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 July?
We expected continued central bank policies of putting the inflation fight above the job market and preventing inflation would have put gold on the back foot, making traditionally weak summer gold demand worse. That isn’t exactly what happened.
August gold futures started July at $1,929 an ounce, with spot prices starting at $1,919. Prices peaked on the 18th, with August futures settling at $1,980, and spot prices closing at $1,977. The most active gold contract on the COMEX shifted to the December futures on Friday, July 28th, closing at $1,999.90. It ended the month at $2,009.20.
Gold saw highly volatile price movements this month, moving suddenly by $20 up or down on unexpected economic news.
Factors Affecting Gold This Month
INFLATION
The US saw lower inflation numbers in July on both the retail and wholesale sides. June CPI came in a full point lower than May, at 3.0%. Wholesale inflation was also lower than estimated. The June Producer Price Index rose only 0.1%, the slowest increase in nearly 3 years.
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The ECB is getting a handle on inflation as well, but still has a long way to go. Eurozone inflation fell from 5.5% in June to 5.3% in July, helped by lower oil prices. Core CPI, which strips out energy and food, remained anchored at 5.5%.
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The UK continues to suffer some of the highest inflation in the industrialized world, even with a big drop from 8.7% to 7.9%. The Bank of England has a long road ahead in getting inflation back under control. Inflation in the UK is substantially higher than in the EU due to economic dislocations from Brexit.
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THE FED
Minutes of the June FOMC meeting showed that Fed officials were unanimous in their vote for a June rate hike. The consensus started diverging when it came to further hikes. 16 of 18 voting members expected that the Fed could go for a “one and done” at the July meeting, with 12 members voting for one more hike after July.
San Francisco Fed president Mary Daly called two more rate hikes this year as “likely.” Cleveland Fed president Loretta Mester said the economy was showing more underlying strength than expected, with progress on core inflation “stalling.”
Fed Governor Christopher Waller expects the Fed to hike rates by 25 bp twice more before the end of the year. He left the door open for more good inflation news to cancel the need for the second hike.
Former Fed vice-chairman Richard Clarida said it was “understandable” that markets expected the Fed to make its first rate cut in March.
Central Banks
The Bank of Canada raised rates by 25 bp this month, to 5%. This is the highest interest rate by the central bank in 22 years.
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The Australian central bank shocked markets with a 25 bp hike. Inflation stuck at 7% prompted the move.
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ECB officials say that they are not finished with rate hikes, as upside risks from inflation persist.
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In contrast, the People’s Bank of China faces the very real threat of deflation as the contracting Chinese economy fails to react to stimulus measures. A protracted period of deflation in China will reverberate worldwide, dragging other economies down with it.
Central Bank Gold Purchases
Another massive sale of gold by the Turkish central bank pushed central bank gold purchases into negative territory again in May. Net central bank gold purchases fell by 27.5 tons, thanks to the sale of 62.8 tons of gold by Turkey.
Turkey was joined on the sell side by Uzbekistan (10.9t), Kazakhstan (2.4t), and Germany (1.8t). The Kazakh central bank explained its streak of gold sales as a change in policy to have no more than 50% of its reserves in gold. That goal means that we should see Kazakhstan sell 14 tons more of gold this year.
The Polish central bank was the largest buyer in May, adding 19.9 tons of gold to their reserves. They were joined in the buyers’ column by China (15.9t), Singapore (3.9t), Russia (3.1t), Iraq (2.3t), India (1.9t), the Czech Republic (1.8t), and Kyrgyzstan (1.5t).
Gold ETFs
Investors bailed out of gold ETFs in droves in June, pulling a net 55.9 tons of gold from global ETFs. This exodus was driven by gold prices collapsing from $1,970 an ounce to near $1,920 an ounce late in the month.
North American gold ETFs saw a net 26.9 tons of outflows for the month. European gold ETFs fared nearly as badly, losing 26.1 tons. Asia was the only region to see inflows in June, a paltry 1.1 tons. The “Other” category saw 4.0 tons of outflows.
The big losers this month were gold ETFs in the US (-27.2t), UK (-21.7t), and France (-4.7t).
(“Other” markets are Australia, South Africa, Turkey, Saudi Arabia, and UAE.)
On The Retail Front
The US Mint’s bullion coin totals for July as of July 31st stood as follows:
American Silver Eagles: A little more than 1.2 million ASEs were sold in July (1,204,000).
American Gold Eagles: The US Mint only sold 36,000 1 oz AGEs in July. There were no sales of fractional AGEs this month.
American Gold Buffalos: 13,500 1 oz Gold Buffalos were sold in July.
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The Perth Mint sold 73,124 oz of minted gold and 1,326,011 oz of minted silver in June. Gold sales were 0.32% higher than in May, and 12% than a year ago. Silver products were 30% lower than in May, and 13% lower than a year ago.
Market Buzz
Global pushes to expand renewable energy production are putting the squeeze on silver supplies. Silver demand for solar panels is expected to be 14% of global demand and is growing yearly. The Silver Institute expects silver supply to expand by 2% this year, while demand is expected to grow by 4%. A study by the University of New South Wales in Australia projects solar demand to consume 85% to 98% of global silver supplies by 2050.
80% of the world’s silver supply is a by-product of base metal mines. A slowdown in the Chinese economy means less copper, zinc, and lead demand, which means a lower silver supply.
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The UAE removed Emirates Gold DMCC from the country’s Good Delivery List after an al-Jazeera investigative report exposed the extent that the refinery was laundering gold from African warlords and Russia. The LBMA quickly followed suit.
The refinery has long been notorious for laundering “blood gold.”
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The World’s Appetite for Solar Panels Is Pushing Up Silver Prices – Bloomberg
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Analysts at ANZ Bank say that the global push toward renewable energy will make current silver shortages worse, saying, “We estimate the Silver market is entering a period of tightness unseen for decades. This may not be alleviated by higher Silver prices.”
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Russian president Putin signed a digital ruble law this month, setting guidelines for a Central Bank Digital Currency (CBDC). This will allow the Russian government to track every purchase made with this digital ruble, including the time and location of the transaction.
China has already implemented a digital yuan and is pushing for its wider use in their economy.
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Jan Nieuwenhuijs tracks down the sources of the rumors about a gold-backed trade currency between the BRICS nations in this Gainesville Coins piece: Will BRICS Implement a Gold-Backed Currency in August?
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The most popular de-dollarization plan by the BRICS so far is to use the Chinese yuan as the trade currency between members. The most recent case is the announcement by India that it will start buying discounted Russian crude oil using yuan.
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What happened to silver bullion coin demand in Germany? According to Metals Focus, it’s all about the taxes. The German government removed the tax exemption for non-EU silver coins, making them subject to a 19% VAT now. In their words, “As a result, the German silver coin market effectively collapsed this year.”
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Looking Ahead To Next Month
The next policy meetings of the Fed, ECB, and Bank of Japan will be in September. This leaves the Bank of England as the only major central bank to meet next month. With inflation in the UK remaining untamed, and oil prices rising, the BoE has their work cut out for them.
Just because the major central banks aren’t having policy meetings in August doesn’t mean there won’t be any central bank news. The global central banker meeting at Jackson Hole, Wyoming, runs from August 24th to 26th. Expect the press to dissect every word that comes out of the meeting.
If recent inflation trends continue, we should see dollar weakness supporting gold prices. The dollar has been riding Fed rate hike expectations higher, and with that gone, we should see it fall back below 100 on the DXY index.
This month’s treasure story is about the “Great Kentucky Hoard” of over 700 Civil War-era gold coins, discovered in a cornfield. Many of the coins are in uncirculated condition, indicating that they were buried soon after being withdrawn from the bank. The hoard has tremendous historical value. There were few gold coins minted during the Civil War, as people hoarded every gold and silver coin that they could find.
NGC, which certified and graded the hoard, discovered new varieties and error coins that had never before been seen. The discoveries included several Mint State 1863 double eagle $20 gold coins that matched the finest known in quality.
– Steven Cochran of Gainesville Coins
Provisos: This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.