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 examine the “what” and “why” behind those numbers.
May was a dance between gold and the greenback, as the two fell back into a negative correlation. Gold traded in a tight range between $1185 and $1195 for the first part of the month, before a weakening dollar helped both gold and silver rally to a three-month high. The dollar hit a four-month low on May 15, then rallied into the end of the month, putting pressure on commodities. Even though the dollar was gaining strength from a euro that was weakened by quantitative easing from the European Central Bank, gold fought hard and kept the $1206 support level for days. When that broke and prices fell under $1200, the $1186 support level proved resilient.
The socialist government in Greece, determined not to give up its pledge to rescue the welfare state, continued its attempts to extort more bailout funds from the rest of the EU. However, their brinkmanship has destroyed much of the sympathy they formerly had from other nations. German Chancellor Angela Merkel has faced growing opposition to sending the Greeks more German taxpayer money in yet another bailout, especially one that does not live up to the previously agreed-to provisions of the last bailout. Even members of Merkel’s own party are threatening to break ranks and would rather see Greece leave the EU than to pour more money down that hole.
One prominent opponent to letting Greece renege on its bailout conditions is the influential German Finance Minister, Wolfgang Schaeuble. Schaeuble turned the Greeks’ threat to hold a referendum about accepting a bailout back against them, saying that perhaps the Greek public should vote on whether to continue under the established bailout rules or not. In a Dirty Harry “make my day” move, he has also publicly said it would be prudent for the leftist government in Athens to prepare a form of scrip (IOUs) to pay domestic bills with, if they can’t agree to terms with creditors.
Greek citizens aren’t showing much faith in their leaders, as they continue to pull billions of dollars worth of deposits out of the banking system to keep the government from seizing it. Much like the Germans during the Weimar Republic did in the 1920s, they are buying hard assets, such as gold and durable goods like cars, in case the country exits the EU and introduces a greatly devalued drachma as the new national currency.
Although the almost complete lack of cash forced prime minister Tsipras to go back on a major campaign promise and stop blocking the sale of Greece’s largest shipping port (which had been started by the previous administration,) he drew the line at reforming Greece’s bloated welfare state and government.
Things came to a head, when the Greek government used its emergency funds at the IMF to pay its bill to… the IMF. This prompted the IMF to begin work on implementing “The Cyprus Plan” on Greece, where the banks would be shut down and deposits over the insured amount seized er “exchanged for bonds in reconstructed banks” in order to recapitalize the Greek financial sector. This caused gold to spike to a three-month high and silver to jump close to a four-month high.
The Greek Interior Minister, who has no say in economic policy but is used by the leftist government to scare EU creditors, announced on May 24 that the government would not be making any more IMF loan payments without a new bailout being approved. It was learned that the previous weekend the ruling council of the governing Syriza Party had voted on pre-emptively defaulting on the nation’s debts. The final vote was 95 against, 75 for, meaning only 11 more delegates would have to change their vote next time it comes up (and it WILL come up again), for Greece to self-destruct.
Despite the fact that Greece has plummeted back into recession under the leftist Syriza Party after the economy had started growing again under the previous administration, other socialists and anti-austerity parties have been gaining ground in southern Europe. The Socialist Party of Portugal has announced that it will reverse austerity policies there if elected this fall, and the Podemos Party in Spain, often called “the Spanish Syriza,” made gains in recent elections, helped by serial political corruption scandals in the ruling party.
David Stockman, in his “Contra Corner,” gives us a look at what happens when a nation lives beyond its means until the entire system collapses, in this article on the hardships suffered by everyday people in Greece.
The global bond market suffered a meltdown in early May and dragged the stock market down with it. Liquidity is disappearing as the “big boys” get out of the market, taking their profits while the mom and pop investors keep piling in. More than $450 billion in the bond market was wiped out, as investors found out that the “sure thing” of deflation and falling oil prices wasn’t as certain as they’d thought. Even without the Fed raising interest rates, signs of inflation heating up are already appearing. The high prices, negative yields, and high volatility of the bond market has changed bonds from being “risk-free returns” to “return-free risks.”
Older, wiser heads are warning that the stock market’s days are numbered, too. Stock prices are now 10% higher than the entire worth of all the companies. You could sell all the stocks, take the money and buy everything every company owns, down to the staplers in the offices, and still have billions of dollars left over. That doesn’t sound like a rational stock market to me, and more people are taking notice. This is why Bank of America is telling its clients that the markets are in a Twilight Zone, and they need to reduce exposure to stocks and bonds and stock up on cash and gold before it’s too late. ScotiaMocatta notes in turn that gold is a cheap safe haven right now and says a strong upside surprise may be in the cards.
Jim Rickards says that Warren Buffett already sees a Weimar-style hyperinflation scenario building, and you can tell it from what he’s investing in.
We are perhaps closer to a nuclear war in the Middle East than we have ever been, and we’re getting closer. In addition to Israel’s nuke arsenal, Iran’s efforts to build The Bomb has prodded the Wahabbi royalty of Saudi Arabia to go public with plans to counter Iran with an atomic bomb that they will buy “off the shelf” from Pakistan. Saudi foreign aid is the only reason the Pakistani government hasn’t collapsed from its debts, and Islamabad will be more than happy to provide the protectors of Mecca with a turn-key solution to counter the Shiite threat of Iran.
Emphasizing both the betrayal the Kingdom feels has been perpetuated by Obama and the extremist views of the royalty, the Saudi King refused Obama’s invitation to a summit of Persian Gulf leaders and instead met with the most fanatic Muslim clerics of the kingdom.
The Saudi-led coalition of Sunni monarchies continues conducting airstrikes in Yemen, where they say Iran is supplying the Shiite insurgency that has forced the government into exile. Fighting along the border between Saudi Arabia and Yemen emphasize the danger to the oilfields of the world’s largest oil producer, especially since the richest oilfields are in areas that have a sizable Shiite population.
Speaking of extremists, the terrorist army ISIS has conquered Ramadi, the capital of Anbar province in Iraq. The Iraqi army, which outnumbered the Sunni terrorists, fled in terror instead of fighting, leaving hundreds of vehicles (including at least ten fully-functional M1A1 Abrams tanks) for ISIS to capture. Since many former Iraqi army soldiers from the Saddam era are now in ISIS, they have the crews to use these tanks against Baghdad. The only effective force the government has to counter ISIS are the various Shiite militias, including the Al-Sadr Brigade, which killed hundreds of U.S. soldiers during the American occupation of Iraq. These men hate the U.S. as much as they hate ISIS, and their prime goal is to extend Shiite hegemony (and Iranian influence).
To follow up on the stunning victory in Ramadi, ISIS took the last of three border crossings between Syria and Iraq from the Syrian army, and now they have a clear highway linking their holdings in eastern Syria and Anbar province in Iraq. Of the three border crossings between Iraq and Syria, ISIS controls two, and the Syrian Kurds control the northern-most one.
The Salafist terror group has also conquered the ancient Syrian city of Palmyra, whose historic ancient ruins the jihadists have sworn to destroy. (This is only partially true. In order to raise money, they video the large buildings being destroyed, then sell the smaller antiquities on the black market after the videos have increased demand for surviving relics.)
ISIS’s next target may be breaking the government siege of rebel-held areas near Damascus, thereby winning the starving people there to their side in the final fight for Syria.
German demand for physical gold jumped 20% in the first quarter of 2015, as neither a Greek default nor more German taxpayer money being given to them were particularly appealing.
The Perth Mint bullion blog has posted a handy guide to spotting fake Perth Mint Gold Bars and cautions against buying precious metals on eBay. (Gainesville Coins is an authorized Perth Mint distributor.)
The Royal Canadian Mint, which releases reports on a three-month lag, has reported that silver demand held steady in 2014, and the Mint recorded the second-highest profit in history.
Speaking of Canadians and silver, the Motley Fool says that “Silver is shaping up to be the precious metals deal of the decade.”
This report says that we may have seen “Peak Silver” in mining supply. There’s simply not been enough exploration to find enough new deposits to replace the existing silver mines that are running empty. Unfortunately, the new deposits that are being discovered are not nearly as large as the ones that are running dry.
MarketWatch’s commodities reporter notes that the frenetic pace of stimulus measures in China could mean a 40% spike in silver prices by the end of the year.
On the subject of China and precious metals prices, Jeff Clark at Casey Research thinks we will see the next gold bull market start before October, since the IMF may require China to reveal its gold reserves before deciding in October whether to include the yuan as a reserve currency or not. If it is added to the SDR basket, then the U.S. dollar, euro, and Japanese yen will have to give up some of their weighting. It looks like the demise of the dollar as the world’s most important currency is continuing.
The Financial Times notes that the power in setting the global gold price is moving from London to Shanghai as liquidity in the West dries up.
The World Gold Council reports that the first quarter of 2015 was the 17th consecutive quarter of net central bank gold purchases, and Russia added 30.5 metric tonnes of gold to its reserves in March (the latest date for which figures are available).
Austria’s central bank has announced that it is repatriating 140 tonnes of gold from England. This will bring the amount of Austrian gold reserves at the Bank of England from 80% to 30% (224 tonnes to 84 tonnes). Austrian gold held at home will rise from 17% to 50%, and the amount held in Switzerland will rise from 7% to 20%.
Austria has company; Texas is building its own state bullion depository in order to repatriate its gold from New York.
Jim Rickards thinks that central banks will need bailouts themselves in the not-so-distant future, causing the public to make a run on gold.
Janet Yellen is saying to prepare for an interest rate hike before the end of the year. While we really don’t think it will happen in June, watch the “good news is bad news” meme whipsaw both the stock and bond markets, especially since so many of the big players are taking profits and heading to the sidelines. This is going to mean less liquidity, which means large orders are going to move the market prices much more than normal.
Of course, the Greek crisis is supposed to come to a head in a couple of weeks, but that’s what we’ve been told for months. If the socialist government messes up and pushes Germany too hard, they may find themselves out of the EU and sinking near to third-world status with no one willing to lend them money (except possibly Russia). It remains to be seen if the Arab monarchies are going to do something about ISIS before it’s too late, and Iran is likely to keep pushing the Sunni kingdoms as hard as they dare.
In closing, it’s sobering to look at this chart from the Washington Post and realize that many of our children have never lived in a world where their nation was not at war: Here’s How Much of Your Life the United States Has Been At War.
– Steven Cochran is the Content Manager/Editor for Gainsville Coins