Welcome to SurvivalBlog’s Precious Metals Month in review. Every month, we take a look at “the month that was” in precious metals, covering everything from price action to the information that’s driving the numbers.
February In Precious Metals
Three major factors for precious metals in February were Chinese physical demand; poor economic news in the U.S. (which was blamed on sequential blizzards); and emerging market crises, especially Ukraine.
Chinese gold sales last month hit 246 metric tons – a record for January – but the pace didn’t slow down after the Lunar New Year as expected. Chinese gold buyers weren’t just lured by low prices in February, they were protecting themselves against a possible financial collapse similar to what happened with Lehman Brothers and AIG in the U.S. in 2008. A substantial portion of China’s economy is depending on unregulated “under the table” loans to companies who can’t qualify for a bank loan. The Chinese central bank started reducing the money supply to squeeze out this practice, and the citizens, fearing bank defaults, started pulling their savings from banks and flooding jewelry stores to buy gold chains and bars. Chinese weekly gold demand has exceeded weekly global mine production for all but two weeks so far this year.
When the official Chinese gold import numbers for 2013 were released by Beijing, Western news sources jumped on the fact that domestic Chinese gold mining and scrap gold recycling totaling 500 metric tons was not accounted for. Many people speculate that this missing gold ended up in a shell company belonging to the Chinese central bank, to keep its gold purchases hidden while it sells off U.S. Treasuries.
Many analysts were looking for a correction in the stock market bubble this month, and disappointing economic data gave many the cover to jump ship. On February 3rd, both U.S. and European stock markets saw their biggest one-day drop in six months. An estimated $24 billion in investments was pulled out of U.S. equity markets that week. At the same time, gold skeptic Ed Bowsher wrote a column in MoneyWeek titled “I’ve Never Bought Gold Before – But I’m Buying It Now.“
There was no fight over raising the debt ceiling in mid-February, which would have given gold a boost, but the yellow metal really didn’t need it. Both gold and silver continued to show gains, even when the stock markets pushed higher. Gold rose above the 50-day moving average on January 23rd, and never looked back. On February 7th, it rose above the important 100-day moving average, and on Valentine’s Day, it broke the $1,320 mark, above the 200-day moving average. At the same time, silver posted it’s longest rally in 45 years, dating back to 1968. Both metals are handily beating the stock market in 2014 so far.
SHTF in Emerging Nations
Gold (and silver’s) excellent month wasn’t just about an oversold market and good fundamentals. There was literally blood in the streets on three continents, as popular uprisings against corrupt governments escalated to gunfire from both sides.
Anti-government protestors in Thailand got hold of M-79 grenade launchers seized from riot police, and turned them on their former owners. Snipers from both sides have also inflicted numerous casualties.
Venezuela was on the brink of a full-scale civil war all month, as a divided populace held mass demonstrations for and against the government. Protests were sparked by food shortages, an inflation rate over 50%, and rampant crime. Dozens have been killed in the fighting.
The big news this month was of course Ukraine. With a government on the brink of default and a currency hitting new lows, President Viktor Yanukovych agreed to a deal from his Russian allies to scrap an agreement for closer ties with the EU in exchange for a $15 billion loan to Ukraine. This set off protests by thousands of citizens, already disgusted with what they saw as cronyism and a looting of the national treasury by Yanukovych and his inner circle. Leading protestors were “disappeared” by the government, and demonstrations devolved into street fighting in the capital of Kiev, with hundreds dead and wounded.
After Yanukovych was deposed by parliament, he fled to the Crimea in southern Ukraine. This area is full of the descendents of ethnic Russians settled here by Stalin after purging the local population, and is a Yanukovych stronghold. This is also the home of the Russian Black Sea Fleet, and Putin has no intention of losing this strategic port. 150,000 Russian troops and tanks are massed on the Ukrainian border, holding “war games”. On February 26th, 120 uniformed gunmen with no insignia stormed the Crimean parliament building, and raised the Russian flag after days of protest between pro- and anti- Russian crowds in Sevestapol.
All these events have been a major factor in gold’s rally of nearly $100 in February.
Gold and silver had a very strong February, despite a pullback at the end of the month. Both have solid uptrends in place, and bulls have the short-term advantage. One market sector that has seen conflicting rumors is India. It seems that almost daily, there are reports that the Finance Ministry is going to ease the draconian gold import restrictions, or are going to leave them in place. Over 200 metric tons of gold was estimated to have been smuggled into India in 2013, costing the government $1 billion in lost taxes.
More proof that physical gold is moving West to East, never to be seen on the London or COMEX ever again, is the report that 80% of gold exported by Switzerland in January went to Asia. Most of this gold came from the London Gold Exchange. The 400 oz Good Delivery bars are melted down and purified from .999 to .9999 fineness, then re-cast into 1 kilo bars for the Asian market.
GATA.org alerts its readers that the Financial Times scrubbed a report from their website that said an auditing firm examined the London Gold Fix from January 2010 to December 2013, and found evidence that suggested collusion or manipulation of gold prices approximately 50% of the time. Eric Sprott notes that the coming end of gold manipulation is a “golden opportunity” for investors.
Peter Schiff says that Yellen is better for gold than Bernanke was, and explains why in this video from February 19. Another of our favorite links from this month is Matthew Lynn’s “Three Warning Signs From Higher Gold Prices” on MarketWatch.
Speaking of the London Gold Fix, it seems like the largest bank in the world by assets, the Industrial and Commercial Bank of China, is positioning itself to take over Deutsche Bank’s role at the exclusive table. ICBC has purchased the London commodities and forex division of Standard Bank, which gives it the presence in the international gold market to qualify to be one of the five banks in the world that sets the benchmark gold price.
On The Retail Front
The U.S. Mint reported that demand for the Silver Eagle bullion coin has quadrupled since 2007. Year to date sales for the Silver Eagle through February was nearly 8.5 million coins. The Perth Mint has a new collectible hit on its hands with the “Gods of Olympus” series of 2 oz silver high relief coins. The first coin, featuring Zeus, sold out within hours of its introduction.
There was some “buried treasure” news this month, as we learn that the hard work and research of two Scottish treasure hunters paid off when they unearthed 322 medieval silver coins during a dig in gale-force winds. Unlike the United States, treasure hunting laws in Scotland and the U.K. encourage metal detectorists to turn significant finds in to the government, because even if a museum decides it wants the treasure, it has to pay the market price, which is then split between the finder and land-owner. Not at all like the confiscatory practices in the U.S.
The big story was of course the California couple who stumbled upon the largest buried cache of gold coins ever found in the United States, while walking their dog on their property. The 1,427 gold U.S. coins date from 1847 to 1894, and many are in mint condition. The find is estimated to be worth $10 million, with some of the coins worth over a million dollars by themselves.
We still haven’t seen the stock market correction we seem to be overdue for, and gold and silver have good market fundamentals heading into March. Ukraine is going to be a big hotspot, and if the Erdogan government in Turkey collapses or goes bankrupt, it could drag Greece and Cyprus down with it. There are many nations right now experiencing the type of conditions that we hope we don’t see in the U.S. but should prepare for. Economic numbers for the U.S. will carry a lot of weight, as there won’t be blizzards to blame for them any more. Eric Sprott notes that the government has changed the way the CPI is measured for the 20th time in 30 years, to hide the true inflation rate. Will prices at the cash register force Yellen to raise the benchmark rates she charges the big banks? Keep in mind, the guy they hired for the #2 spot at the Fed is an expert on hyperinflation.
Steven Cochran is the Senior Content Writer for Gainsville Coins