Welcome to SurvivalBlog’s Precious Metals Month in Review. Here, 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. This column is authored by Steven Cochran of Gainesville Coins. Today, we highlight the effects of terrorism on the price of gold.
What Did Gold Do in May?
Gold stated the month of May right at $1,268. However, unexpectedly strong economic data blasted prices down by $40 an ounce to a seven-week low in the first week. The first estimate for the US economy in the second quarter was far higher than anyone expected, and the Federal Reserve declaring first quarter weakness was temporary.
Gold prices bottomed out on May 11, and began an uptrend that saw the gold market erase all of May’s losses by the end of the month. May 17th saw the largest one-day gains for gold since last year’s Brexit vote. Action was choppy in a tight range for the rest of the month. Gold jumped more than $10 an ounce on the last day of trading, to close out May right where it started, at $1,268.
Factors Affecting Gold This Month
If you had to name the largest influences on gold in May, you could sum it up in the phrase “Terror, Tories, and Trump”.
TERRORISM: ATTACK ON BRITISH CHILDREN
The most shocking incident in May was the suicide bomb blast in Manchester, England. There, children and young teens were deliberately targeted for murder. The bomber killed 22 people and wounded more. (Some of those, critically.)
As British authorities uncovered a pro-ISIS terrorist network in and around Manchester, they warned that another attack could be imminent. They believe that the attacker did not have the skills to make a suicide bomb, which meant the actual bombmaker was still at large. This news drove safe haven flight into gold.
This tragedy might have been avoided if law enforcement had taken seriously the warnings it received about the attacker. The moderate Muslim community in Manchester, including the suicide bomber’s own family, had warned authorities five times more than two years that he had become a violent and radicalized pro-ISIS Islamist, but nothing was done to stop him. He had also been banned from the local mosque after he cursed the imam for denouncing ISIS during a sermon.
MASSACRE OF CHRISTIANS IN EGYPT
Nearly as shocking as the Manchester bombing was the massacre of Coptic Christians in Egypt on May 26th. Terrorists ambushed a bus full of Christians in central Egypt. 28 people were shot dead, and 25 wounded. The Egyptian government traced the terrorists’ base of operations to a lawless area of neighboring Libya. They carried out airstrikes in retaliation for the murders.
Other terror attacks in the West this month included a car bombing in Rome that failed to kill anyone, and an ISIS-inspired knife attack that wounded two soldiers and one policeman in Milan, Italy.
NORTH KOREA PLAYS CHICKEN WITH TRUMP
North Korea fired off medium-range ballistic missiles three times in May, following three launches in April. Dictator Kim Jong Un has ordered 36 missile tests in less than two years. An 12 of these are in just in the first five months of this year. North Korean state-run media announced on May 14 that the previous day’s high altitude missile test was that of an Intermediate Range Ballistic Missile (IRBM) capable of carrying a large nuclear warhead.
In a May 30 demonstration of the United States’ increasing anti-ballistic missile (ABM) technology, the US military successfully destroyed a mock ICBM over the Pacific Ocean with a kinetic-kill interceptor missile. The operation, described hitting a flying bullet with another bullet, was a clear warning to North Korea that the US will be able to shoot down any ICBM the communist regime fires, long before it gets close enough to pose a threat.
With the focus on North Korea’s nuclear ambitions and President Trump’s efforts to bring more international pressure against Kim, it’s easy to overlook the fact that North Korea doesn’t need an atom bomb to destroy Seoul. The South Korean capital is within range of many hundreds of large North Korean artillery batteries.
BRITISH GOVERNMENT LOSES LEAD IN POLLS AHEAD OF ELECTION
British Prime Minister Theresa May, after promising over and over again to not call for early elections, did exactly that last month. Her plan was to ride the recent popularity her Conservative Party (the Tories) to gains in a general election to increase the Conservative majority in Parliament. A friendly Parliament would greatly ease May’s negotiations with the EU over Brexit.
The Tories enjoyed a 20-point lead in the polls against the opposition Labour Party earlier this month. But missteps by May regarding Brexit plans and a plan to strip health insurance from seniors lost her a lot of support. With the Conservative lead down into the single digits at the end of the month, traders started selling off the British pound, and moving some of that money into gold.
WITCH HUNT AGAINST THE WHITE HOUSE
The constant dripping of anonymous White House leaks to the press increased in May. Someone is attempting to keep the Trump Administration off balance. To date, no White House staffer have been cahrged. This has led one of President Trump’s lawyers calling Congressional hearings a “fishing expedition” and refusing an “invitation” to speak before the House and Senate Intelligence Committees.
Neither Congressional committee has turned up any physical evidence of collusion between the Trump campaign and Russian intelligence officials. This hasn’t stopped nervousness on Wall Street. They worry about the fate of the Trump Tax Plan and infrastructure spending plans to lift the economy. The more the White House is distracted by political developments, the less energy it has to push its economic plans through Congress.
On the Retail Front
Bullion coin sales at the US Mint came roaring back like a lion in May. Sales of both 2017 American Gold Eagles and 2017 American Silver Eagles more than doubled from April’s weak showing. Gold Eagles sales of all sizes totaled 14,500 troy ounces in May, rising by 141% from April’s 6,000 ounces. Silver Eagles sold just under two and a half million ounces this month – 2,455,000 ounces. This was nearly triple April’s 835,000, at 194% more. .999 fine American Gold Buffalo 1 oz coins were almost 43% higher. This ended May at 5,000 troy oz compared to 3,500 in April.
On the collector side of American bullion coins, a Freedom of Information Act request by CoinWorld to the US Mint revealed a new rarity in 2015 1 oz American Silver Eagle coins. Internal Mint tracking numbers revealed that the Philadelphia Mint had helped the West Point Mint meet investor demand by minting 79,640 Silver Eagles in 2015. With these inventory numbers, third-party grading services like NGC and PCGS can authenticate coins. (For example, 2015 Silver Eagles struck by the Philadelphia Mint, if they were still in sealed 500-coin “monster boxes”.)
Vending Machines
The vending machine industry has historically been a vocal opponent to replacing the $1 bill with a $1 coin. But coin acceptors for vending machines have been manufactured with the ability to take $1 coins for 20 years. However, this opposition seems to be softening.
An editorial in the Vending Times this month came out in support of efforts to move the US toward a $1 coin by simply halting production of $1 banknotes. Anyone who has struggled to get a vending machine to take a dollar bill can see the appeal of moving to a $1 coin like the rest of the developed world.
It isn’t like switching over to the $1 coin will have any up-front costs for the government. Coin News reports this month that the US Mint still has 1.24 billion $1 coins in storage, from previous attempts to get Americans to switch from paper dollars.
These prior plans failed. Why? Because they didn’t follow the example of all other modern nations. They gradually removed $1 bills from circulation while introducing the $1 coin.
That $20 safe haven jump in gold prices on May 17th had an immediate effect in India, blunting retail demand temporarily.
Market Buzz
Arizona became the latest state to abolish state capital gains tax on legal tender gold and silver coins. Arizonans that buy gold or silver bars are still subject to state capital gains taxes. State Representative Mark Finchem explained the law. He said that Gold and silver coins struck by the US Mint are legal tender, regardless of price. Therefore, selling these coins is just exchanging two forms of legal tender. (Trading precious metal coins for another form of legal tender (Federal Reserve Notes). This is an exchange under Arizona law, and not a sale. So there are no capital gains, and therefor no capital gains taxes can be levied.
In an opinion piece on The Street, David Yoe Williams Jr. says that the growing number of states that are declaring government-minted gold and silver to be legal tender are simply returning to our Constitutional roots of sound money policy.
Lawrie Williams at Sharps Pixley notes that India has been the largest destination for Swiss gold exports every month of 2017 so far.
Proving that high prices only temporarily suppressed demand, the spring festival and wedding season has kept Indian gold demand high through May.
Michael Lombardi wonders What Is India Doing With All The Gold? He notes that Indian gold imports for last March were 329% more than in March 2016. In April Indians bought $3.58 billion in gold. That is 2,1 times more than a year ago at the same time.
On the subject of Asian gold demand, the Dubai Gold and Commodities Exchange became the first foreign gold exchange to handle trading in Shanghai gold futures. Reception from traders in the Middle East and western Asia has been enthusiastic.
Australian Gold Production Down
Peter Schiff notes that new gold supply is falling, with Australian gold mining production down by 8%.
Central Bank gold reserves saw Kazakhstan and Russia as buyers again. The Kazakh central bank has bought gold every single month since October 2012. They were joined by Turkey, which is replenishing its gold reserves. They’ve bought 14.8 metric tons, as their currency stabilizes. The Turkish central bank had leaned on its gold reserves to help combat a huge devaluation in the lira. Once again, Gold is doing its traditional job.
Speaking of currency devaluation, the government of Nigeria is paying higher prices than the black market rate for US dollars. The government is outbidding alleyway money changers for American greenbacks, because it desperately needs hard cash for international commerce. The dollar shortage in Nigeria is made worse by people hoarding US currency.
The centuries-old cloak of secrecy surrounding the Bank of England’s gold may be coming down. The BoE is planning to publish data on the gold bars in storage in their vaults, on a three-month delay.
The World Gold Council announced that gold demand was lower in the first quarter of 2017 compared to 2016, but reminds folks that gold demand was huge last year. Spokesman Carlos Artigas said“In reality, it was a very robust quarter.” He recommends buying on the dips right now. Gold could hit as high as $1,350 an ounce by the end of summer. And $1,400 by the end of the year is possible.
Jeff Christian, who called the peak in the gold market, expects prices to trend upward to end 2017 “firmly above $1,300.”
BITCOIN: THE ULTIMATE COUNTER-PARTY RISK
Don’t believe the mainstream media hype about Bitcoin being the “new gold”. A Bitcoin doesn’t physically exist. Your money is tied up as numbers in someone’s computer. Several Bitcoin exchanges have been hacked in the last couple of years. This has resulted in tens of millions of dollars in unrecoverable losses to investors.
Bloomberg notes that there is a maximum of 21 million bitcoins that can ever exist. At a price of $1,843 per coin, the present total value of all bitcoins is less than $39 billion. To put that in perspective, the total value of the world’s physical gold holdings is $7.3 TRILLION. To equal the value of gold, bitcoins would have to trade at $347,000 per coin.
Other News
The Lombardi Letter says to watch the huge growth in solar panels for a big rally in silver.
A big leg up for silver prices could be sparked by the bear market in copper and lead. Global silver production last year hit its lowest point since 2002, with world silver supplies dropping by 32.6 million ounces.
Precious metals mining expert Martin Creamer discussed a revolutionary new platinum mining and refining technology that the Zimbabwean government is devoting 1 billion rand toward. This new technology could have the same effect on the platinum industry that fracking had on the oil industry.
Despite a bad week or two, palladium prices are still more than 22% higher this year. The analysts at GFMS Thomsen Reuters predict this bull market will soon see palladium prices higher than platinum.
Looking Ahead
The oil boom seems to be over, at least for now. This comes even though OPEC and Russia promised to keep production cuts in place until the end of March 2018. With oil trading solidly below $50 a barrel, inflation will weaken. This would put any more interest rate hikes by the Fed in doubt. This would weaken the dollar and boost gold prices.
British Prime Minister Theresa May might have made the wrong bet in calling for early elections in the UK. Her Conservative Party has blown a 20-point lead in the polls, putting into jeopardy May’s plan for gaining more seats in Parliament to make Brexit negotiations easier. A weaker than expected showing by the ruling party could act as a catalyst for another gold rally.
Also in Europe, the mainstream press has been pretty effective in downplaying the latest Greek Debt Crisis, but a default by the government in Athens is still the most-likely cause for the destruction of the European Union.
We end this month with a look at “Bizzaro Taxes From Around The World”, by Peter Schiff.
The foregoing does not necessarily represent the view of SurvivalBlog’s Editors. See our Provisos, for details.