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 May?
Gold began the month with another run at the $1,300 mark but was unable to break through after several attempts. This failure changed sentiment among speculators, leading gold lower. The Federal Reserve, thinking that the markets had stopped listening to them, started an all-out media blitz to stoke fears of another interest rate hike next month. This campaign, combined with a weaker British pound and euro, boosted the dollar. As a higher dollar means lower gold prices, it only helped speculators in their decision to close out their gold bets.
Gold spent the last part of the month successfully testing $1,200 before recovering. Gold prices will likely remain in a holding pattern ahead of the Fed’s policy meeting and the Brexit vote in the UK.
Factors Affecting Gold This Month
The battle for British hearts and minds continues, ahead of the June 23 vote on whether the UK should secede from the European Union or not. It seems that each poll gives the opposite answer than the previous one. One fact that may indicate the “Leave” side is eating into the “Remain” side’s lead is recent action with English bookies. William Hill bookmakers reported that +85% of referendum bets over the long [Memorial/bank holiday] weekend was for “leave” and this has required them to shorten their “leave” odds. This drama has led the British pound lower, helping to strengthen the U.S. dollar.
Fed Summer Hike
The uncertainty over the Brexit vote (as British polltakers are notoriously inaccurate) should keep the Fed from raising rates in June. The Fed meets just eight days before the Brexit vote. If the UK votes to leave the EU, there will be severe market disruptions and uncertainty. Other anti-EU political parties would take a successful Brexit as the sign to head for the exit themselves. This could force the Fed to immediately reverse the rate hike, causing even fewer people to believe them in the future. Even so, all the chatter from Fed heads has the odds of a June rate hike at 32%, up from 2% at the first of the month.
July is also a possibility, with odds at 58%, but the Fed meeting occurs in the middle of the Democratic Presidential convention. Any decision will be condemned by one side or the other as politically motivated.
The Fed strongly pushing the idea of a June or July rate hike has been the biggest influence on the dollar this month. The drop in the British pound over Brexit and the euro over deflation fears has also lent strength to the greenback. One headwind has been the strong demand for the Japanese yen as a safe haven currency. This is hurting the Japanese economy, so the central bank has been trying to talk down the exchange rate.
Saudi Arabia And 9/11
The U.S. Senate unanimously passed the Justice Against Sponsors of Terrorism (JASTA) Act, allowing family members of those killed in the September 11, 2001 attacks to sue Saudi Arabia. To pay any judgments awarded by U.S. courts, Saudi assets in the U.S. could be frozen and liquidated.
The Saudis called the bill “Satanic” and threatened to sell $750 million in U.S. Treasuries to destroy the U.S. bond market. There are a couple of problems with that evil plan. Firstly, they only own $116.8 billion in Treasuries (even the Cayman Islands owns twice that); secondly, where would they invest that money? EU bonds have negative interest and so do Japan’s. Maybe the Saudi government could use the cash from a Treasury sale to pay the contractors they have been giving IOUs for payment.
Of course, this is just one headache the Saudis are getting from the U.S. this month. A grassroots movement to release the hidden 28 pages of the 9/11 Commission report is rapidly gaining ground. This would provide the “smoking gun” to find Saudi Arabia guilty of supporting the 9/11 hijackers, nine of which came from Saudi Arabia.
Too bad for the Saudis that they need the U.S. more than we need them. The release of the hidden part of the 9/11 report and the resulting lawsuits would probably lead to tremendous instability in the kingdom, giving Daesh (a.k.a. ISIS) the opportunity to start a revolt against the Royals. With the dismantling of bank secrecy laws, there are no longer numbered Swiss bank accounts for storing ill-gotten gains. The U.S. could ask other countries to freeze Saudi bank accounts for payment of 9/11 lawsuits. Storing gold bullion in a vault leased by a shell company could be the best option for the decadent princes to quickly move their riches to safety.
Negative Interest Rates A Plus For Gold
Record-setting gold demand in Europe is being fueled by a host of dangers all coming together. Negative interest rates by the European Central Bank has depositors pulling their savings out of banks. The threat of a Brexit or the threats from millions of immigrants from the Middle East overrunning the nations of the EU are also adding to uncertainty and safe haven demand.
The same fear of negative interest rates have fueled a remarkable event in Japan. Citizens, afraid that banks may start charging negative rates on deposits, have withdrawn their savings and hidden it at home. Over 40 trillion yen ($360 Billion) is estimated to have been withdrawn out of the banking system and stuffed into futons. This is 8% of Japan’s national GDP hiding in homes.
On the Retail Front
Everyone’s favorite barometer for U.S. silver demand– U.S. American Silver Eagle sales– ended with sales for May just a whisper shy of 4.5 million coins. Total ASE sales through the first five months of the year is 23.4 million coins. If the current rate of demand continues through the year, a mind-boggling 56 million ASEs will be sold.
Let’s hope that the U.S. Mint doesn’t decide to choke demand again this year by cutting off sales or rationing coins.
This month, the Austrian Mint released its sales total for 2015. The Mint sold 1.32 million ounces of gold, an increase of 45%. It also totally blew away 2015 American Gold Eagle sales, which came in at 801,500 ounces.
Illegal gold mining is a plague across the third world, from South America, where is causes rainforests to be burned down and rivers full of mercury, to South Africa, where deadly gang wars erupt a mile beneath the surface in abandoned gold mines.
The saga of the Texas Gold Depository continues, as proposals start being tendered for the construction of the building. It’s been over a year since the bill authorizing the Depository was signed into law, but the wheels of government turn slowly.
The European Central Bank is confused and irritated that people will not pay negative interest rates for corporate bonds. Really? They actually thought people would do this?
Speaking of central banks, Bill Gross says that QE4, which he calls “helicopter money” for the government, will begin in the next year or so.
Hedge fund manager David Einhorn has taken a stake in gold, saying that all these central bank shenanigans will boost gold’s value.
Another big Wall St. star tells people to dump stocks and grab gold. Stanley Druckenmiller said that people who look at gold as a metal instead of a currency are wrong.
Even George Soros is selling stocks and loading up on gold.
On the other side of the world, Zimbabwe, which is still amazingly messed up, has come up with a plan to address the shortage of U.S. dollars in the economy. It’s going to print its own. Backed by a $200 million loan from the Africa Export-Import Bank, these “bond dollars” are supposed to be claims on that loan equal to the face value of the bill in U.S. dollars. Of course, there is only President Mugabe’s promise not to print a trillion of these, so lots of luck getting people to accept them.
Chavez’s socialist utopia in Venezuela is collapsing around the ears of his successor, Nicolas Maduro. The government is so broke it can’t pay for the chemicals needed to treat its crude oil in order to sell it. The economy is dead, and the people are rioting in the streets yelling, “We are hungry!” We can only hope that some of the people trapped in this nightmare learned to prepare ahead of time, like American preppers.
China’s plan to take over the global gold market continues, as ICBC– the biggest bank in China (and largest in the world)– bought a giant London gold vault from Barclays Bank. The underground vault, in a secret location, can hold up to 2,000 metric tonnes in precious metal. ICBC also recently joined the new London Gold Fix, making it the third Chinese bank on the 13 member committee.
Alan Greenspanwarns that growth in entitlement programs are outstripping productivity growth, leading the Western world to disaster: “We have a global problem of a shortage in productivity growth and it’s not only the United States but it’s pretty much around the world and it’s being caused by the fact that the populations everywhere in the Western world, for example, are aging and we are not committing enough of our resources to fund that.”
June will be all sorts of volatile, with the Fed policy meeting, the Brexit vote, and the increasing blowback against the flood of illegal immigrants in Europe. A successful Brexit will bring fears of independence movements erupting across Europe. On the other side of the world, worries about a “hard landing” for the Chinese economy will roil markets and cause commodity prices to fall. Globally, the G7 countries are already accusing each other of currency devaluation through QE and negative interest rates.
We end this month wondering if the guy who built Hillary’s email server used to work at the Fed, as Reuters reports More Than 50 Security Breaches Recorded at Federal Reserve.