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 summer months are slow times for both stocks and commodities, with thin volume as many investors and traders taking summer vacation. Because of this, large orders can sometimes make big ripples. We saw this again in July, just like we did in June.
The June closing prices for precious metals were: Gold: $1325 Silver: $20.96 Platinum: $1482 Palladium: $840
July started with a bang for the PGMs, with both of them breaking through resistance levels. Platinum gained $22 an ounce to $1504, and palladium jumped $11 to $851. Gold closed the first day of trading near a three-month high, at $1326, and silver was only two cents from the $21 mark.
The highs for the month were hit on July 13, sparked by a banking crisis in Portugal. Gold closed at $1339, silver at $21.45, and platinum at $1508. Palladium waited until July 17, when new sanctions were announced by the U.S. against Russia, for arming and supporting rebels in Eastern Ukraine. The high closing price for palladium was $883, a price level last seen in 2001.
The second half of the month saw some unwinding of safe haven positions, as the stock markets decided they were more afraid of the Fed hiking interest rates than they were of World War III possibly starting.
Precious Metals Market Drivers in July
European Banking System
On July 10, the parent company of Portugal’s second-largest bank defaulted on a corporate bond payment, frightening the markets that the bank would be on the hook for the bad debt. Stocks tumbled, and gold saw a heavy rush of buying that shot the price up over $1,334.
Malaysian Airliner Shot Down By Ukrainian Rebels
On July 17, only hours after the U.S. announced new sanctions against Russia for its support of rebels in Eastern Ukraine, those same rebels shot down a civilian airliner cruising at an altitude of over 30,000 feet, killing all 298 people aboard. The rebels had previously boasted about having sophisticated long range SA 11 “Buk” surface to air missiles, which they had been using to shoot down Ukrainian Air Force planes.
The downing of Malaysian Airlines flight MH17 threw the markets into turmoil. Europe is pretty much held hostage by its dependence on Russian natural gas, the way the U.S. was dependent on OPEC oil in the 1970s. The thought of that supply being disrupted by Russia in retaliation for any sanctions is painful. France is going ahead with delivery of the aircraft carrier that they have built for Russia, and when Britain complained, the French Foreign Minister said maybe the UK should remove the log from its own eye, and clear up all the Russian billions hiding in London banks.
Israel Invasion Of Gaza
Deciding that airstrikes weren’t convincing the terrorist group Hamas to stop shooting unguided rockets at Israeli cities, the IDF rolled into the Gaza Strip to root them out. The day that they picked to start operations was the same day the Ukrainian rebels shot down the Malaysian airliner, making traders wonder if the whole world was about to catch fire.
Israel has been catching heat for the deaths of Palestinian civilians, but after finding rockets in UN-built schools, the Israeli army has to consider every building a possible target. U.S. and European airlines stopped flying into Tel Aviv for a couple of days, after a Hamas rocket landed a mile from the runway. No one was willing to be the next “MH17” and gamble the lives of their crews and passengers until it was proven Hamas had been driven out of rocket range of the airport.
Yellen/Fed
Janet Yellen, in testimony before Congress, refused to admit that the “too big to fail” banks, like JP Morgan and Goldman Sachs, were larger than they were before the 2008 financial crisis and refused calls to use Fed interest rate policy to fight asset bubbles that these same policies have created. The same day, one or more of those banks decided to sell over three million ounces of “paper gold” (contracts) on the COMEX to hammer gold lower. Unfortunately for them, the result by the end of the day was gold closing only $7 lower.
Platinum Mining
The world’s largest platinum company, Anglo American Platinum, is putting several of its mines in South Africa up for sale. The mines account for 1/3 of the company’s global production but are far more expensive to run than their newer mines. Any sale would doubtlessly mean layoffs, which has the labor unions throwing a fit. The unions were warned that if they forced the companies to agree to a 140% pay raise, that this was going to happen.
In related news, the largest platinum mine in Zimbabwe suffered a major cave-in, closing off half of the deposits. Zimplats, the operators of the mine, said it will take over four years to safely tunnel around the dangerous area to get to those deposits. This means 45,000 fewer ounces of platinum will hit the market for the next four years, worsening the shortage.
On The Retail Front
Underwater salvage company Odyssey Marine released the first inventory of treasure recovered from the wreck of the SS Central America, the famous “Ship of Gold.” Efforts had halted temporarily when the old company of fugitive treasure hunter Tommy Thompson sued, claiming that they still owned the wreck. A federal judge threw the case out of court, saying that the investors who were bilked by Thompson before he disappeared were the proper owners of the treasure.
The kingdom of Dubai, fighting one of the world’s highest obesity rates, is paying its citizens in gold to lose weight. People who register for the two month challenge will get one gram of gold for every kilogram of weight they lose, if they lose at least two kg (4.4 lb). Those families with children under 13 who sign up for the event will be double the gold reward, if the child loses two kg or more.
This might work out cheaper per person than Obamacare!
Ed Steer at Casey Research talks about how the Russian Central Bank bought 500,000 ounces of gold last month, following the 300,000 ounces in May that we reported. The Russians have bought a total of 1.5 million ounces of gold in the last three months.
Market Buzz
Gold manipulation is getting more mainstream traction. A committee in Britain’s House of Commons asked the nation’s top financial regulator to investigate manipulation of the gold market. The Chairman of the Financial Conduct Authority said that his agency lacked the authority to do so, and that there wasn’t any manipulation anyway. He must have forgotten his own agency fining Barclays $44 million over gold fix manipulation by one of their traders last month.
THE SILVER FIX IS DEAD: The London Bullion Market Association has awarded the contract for a new silver fix to CME Group and Thomson Reuters. CME Group will supply the data and the algorithms to decide the benchmark price, while TR will administer and audit the system. Personally, I’m not sold on the idea. CME Group controls the COMEX, Nymex, Chicago Mercantile Exchange, and the Chicago Board of Trade, which makes them the world’s largest marketplace for futures contracts and derivatives. I’m thinking physical gold isn’t going to get much attention.
China’s outlook on gold is the subject of a couple of more articles this week. Jeff Clark of Casey Research talks about “Western Delusions vs Chinese Realities” when it comes to gold. He sums it up pretty clearly when he notes “[Chinese] buy in preparation for a new monetary order – not as a trade they hope earns them a profit.” An article at Equities.com talks about “Why China Is Really Buying All That Gold.”
Back at home, Rick Rule of Sprott Asset Management reminds us that these pullbacks on gold are perfectly normal, as the price grinds higher. Every pullback ends at a higher point than the one previous, as we stair-step higher.
Peter Schiff talks about the stock market and how more and more experts believe it is set up for a crash.
Jim Grant tells Fox Business Network that the Fed is behind the curve on inflation, and its policy of reacting to situations instead of taking preventative measures means that we are going to see a “thunderclap” of a crisis. The Fed being behind on inflation means that real interest rates (interest rates minus inflation) will stay negative. This is good news for gold and bad news for bonds.
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.
Let’s end this month’s column with some words of wisdom from the former director of the U.S. Mint, Philip Diehl, with his article “Three Gold Myths That Confuse Buyers.”