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 February?
Gold had a very good February. Starting at $1,126 an ounce, it jumped as high as $1,261 an ounce. By February 11th, spot gold had closed over the $1,200 mark, and never looked back. Toward the end of the month, spot gold was parked above the $1,230 level
Factors Affecting Gold This Month
Much like last month, blood was running in the street on Wall Street, and pain continues in the Oil Patch.
OIL GLUT (Continuing)
Oil futures saw a stomach-churning ride in February. Desperate traders eagerly snapped up any rumor as evidence the nightmare was about to end, only to see their hopes (and oil prices) dashed. It became hard to tell what was pushing the stock markets around, either China’s slowdown, or oil falling even more. Analysts at Citibank also noticed this negative feedback loop between oil and stocks, warning “We Should All Fear Oilmageddon.”
NEGATIVE INTEREST RATES
Negative interest rates seem to be doing the exact opposite of what central bankers want. Top financial analysts are pointing to negative interest rate policy (NIRP) as a major cause of the global financial instability that we’ve seen this year. Banks that are being charged interest on deposits by central banks can’t pass that new cost on to consumers. They’d all yank their money, causing a bank run and failure, and put it in a bank that didn’t charge them for deposits. This means that bank profits, which were already squeezed from zero interest rates, are shrinking even more. This causes the opposite effect than what central banks wanted from NIRP: banks are lending LESS, not MORE.
This is a big reason that financial stocks have been such an anchor around Wall St.’s neck. Combine this with energy stocks tanking on plunging oil prices, and the reason stocks are down so much this year is obvious. Janet Yellen seems to be ignoring the real results of NIRP. She’s asked the big banks to run simulations of whethe or not they could survive negative interest rates in the US.
Super megabank Goldman Sachs is now wondering if the central banks have broken Capitalism itself with zero and negative interest rates.
The Bank of Japan’s imposition of negative rates DID increase consumer purchases in one area – home safes to store cash in.
WAR ON CASH
Since the central banks blame the failure of their policies on the fact that the public won’t do what they’re told, and they also want to be ready to bail out the Big Banks again, they have turned to waging war on cash. The first step in this war is to eliminate the $100 and €500 currency notes. Campaigning under the guise of “fighting terrorism” and “fighting crime,” they let slip the real reason: taking taxes directly out of your bank account. This war is also on tradesmen, and anyone who conducts business in cash. If there is no physical money, the government can see when you’re paid for handyman work, or buy something for “cash,” and levy taxes accordingly.
The Europeans aren’t waiting around to see if the EU central government demonetizes the €500 note. They’re piling into high denomination Swiss Franc banknotes. MarketWatch reported on the < href="http://www.marketwatch.com/story/big-jump-in-use-of-swiss-1000-franc-bills-2016-02-22">huge jump in demand for 1000 franc notes from Switzerland. The same thing is happening in Japan, as people “pad their mattresses” with 10,000 yen notes.
Other avenues of storing wealth in physical form will be fine art and expensive wines for the wealthy, and precious metals for everyone.
DOLLAR LOSING SAFE HAVEN STATUS
The dollar was notably absent from any safe haven buying during the recent meltdown in stocks. The Japanese yen saw healthy demand, especially in Asia. Treasuries remained a “go to” safe haven asset, but more often than not, the dollar was ignored. The unraveling of expectations of a March interest rate hike by the Fed put notable pressure on the dollar. It had gained a good bit of ground as traders anticipated that the Fed would keep raising interest rates.
Another knock against the greenback is Iran’s refusal to take dollars for oil shipments.
On the Retail Front
You want to talk physical precious metals demand? Let’s talk physical precious metals demand. American Silver Eagle sales topped 4 million in February, to bring the two month total to 10 million coins. This is the best start of the year for Silver Eagles since 2013. Gold Eagle sales are up over 58% from last year, clocking in at 195,500 troy oz so far this year. Adding 51,000 24K Gold Buffalos, and US Mint gold sales were 246,500 troy oz for the first two months of 2016.
HUGE retail gold demand has caught the attention of the mainstream press, with Bloomberg proclaiming “Gold is Back in Fashion” after $15 trillion was wiped out in the global financial markets. Forbes says “Investors Are Flocking To Gold Like There’s No Tomorrow.” I’m kind of partial to the headline “Gold Bulls Feast” due to negative interest rates by central banks.
On the central bank side, we see Russia and China adding to reserves for yet another month, and Canada liquidating all gold reserves. So, we have China dumping US Treasuries and buying gold, and Canada selling gold and buying “financial assets that are easily tradable and that have deep markets of buyers and sellers.” (I know who I think is right!)
Also on the central bank front, the Hungarian Central Bank has been reaping the profits of currency wars, as the forint has become deeply devalued. But instead of sending the profits to the Treasury, it’s been buying luxury real estate and $15 million paintings with the money. The blowback has finally reached a point that the Prime Minister can’t protect his buddy at the central bank any longer, so they bought 112 9mm pistols and 200,000 rounds of ammo, to protect their vast real estate and fine art holdings from “terrorists.”
Jim Rogers says that the whole global market is about to come tumbling down, and there’s nothing the central banks can do about. Of course, the little people will feel most of the pain, while the movers and shakers are insulated from the consequences of their actions.
Chief Investment Strategist at Bank of America/Merrill Lynch notes that there has been $12.3 TRILLION in global quantitative easing, and nothing to show for it but a world on the brink of recession.
Bill Gross, known as The Bond King, notes how the inability of zero interest rates and negative interest rates to have any positive impact exposes the impotence of Central Banks. Gross, who predicted the subprime mortgage crisis, said he has one question for the central bankers: “How’s that working for ya?”
Over at SRSrocco Report, they notice that the huge demand for silver has seen the amount of COMEX deliverable silver hit a historic low.
The Fed is itching for any excuse to raise rates next month. If they do, it will make the dollar even more noncompetitive, hurting US businesses. At press time, the Fed funds futures rate as tracked by CME Group’s FedWatch gives a March rate hike only a 6% chance. (It only gives a 28% chance of any rate hike at all in 2016.)
OPEC and Russia are likely to keep trying the central bankers’ trick of moving the market higher for oil with just words, but don’t look for anything to actually happen. The little guys in OPEC are the ones being crushed between the two petroleum giants, while we just enjoy $1.50 gas.
The stock markets don’t look like they will calm down anytime soon, with prices still artificially inflated by cheap Fed money and stock buybacks. Gold will naturally be the safe haven of choice for many people who haven’t given it a second thought for the last three years.
To close this month, we ask the question: “How low are crude prices?” Our look at “What a Barrel of Oil WON’T Buy You” may put it in perspective.