on a fragile footing in August. Italy slid back into recession, adding to the worries. The euro traded near 11-month lows for most of the month, which in turn boosted the dollar. A strong dollar means fewer dollars are needed to buy an ounce of gold, which lowers its price. Despite the dollar rally, gold managed more than one large move upwards during the month.
One sign of European deflation is that the German 10-year bond is yielding less than 1%, while the bonds of “sick” economies, like Italy and Spain, are trading close to, or below, the yield of the 10-year U.S. Treasury note. This may be the market expressing its doubts over the U.S. government’s ability to pay its debts. Why else would bankrupt Spain be able to sell debt cheaper than the U.S.?
MIDDLE EAST
Gold saw safe haven demand, as the U.S. conducted airstrikes from drones and U.S. Navy fighters in northern Iraq against the terrorist army known as The Islamic State. Formerly known as ISIS (Islamic State in Iraq and Syria), they were using captured American-made tanks and artillery to attack Irbil, the capital of Iraqi Kurdistan, as well as carrying out an extermination campaign against Iraqi Christians and Yezidis.
The U.S. airstrikes broke up the offensive and caused ISIS to revert back to the insurgent tactics of car bombs and blending in with the population. They later released a video of them beheading an American photojournalist that they had captured in Syria in 2012 and swore vengeance against the U.S. The American government has responded by preparing to expand the air offensive into Syria to hit ISIS targets.
This puts the U.S. into the position of assisting the Assad government of Syria, which it is trying to overthrow, by attacking the strongest anti-Syrian rebel faction, who has stolen American-supplied military equipment from the Iraqi Army and moderate Syrian rebels. U.S. planes are bombing U.S.-built tanks.
Elsewhere in the Middle East, Israel and Hamas finally agreed to an Egyptian-brokered cease-fire in Gaza, with both sides declaring victory. The death toll in this latest war totals over 2000 Palestinians and 68 Israelis. Israeli prime minister Netanyahu has been criticized over his leadership in the crisis by opponents on the left and the right.
The government of Libya has been on the losing end of battles with tribal rebels, but “mystery jets” struck several rebel targets in the last week of August. To the surprise of many, it wasn’t the work of NATO or the U.S. but of Egypt and the United Arab Emirates. The U.S. was irritated that it was not included in the operation, but having Arab governments cleaning up the messes in their own back yards is something we should be applauding.
All of this fighting led to an unusual August rally for gold.
On The Retail Front
The Royal Canadian Mint has replaced its classic 100oz silver bar with a new .9999 fine silver 100oz bar. This has rapidly become a popular item for those looking for unquestioned quality in their large silver bars. For those who invest in pre-1933 U.S. gold coins, Gainesville Coins has recently expanded its selection.
In a story showing the bad publicity you can get by ignoring what the customer wants, news circulated the web about how the company who produced the commissioning coins for the amphibious assault ship USS Somerset outsourced the work to China. Once the artist of the coins found out, he immediately notified the commanding officer of the USS Somerset, who had the coins destroyed before the commissioning.
Market Buzz
WESTERN REPORTS OF PLUMMETING CHINESE GOLD DEMAND EXAGGERATED
The Western media is full of reports how Chinese gold demand has seen a major drop. There are several reasons not to believe this:
- Reports are comparing volumes to last year, which saw a frenzy of gold buying unequaled in decades. When viewed over a more appropriate timeframe, demand is still quite healthy.
- Western mainstream media believes that imports through Hong Kong are total imports. That simply isn’t true. The communist government in Beijing became concerned about Western reporters going through the numbers to try and discover how much gold the Chinese central bank was buying for its gold reserves. They have started importing the gold directly into Beijing, and also through Shanghai, which they want to build into the world’s main gold hub.
- China is allowing more banks, including foreign ones, to import gold this year.
Speaking of the Chinese, Casey Research talks about all the gold moving into Asia, never to return, in the article “We’re Ready to Profit in the Coming Correction – Are You?” Also at Casey Research is “Top 7 Reasons I’m Buying Silver Now.”
David Stockman talks about how nothing at all has been done to curb the abuses of the Wall Street megabanks, even after the government has given them $4 trillion of taxpayer money, in “Wall Street Isn’t Fixed: TBTF Is Alive And More Dangerous Than Ever.”
Eric Sprott talksabout how the COMEX is corrupted to allow Goldman Sachs, JP Morgan, and others to manipulate paper gold prices, and the health of the physical gold market.
Peter Schiff has announced that his radio show will be ending a four-year run and moving to the Internet, changing to a video blog. One of Schiff’s more popular articles this month has been “Former Mob Boss Says Avoid Wall St., Buy Physical Gold.”
While Europe struggles to avoid falling into a deflationary pit, more and more economists are worried that Yellen is asleep at the switch in the U.S., and we’re facing a sudden increase in inflation that the Fed won’t be able to halt without destroying the economy (any more than they already have).
Alisdair Macleod asks, “What if China and Russia Succeed in Going Off the Dollar?”
Large platinum company, Lonmin, is struggling to restructure itself to survive a $600 million loss caused by the five-month long strike by mineworkers in South Africa. The unions have already threatened to strike again if any workers are laid off (after they got a 140% pay raise), and the government has also threatened the company if it closes any mines. Curious how, when asked directly, neither the union nor the government wanted to take over the mines themselves. If they think that they are making millions of dollars of profit, why not?
Looking Ahead
The markets will start picking up near the end of next month, as the wedding and festival season in India starts cranking up. Even though the Indian government hasn’t relaxed the restrictions on gold imports, that gold is still getting into the country. Smuggling is still increasing, and the police can’t stop even 1/10th of it. That gold is still being bought somewhere before being smuggled in, which means physical gold demand is still holding up. We wondered what happened to the smuggled gold that they did catch, and this is what we found.
September is traditionally a big month for gold. Have you kept your powder dry?
Let’s end this month’s column with a news story that shows even billionaires can see some of the dangers facing today’s fragile society.