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 July?
Gold started July off with a bang but not the kind it wanted. A big jump in wholesale prices in the manufacturing sector on July 3rd sent gold plunging to the $1,220 mark. On July 3rd, North Korea successfully tested its first ICBM capable of reaching the United States. North Korean TV reported that dictator for life Kim Jung Un called the test “an early fireworks gift for the United States”. This started a month of bad behavior that helped gold prices.
On July 7th, an orchestrated take-down of the silver price cratered prices below $15 before the market could recover. This pretty much hobbled silver prices until the last half of the month.
Non-farm payrolls showed 222,000 new jobs were created in June, which is far higher than the expected 178,000. Gold dropped $8 an ounce, which triggered a waterfall of automatic selling. By the end of the day, gold was $14 lower at $1,211 an ounce.
Gold prices struggled under $1,220 an ounce until the middle of the month. Weakness in the dollar and soft economic news allowed gold a rally that lasted the rest of the month. After flirting above the $1,270 level the last week of the month, gold ended July at $1,269 an ounce. This was a six-week high.
Factors Affecting Gold This Month
North Korea (And Iran)
Both members of George W Bush’s “Axis of Evil” caused tensions around the world with missile tests. The brutal regime of North Korea has accelerated its missile program. Dictator Kim Jung Un has conducted more missile test launches this year than his father and grandfather did over their own careers as “ruler for life” of North Korea.
The big event in North Korea’s antics in July was the successful launch of their first ICBM. U.S. military experts reported that the missile had the range to hit the West Coast of the United States. Shocking the world even more, North Korea launched a second ICBM on July 28th, less than a month after the first one. This missile landed less than 200 miles from Japan. Some defense experts enlarged and enhanced a photo of Kim Jung Un that had a map of the missile’s path and found that it was supposed to have landed right off the coast of Japan, inside their 12-mile territorial sea zone. If the missile had made it that far, Japan would have practically been forced to launch a military reprisal.
While the world’s eyes were on North Korea, Iran caught everyone by surprise with a missile launch of its own. Said to be work towards a “peaceful” space program, Iranian media said that the rocket successfully made it into space. According to Iran, this particular class of rocket can carry a 550-lb payload.
President Trump was quick to denounce the launch as being part of Iran’s secret development of a home-grown ICBM and a violation of the nuclear disarmament treaty that the Islamic Republic signed with major Western nations last year. Trump has often referred to that treaty as a bad deal for the U.S. and has called for tougher sanctions against the ayatollahs.
Uncertainty In Washington
The fight in the U.S. Senate over a bill to repeal and replace Obamacare took all the attention on Capitol Hill in July. Eventually, Senate leader Mitch McConnell gave up on finding a compromise between Tea Party/Freedom Caucus Senators and Senate GOP centrists. This pushed back any work on tax cuts and deregulation, which disappointed Wall Street.
Turmoil at the White House also derailed any political progress, with media outlets pushing on reports that Donald Trump Jr. met with a Russian lawyer before the election, after being promised information on Hillary Clinton’s deleted emails.
U.S. Economy Falling Behind
The first estimate of GDP for the second quarter of the year showed the economy growing at a 2.6% rate, which was more than double the 1.2% growth seen in the first quarter. On the downside, average wages actually fell, and inflation eased. This was just another reason that the stock market thinks there will be no interest rate hike by the Fed in September. There is no FOMC policy meeting in August.
A weaker economy and delay in tax cuts and infrastructure plans led to a…
The U.S. dollar ended the month of July at a 15-month low, posting a 92.85 on the DXY dollar index. This is the fifth month in a row that the dollar has fallen, the worst monthly losing streak since 2011.
At the same time, the euro has blasted higher against the greenback, ending July at a 2-1/2 year high just under $1.18.
The uncommonly-weak dollar has caused an economic environment where gold is higher and also stocks are higher as cheaper dollars help exporters. In addition, the plummeting odds of another Fed rate hike anytime soon has the prices for bonds rising steadily. Bond yields go down as bond prices go up, because the excess demand means that bond sellers don’t have to offer as high an interest rate in order to attract a buyer.
On the Retail Front
After a frankly pathetic June, bullion coin sales at the U.S. Mint came roaring back. American Silver Eagle sales totaled 2,455,000 for July, after a hugely disappointing 986,000 sold in June. American Gold Eagles of all sizes sold 16,500 ounces, compared to just 6,000 ounces in June. Sales of the American Gold Buffalo 1 oz .999 fine gold coin totaled 5,000 in July, compared to 2,000 in June.
Central bank action in the gold market was mostly quiet in July. Kazakhstan extended its world record long streak of gold purchases by buying 4.5 metric tons. Turkey increased gold reserves by 5.2 metric tons, while Russia was a big buyer (mostly from domestic sources), adding 19.5 mt. Germany and Fiji were sellers in July, each one selling 1.7 mt.
John Rubino, in an article on Seeking Alpha, called the bottom of the gold market on July 14th, the day the current rally began. Chile is the world’s 5th-largest silver producer. It announced this month that national silver production for May was down by 32% compared to May last year. That’s 44.8 metrics tons less than last year, just adding to the decline in world silver production.
While the SRSrocco Report, declaring that China is going to launch a gold standard for the yuan, is a bit premature, the cold hard facts are that Australia did export more gold to China and Hong Kong in the first quarter of 2017 than any other quarter in history.
Luxury bomb shelter companies in the U.S. are seeing a huge increase in demand from Japan, due to the North Korean missile tests that show that Tokyo is within easy reach of socialist missiles.
The London Bullion Market Association (LBMA) released the total amount of gold and silver in its vaults for the first time in history. They promise that they will update these totals each month and start reporting transaction volume. This is an attempt to hold off calls by regulators for greater transparency in the precious metals markets.
The year 2016 was a down year for Indian gold imports, but gold demand has jumped in 2017. Gold imports year-to-date in India already match the entire year’s imports for 2016. Imports may be on pace to hit a five-year high.
The Goods and Services Tax (GST) in India was raised this month from 1.2% to 3%. This doubling of taxes includes gold purchases, which is leading to predictions that gold smuggling will increase.
If the price of gold gets high enough, India could tap the 10 billion metric tons of seabed off its coasts, which contains all sorts of good stuff in addition to gold.
On the other side of the Indian Ocean, the luxury trade (gold, jewelry, and gemstones) that passes through Abu Dhabi increased 66% in 2016 to over $4 billion.
Russia’s largest bank is now trading physical gold on the Shanghai Gold Exchange.
The Dow Jones hasn’t seen a 5% correction since 2011. It is long overdue, and most investors today have never lived through one. The scary part is, a 5% correction in the stock market would be 1,100 points. Panic will grip Wall St and Washington when (not if) this happens. And who knows where gold will end up?
Ron Paul says it would not be a “total shock” if the stock market fell 25% and gold rose 50% by October. Let’s put that in perspective using closing prices on July 31st. That would be a 5,500 point drop in the Dow, and a $634 jump in the price of gold.
Dr. Paul could be on to something. A Swiss supercomputer is pointing towards growing stock bubbles worldwide, signaling a crash could come soon.
Jim Grant says that the reason governments hate the idea of the Gold Standard returning is that they could not run up huge budget deficits and pass the cost down to our grandchildren.
Ray Dalio, chairman of the world’s largest hedge fund, is someone that markets listen to. Right now, he’s saying it’s time to start moving to the exits in the stock market, as the “Era of the Central Bank” is ending.
It sounds like something out of the Twilight Zone, but Martin Armstrong of Armstrong Economics predicts that a major central bank will go bankrupt in the next year. One can barely imagine the fear and chaos that will happen if this prediction comes true. We won’t even mention what the price of gold will do.
Andrew Hecht notes that both gold and silver rose for 11 of the last 15 trading days of July. He sees this as a market reaction to the recent fake “flash crashes” and says that he sees an explosive rally in both metals eventually challenging the July 2016 highs of $1,377.50 and $21.095. From your lips to God’s ears, Mr. Hecht.
The Ross Norman is the CEO of Sharps Pixley, one of the largest bullion businesses in the world. He tells Business Insider about gold sellers like him, “We’re selling life jackets on the Titanic. Why wouldn’t you buy one?”
Another quote from the same article: “What used to be considered a bunch of scaremongers and conspiracy theorists is now quite a large group. You have to take a view: What chance do I think there will be a significant economic or financial crisis in the next five years? That percentage is your allocation to gold,” said Norman.
How about this one? The Chairman of the CME Group, the company that runs the COMEX, says that gold should really be around $5000 an ounce!
The stock market keeps hitting new highs almost every day. How long can this go on? We might find out, if fights in Congress next month over the debt ceiling drag on.
Those debt ceiling negotiations are going to push back any more attempts at repealing Obamacare. Congress could support economic growth and job growth, if they can pass some of President Trump’s signature plans. Rebuilding the nation’s crumbling infrastructure and overhauling the tax code would be a great start.
Outside of the halls of Congress, the world’s central banks will be watched closely. Janet Yellen and the Fed are no longer the only ones with a recovering economy. If senior Federal Reserve executives don’t address the plunge in value of the dollar, we might assume that they are letting it devalue on purpose. As it stands now, even a December rate hike is not a sure thing, with the economy cooling.
We end this month with a consumer safety alert. There will be a total solar eclipse on August 21. The American Redoubt will have some of the best views. (Check the map at the following link.) However, a bunch of scam artists are selling fake “eclipse glasses” that could result in eye damage and permanent blindness if used to view the eclipse. Space.com has the skinny on what “real” eclipse glasses should be made of. They also have a map showing the best places to view the eclipse.