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 affect gold prices.
What Did Gold Do in June?
Central banks, inflation, and diverging economies around the world magnified the usual summer weakness in gold for June. COMEX gold futures topped out early, hitting $1,995.50 on June 1st. Prices oscillated lower through the rest of the month, bottoming $78 lower at $1,917.90 on the 29th.
Spot gold followed much the same trajectory in June, notching a monthly high of $1,977.40 on the 1st, then taking a rollercoaster ride downward. Spot gold hit its nadir for the month early on the 29th when first quarter GDP came in far higher than expected. The news trashed gold prices, temporarily pushing gold below the $1,900 mark to $1,892 before bargain hunters leaped in and brought prices back to unchanged.
Factors Affecting Gold This Month
INFLATION
Inflation concerns ran the gamut among major economies in June, from inflation in the UK hovering near third-world levels, to China unleashing more monetary stimulus as their economy teeters on the brink of deflation. Falling energy prices helped ease inflation pressures in many economies this month.
UNITED STATES: Retail inflation in the US fell to a two-year low of 4.0% in June, mainly on a 16.7% drop in gasoline prices. Wholesale prices also moderated, showing the smallest gain in 2-½ years. Headline PPI was up 1.1%, versus estimates of a 1.5% gain.
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EUROPE: Eurozone inflation saw a sharp drop to 6.1% from 7.0%. The ECB is still behind the curve in fighting inflation, having waited much later than other economies to start hiking rates.
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UNITED KINGDOM: Inflation in the UK grew by 8.7% in June, twice the level of inflation in the US and the highest among the Group of Seven nations. Core inflation rose to 7.1% from 6.8% to hit the highest level since 1992.
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AUSTRALIA saw huge unexpected drops in inflation in June. Headline consumer inflation fell to 5.8% from 6.9%, with core inflation falling to 5.6% from 6.8%.
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HINA: Chinese inflation only rose 0.2% in June. China remains on the cusp of slipping into deflation as the nation’s recovery from COVID lockdowns continues to stumble. Manufacturing activity continues to contract as weak domestic demand has been unable to counteract falling exports due to interest rate hikes in the US and Europe.
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RATE HIKES (OR NOT)
The Fed paused rate hikes on the 14th as expected, but the real market mover was the dot plot chart of individual Fed leaders’ rate hike expectations. It showed that most respondents anticipated two more rate hikes this year. Fed Chairman Jerome Powell explained in the post-FOMC presser that the Fed does not see any substantial progress on inflation for the rest of the year.
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The ECB, which started raising rates much later than other central banks, hiked 25 bp despite the larger-than-expected drop in EU CPI. Lagarde said the ECB isn’t even thinking about pausing rates, as the estimate of how long it will take to get back to 2% inflation extended to 2025.
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BANK OF ENGLAND: The Bank of England surprised markets with a larger-than-expected 50 bp rate hike, bringing the top rate to 5% (the highest rate since 2008). The UK is fighting much higher and more stubborn inflation than the EU or US, and fears are growing that the BoE will have to hike rates to at least 6% to stop it.
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SWISS central bank hiked rates for the fifth time in a row, to 1.75%. Inflation dropped to 2.2% from 2.6%, but the bank sees the progress as due to temporarily lower oil and gas prices. It expects higher electricity and rents prices and higher inflation in the EU to push prices higher.
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The Australian central bank surprised markets by hiking rates by 25 bp to an 11-year high of 4.1%, saying inflation was still too high. They removed the phrase “medium-term inflation expectations remain well-anchored” from the meeting statement.
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The Bank of Canada had paused rates since January, but a strong Canadian economy forced their hand in June. Like their counterparts Down Under, they surprised markets that were expecting a pause by raising rates by 25 bp to 4.75%, the highest level in 22 years.
IMPROVING US ECONOMY
The US continues to lead the pack when it comes to an improving economy. Recent economic numbers have more people believing that the US can avoid a recession altogether. The good news started early, with a massive beat by the ADP Private Sector Payrolls report that reported a gain of 278,000 new jobs, compared to estimates of 190,000 new jobs. Non-Farm Payrolls for June printed an even bigger beat, recording a gain of 339,000 new jobs versus an estimated 190,000.
US manufacturing indices painted a mixed picture. The Empire State Manufacturing Index posted a massive improvement, blasting higher by more than 38 points, from -31.8 to a positive 6.6. The consensus estimate was -15.1. The Philly Fed Manufacturing Index went the other way, digging a deeper hole from -10.4 to -13.7.
The ISM Manufacturing Index fell to 46.9, down from 47.1 (the 7th consecutive month of contraction). The ISM Services Index was basically stagnant, at 50.3 down from 51.9. Retail sales showed a surprise gain of 0.3% versus estimates of a small drop of 0.1%.
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Central Banks
FED: Persistently higher jobs numbers had Fed officials coalescing around the message that the pause in rate hikes in June did not mean that rate hikes are over. The “dot plot” of interest rate expectations by Fed officials indicated another two rate hikes before the end of the year. This theme was repeated by Fed Chairman Jerome Powell in testimony before Congress.
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ECB: ECB president Christine Lagarde says price pressure across the EU remains strong, and is requiring the ECB to continue to raise interest rates. She said that next month’s rate hike will not be the last, saying that a “more persistent policy of rate hikes” will be needed to combat inflation.
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Central Bank Gold Purchases
The World Gold Council report this month covers April central bank gold sales and purchases.
The big news was Turkey, where the central bank sold a record 80.8 tons of gold in their desperate attempts to prevent the lira from dropping to deeper all-time lows. The Turkish lira has plunged from 5.5 to the dollar in 2021 to more than 26 to the dollar this month, losing more than 7% on June 7th alone.
This earth-shattering fire sale by Turkey guaranteed that there would be net outflows on central bank gold purchases for April. Kazakhstan piled another 13 tons in the red column, followed by Uzbekistan (-1.6 t) and Kyrgyzstan (-0.6 t).
The largest central bank gold purchase for the month was by Poland, which added 14.8 tons to its reserves. China added 8.1 tons, Czechia 1.8 tons, and Mongolia added 1 ton to round out the “plus” column.
All said and done, net central bank gold purchases for April were -70.6 tons.
Gold ETFs
Physically-backed gold ETFs saw a net 19 tons of inflows in May, bringing the year-to-date total back into positive territory by 6 tons.
The big winner was North America. Gold ETFs in the United States recorded 21.3 tons of inflows. This was moderated slightly by Canadian ETFs, which saw 0.1 tons of outflows to give total inflows of 21.2 tons for North America.
Gold ETFs in Europe lost a net 2.1 tons, as gains in the UK, France, and Ireland were canceled out by losses in Germany and Switzerland.
Gold ETFs in Asia and “Other” were flat. Asia only gained 0.1 tons (100 kg) while Other saw no net movement either way.
(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE)
On The Retail Front
The US Mint continues to lag weeks behind on updating bullion sales figures, but these are the totals we have as of June 29th:
1,255,000 American Silver Eagles were sold in June, a decent number for one of the traditionally weaker months of the year. 37,000 oz of American Gold Eagles were sold this month, along with 14,000 American Gold Buffalo 1oz coins.
American Platinum Eagles saw their second-highest month of the year in June, selling 3,500 1 oz coins.
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The Perth Mint saw lower bullion sales in May compared to the previous month. 72,889 oz of gold bullion products were sold in May, 3% less than in April, and 26% lower than a year ago. Year-to-date, gold bullion sales by the Perth Mint are 21.7% lower than in 2022.
Silver bullion sales at the Perth Mint for May totaled 1,881,101 oz. This was 3.4% lower than last month and 15.2% lower than May 2022. YTD, Perth Mint silver sales are running 16.4% behind last year.
Market Buzz
On June 3rd, Goldman Sachs predicted that the Turkish lira would hit a record low of 23 to the dollar within three months – it took three days.
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The Bank of America says that the new bull market in the S&P 500 is a head fake, and will end with a “big collapse” in the stock market.
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Michael Maharrey at Schiffgold says silver is “significantly undervalued” at $24-$25 an ounce, speculating that a large increase in demand for solar power cells will contribute to a supply deficit.
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High unemployment and an economic slowdown have hit gold demand in both China and India, but falling prices at the end of June got Indians back into jewelry showrooms after sitting out high prices last month.
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A recent poll by the World Gold Council has revealed that plenty of central banks won’t be stepping back from gold purchases anytime soon. The survey found that a quarter of central banks plan on building up their gold reserves to hedge against the dollar.
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The BRICS have negotiated more bilateral trade agreements in response to the weaponization of the dollar by the US following Russia’s invasion of Ukraine. Most recently, Pakistan has begun purchasing discounted Russian oil using Chinese yuan.
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Russians can now open bank accounts in Indian rupees.
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It was revealed this month that stablecoin Tether was holding $2 billion of gold as part of its backing of their stablecoin, which is pegged 1:1 to the dollar.
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A major convenience store chain in South Korea has installed gold bar vending machines in 29 locations since last September.
According to the company, GS Retail, more than $19 million in small gold bars have been sold through the vending machines so far. Sizes range from 1 tael (40 gr / 1.3 ozt) down to 1/10 tael, or 1 mace.
The smallest size has been the most popular, presumably because most purchases of gold in a convenience store would be impulse purchases.
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Famous gold commentator Jan Nieuwenhuijs explains China’s efforts to break the hegemony of the dollar in The Shanghai International Gold Exchange and Its Role in De-Dollarization.
Looking Ahead To Next Month
We’re deep into the summer doldrums for precious metals. Barring some earth-shaking political or economic event, gold prices should continue to drift next month. Since interest rate hike plans by most central banks are already known, they shouldn’t move prices much, one way or the other.
In the “Clueless Government Agencies Are Everywhere” Department, we pass along this story of the South Koren central bank ordering bakers to stop making buns with the design of the South Korean penny. The central bank accuses the bakers of stealing the design of the 10-won coin for commercial purposes, saying that the buns could promote counterfeiting and “diminish the dignity and credibility of money.”
Some bakers selling the buns, which are a popular tourist snack, have removed the “Bank of Korea” on the baking pans and replaced it with their company’s name. How do you say “bureaucrats cause expense” in Korean?
– Steven Cochran of Gainesville Coins
Disclaimer: This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.