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 affected gold prices.
What Did Gold Do in February?
Well, so much for all the notes I made this month!
Russia’s invasion of Ukraine was naturally the big news in all markets this month. Gold rose $1,800 at the start of the month, up $100 to over $1,900 by the 17th after the ceasefire in eastern Ukraine between separatists and the government broke down.
Gold prices spiked to a 5-year high of more than $1,970 the day of the Russian invasion, but then fell all the way back below $1,900. Gold spent the rest of the month jumping much higher in Europe, then easing as US traders booked profits or sold short later in the day. This resulted in the $1,900 mark becoming the first price support level.
Factors Affecting Gold This Month
UKRAINE
Worries over a war in Ukraine rapidly overtook inflation as the #1 driver in gold prices in February. Gold prices jumped $35 to more than $1,900 on the 17th, after conflict broke out in the separatist regions in eastern Ukraine. Gold hit a 5-year high of more than $1,970 and silver rose above $25.65 as Russian tanks rolled into Ukraine on the 24th.
The craziest part of the day as far as gold was concerned was that it ended the US trading day back at $1,900. It remained near this level for the rest of the month.
If you’re in Russia, or have your money in a Russian bank in Europe, it’s probably too late to get your fiat money out. Now that Russian banks have been barred from the international SWIFT payments system, they can’t bring in money from out of the country, and they can’t support their bank branches in Europe. This means that the thousands of people waiting in line at ATMs in Russia are probably going to be disappointed. Not that their rubles will buy much anymore.
The European division of Sberbank, Russia’s largest bank, has been hit by a massive bank run as people try to get their money out. This has led to banking authorities restricting cash withdrawals to prevent them from failing. Everyone should have bought bullion!
INFLATION
Energy prices were already pushing inflation higher before the Ukraine war, as most OPEC countries were having trouble increasing production. Sanctions on Russia mean that oil prices will continue to rise
Market doubts that the Fed can get inflation under control provided another tailwind for gold prices in February. With inflation at 7.5%, bond yields hovering under 2%, some think that the Fed has missed its chance of corralling soaring prices without causing a recession.
The Fed
If the Fed was waiting on a sign that the US economy was strong enough to handle an interest rate hike, the news that the economy grew by 7% in the fourth quarter fit the bill.
Powell insinuated that balance sheet reduction by letting maturing debt roll off the books may begin before they finish raising interest rates. Cleveland Fed president Loretta Mester says the Fed should go ahead and outright sell all the mortgage-backed securities it owns. God knows that the Fed had no business propping up the mortgage market the last two years.
Super dovish St. Louis Fed president James Bullard underwent a Jekyll and Hyde transformation in February. He kicked it off by announcing in February 10th that he wanted interest rates to be 1% higher by July. This announcement caused turmoil in stocks and the bond market.
He continued his “monetary shock and awe” campaign throughout the month, noting on the 17th “We’re at more risk now than we’ve been in a generation that this [inflation] could get out of control.”
While other Fed officials weren’t so extreme, the consensus now is for a rate hike at every remaining FOMC meeting this year at the very least. San Francisco Fed president Mary Daly remarked that inflation will get worse before it gets better, but it will be getting better. Don’t expect we will be back down to 2% this year though, she said.
Central Banks
A Reuters poll of European economists is pointing towards the ECB being forced to stop QE by
September and to raise interest rates from -50 bp to -25 bp by the end of the year. The EU saw a record-high 5.1% inflation in January.
ECB president Christine Lagarde expressed her belief that inflation will remain high for the near term, but will be lower by the end of the year (but still not at 2%).
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The Bank of England really changed gears this month, as inflation estimates jumped to 7%. After raising interest rates from 0.25% to 0.50%, it was revealed that some on the board wanted to triple interest rates to 0.75% with a 0.50% rate hike.
The BoE statement accompanying the rate hike noted that it was necessary not because the economy was overheating, but was needed to fight inflation. The central bank acknowledged that it will cause pain, but it was better than waiting for things to get out of control.
Central Bank Gold Purchases
This month’s Central Bank Gold Purchases report covered December. Globally, the world’s central banks added 14.2 metric tons to their gold reserves. Buyers were led by Turkey, at 10.1 tons, followed by Uzbekistan at 8.4 tons. Other buyers were India at 3.7 tons and the Krygyz Republic at 1.1 tons. There were some small gold purchases as well, with the Czech Republic buying 0.4 tons (400kg), Ukraine at 0.3 tons (300kg), and Mexico at 0.2 tons.
The big sellers were Kazakhstan, shedding 4.8 tons of gold, while Sri Lanka sold 3.6 tons. They were joined by Poland (-1.6t).
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A Late Note: After Russia was barred from the SWIFT international banking system and sanctions against Russian industry were expanded, the Russian central bank announced that it would resume buying gold from domestic producers. It is widely thought that Russia will be selling gold to buy rubles in an attempt to prevent the total collapse of the currency.
Gold ETFs
Gold-backed ETFs saw a cumulative 46.3 metric tons of inflows in January. Selloffs in the stock market, geopolitical fears, and a rising gold price were factors, especially in the US.
North American gold ETFs saw 49 tons of inflow, while gold ETFs in Europe added 6.7 tons. Asian gold ETFs saw 9.9 tons worth of redemptions, as Chinese investors sold their paper gold to buy the real thing of the Lunar New Year holiday. The “Other” nations (Australia, South Africa, Turkey, Saudi Arabia, and the UAE) saw inflows of 0.5 tons.
On The Retail Front
The US Mint reports that it sold a mere 1.5 million American Silver Eagles in February, reflecting the continued global shortage of silver. 70,500 ounces of American Gold Eagles were sold last month, along with 22,000 American Buffalo 1 oz gold coins for a combined 92,500 oz of gold bullion sales for February.
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The World Gold Council reported this month that American investors purchased 117 metric tons of gold coins and bars last year. That’s an increase of 69% compared to 2020, when investors flocked to gold at the start of the COVID epidemic.
Globally, gold coin and bar demand was 1,180 tons, an increase of 31%.
Separately, the WGC expects Chinese gold coin and bar demand to recover to pre-COVID levels this year.
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Swiss customs data reveals that gold exports to mainland China were the highest since January 2016.
Market Buzz
Gold has been hammering at the $1915 level as hard resistance to end the month. Credit Suisse says if prices can break down that wall, $2,075 is a possibility.
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The Silver Institute predicts that global silver demand will reach 1.1 billion ounces this year, supported by an increased emphasis on building out renewable energy sources and greater sales of electric vehicles.
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Lawrie Williams at Sharps Pixley had his prediction of $1,800 gold and $23 silver by early February come true long in the first week of the month, so made a new prediction on February 8th of $2,000 gold by the end of the year. This was long before the shooting started in Eastern Europe.
Looking Ahead To Next Month
War, sanctions, inflation, European refugee crisis. All this and more is in store for us next month. Will we see oil hit $100 again in March? The only question regarding the FOMC meeting next month is how big the rate hike will be.
– Steven Cochran of Gainseville Coins
Note: This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.