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 examine the “what” and “why” behind those numbers.
Precious Metals Market Drivers in June
Gold started the month under $1,250 an ounce, and climbed over $70 to above $1,320 by the end of the month. Silver gained steadily throughout June, from under $19 an ounce to over $21. Platinum and palladium saw peaks and valleys, due to the on-again, off-again labor negotiations in South Africa that had halted 40% of global platinum production. Here are some other major market factors for precious metals in June. Spot gold was up $42.80 and COMEX gold was up $46.90 on July 19, the biggest one-day gain since last September. The gold:silver ratio tightened from 67:1 to 62.8:1 overnight.
SOUTH AFRICA MINING STRIKE
The platinum miners’ strike in South Africa is finally over, after five months and $2.25 billion in losses for the companies. Mineworkers lost nearly $1 billion in wages. The three-year agreement will probably not last long, because some of the older mines that were shut down have become so deteriorated that it doesn’t make economic sense to try and restore them to production. Watch for more violence when layoffs are announced, especially as the union leader lied to the workers and told them that there would be no layoffs for three years.
EUROPEAN CENTRAL BANK
The European Central Bank, desperate to prevent a deflationary “lost decade” like what happened in Japan, announced a cut in their benchmark rate to 0.15%, and announced that they would begin charging banks to store their excess funds at the ECB. This -0.1% rate is the first time a central bank has used negative rates. The idea is to weaken the Euro and force more bank funds in what ECB president Mario Draghi called “the real economy.” The measures only had a temporary effect, since the dollar is still losing international confidence. Investors are moving to the euro and Japanese yen as safe havens in turbulent times, instead of the dollar.
ISLAMIC STATE OF IRAQ AND THE LEVANT (ISIL/ISIS)
The Sunni terrorist group so violent that it was kicked out of Al Queda gathered its forces in June and rampaged over northern and central Iraq, capturing the nation’s second-largest city of Mosul. They looted $425 million in cash and gold from the Iraqi Central Bank branch, as well as numerous private banks. This makes them the richest terrorist operation in the world. They also captured numerous U.S.-built weapons systems, including armed HUMMVs and Blackhawk helicopters. ISIL has been flying the helicopters, apparently manned by former members of the Sunni Iraqi Army under Saddam Hussein. The group recently renamed itself Islamic State in Iraq and Syria, changing its acronym to ISIS. The Shiite-controlled national government of Iraq has carried out a program of revenge against the Sunnis who were in power under Saddam, with the result that many people in northern and western Iraq have sided with ISIL. These developments have seen large increases in the prices of oil and gold, as ISIL has closed export pipelines to Turkey, and fights to take over major Iraqi oil refineries. President Obama has announced that 300 “military advisors” will be sent to Iraq to counsel the Iraqi Army, which fled from ISIL until they reached Baghdad. It isn’t just Iraq and Syria that are seeing terrorist activity. A “commando group” of specially-trained Taliban fighters attacked the international airport in Karachi, Pakistan, with plans to seize hostages and hijack an airliner off the runway as a suicide weapon. The terrorists were stopped by Pakistani Rangers and security forces.
ECONOMIC NEWS IN U.S.
Despite what Wall St banks and the Federal Reserve want you to think, the U.S. economy isn’t as rosy as they say. The U.S. trade deficit ballooned to the largest gap in two years in June, while first quarter GDP was finally reported at -2.9%. The dollar marched in a downward path from June 10th to the end of the month, even while the Middle East is literally being re-shaped before everyone’s eyes. More and more people are warning against the lack of stock market volatility, noting that stocks cannot be a one-way bet forever. Big money is taking notice, as inflows into stock mutual funds is at an 18-month low. As the buyers disappear, who will the sellers sell to when it all comes tumbling down? The same day that Obama announced he was sending military advisors to Iraq, Federal Reserve Chair Janet Yellen described the big increases in food and fuel as “noise” the the Fed was ignoring. Ali Meyer at CNS has the rundown on what you already know about skyrocketing food prices. Did you know that a dollar today only buys 46¢ compared to what it bought just in 2000? Bank savings accounts aren’t even keeping up with inflation. Use bullion to preserve your purchasing power in the long term.
CHINA TROUBLES
China has started towing dredging equipment to the South China Sea, to turn reefs in disputed waters into islands and claim them as sovereign territory. This had led to violent protests in Vietnam, where numerous Chinese were killed, and less violent protests in the Philippines. There’s big trouble for China on the home front, as the revelations that companies used the same stockpiles of copper and iron for multiple bank loans continues to uncover more fraud. Several Chinese banks could be in serious trouble, with no way to collect on massive bad debts. Watch for an increase in Chinese gold demand, once they realize that prices may not be going down any time soon.
REGULATORS CLOSE IN ON MANIPULATORS
British financial regulators are working to expand the LIBOR anti-corruption laws to embrace currency and precious metals trading. This means that those found guilty could be sentenced to up to seven years in prison. Deutsche Bank– Europe’s largest bank– revealed that it is conducting an internal investigation as to whether any of its traders manipulated the London Gold Fix or Silver Fix. This comes in the wake of the first-ever conviction for manipulating the Gold Fix and may be due to Germany’s top financial regulators asking questions to Deutsche Bank that it can’t answer without conducting its own investigation. It was also revealed that UBS– another bank that sets the London Gold Fix– has been conducting their own internal investigations since March. Swiss banking authorities have also been probing possible gold manipulation, and this is probably related to that.
On The Retail Front
The Russian Central Bank reported that it purchased 300,000 ounces of gold in May, possibly as part of the government’s goal of reducing its exposure to the dollar.
Goldman Sachs dropped a bombshell on investors in the largest gold ETF in India, when it changed the rules to allow it to take gold out of the ETF and lease it out for profit. I wonder how much of the “100% backed by gold” ETF reserves are actually paper contracts now? Physical bullion, folks, is stored outside of the banking system. It’s the only way to be sure that you really own it.
The U.S. Mint temporarily ran out of the 5 oz silver America the Beautiful Shenandoah National Park coins on June 23, noting that production was continuing and they would be available again soon.
Market Buzz
The CPM Group says that there will be a world-record shortage of platinum this year, with an 814,000 oz shortfall just for industrial use. This doesn’t count investor demand for physical platinum and through ETFs.
The South China Morning Post has this cautionary tale of making sure that you know who you’re buying from. A Chinese businessman bought 998 one-kilogram gold bars from Ghana; when the shipment arrived in Hong Kong, the crates were full of fakes!
James Rickards asks if we’re about to see the stagflation of 1973 all over again, in this popular article making the rounds: “Connecting the Dots in the Global Mosaic”. Regarding Yellen’s description of accelerating inflation as just “noise”, Rickards posted on Twitter: “On the way from 1% to 9% inflation will hit 3%. When it does #Fed will declare ‘victory‘. Then recall Bush #MissionAccomplished sign & chaos”
Marc Farber predicts a stock market crash within the next 12 months that will equal, or exceed, the 1987 crash.
“This year, for sure—maybe from a higher diving board—the S&P will drop 20 percent,” Faber said, adding: “I think, rather, 30 percent. Who knows. But all I’m saying is that it’s not a very good time, right now, to buy stocks.”
Charles Oliver at Sprott Globalsays that tapering is good for gold, as it means the Fed thinks the banks are healthy enough to survive without QE. He says to watch inflation, which is starting to pick up, scare the $2.5 trillion in excess funds the banks are keeping at the Fed, into the open market. As soon as it looks like the banks can earn more than the 0.25% they are getting at the Fed, they will start pulling that money out and putting it to work. That will increase the velocity of money and fuel more inflation:
“The Fed’s reduction of QE, which they have reduced from $85 billion to $35 billion per month would intuitively be negative for gold. But this also indicates that banks are becoming healthier, which could mean they will begin to push money out into the broad economy. The velocity of money could pick up as a result.
“The 70s were a classic example where banks– and companies– felt shaky about the economy overall, so they held onto cash at first. But when they got a whiff of inflation, they quickly looked for ways to spend that cash. Rising nominal prices made it a good idea to buy things right away – you would be paid to hold onto those things, such as real estate or oil, because their price was rising. This caused a vicious cycle with the U.S. dollar losing value.”
Looking Ahead
Spiking oil prices may delay a relaxation of India’s gold import restrictions, to prevent their trade deficit from exploding again. Oil is India’s #1 import, and gold is #2. This may be offset by increased safe haven demand due to Mideast violence, and as the Chinese seek to hedge themselves against banking and “financial entity” collapses.
Gold prices are now at their slowest part of the year, and still prices have gone up $70 this month. It will be interesting to see what happens come August, when things start taking off.
Even though both the European Central Bank and the Bank of Japan are both doing everything they can to make their currencies cheaper, the sickly U.S. dollar continues to drop, even as the Fed cuts stimulus. Add to that the fact that the dollar seems to have lost all safe haven appeal, and we should prepare for higher prices as the greenback devalues more.
China makes another move to become the new center of the global gold market, as the Shanghai Gold Exchange announces that it will introduce gold futures contracts in September.
As a final warning this month, ESPECIALLY if you live in Georgia, states are now reducing the amount of time until they can seize “dormant” bank accounts and safe deposit boxes. California takes your money if the account has not been used for three years, and Georgia will seize your bank assets after ONE year! This means that if you or Granny have a safe deposit box or checking account set aside for a “rainy day”, you better check on it. The state may have confiscated it, and they won’t give it back! This is yet one more reason to hold your gold or silver outside the banking system.