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 affected gold prices.
What Did Gold Do in October?
Central bank rate hike programs depressed gold prices as the month went on in October. The dollar smashed all other currencies during October, fueled by the Fed’s determination to keep raising rates until something breaks. This added to the pressure on gold prices, as it became more expensive when bought with other currencies.
Prices recovered temporarily when market expectations grew that the Fed would pivot on rate hikes in December or February, but those hopes were short-lived as inflation showed no sign of easing.
Factors Affecting Gold This Month
FED RATE HIKE PREDICTIONS
It was another “good news is bad news” month for US markets in October. Hopes that the Fed would slow down on rate hikes were crushed every time good economic news was revealed. The one exception is inflation, where bad news is definitely bad. Headline inflation in the US was still above 8% in October, posting an 8.2% gain.
Rate hike forecasts have morphed over the last month. Everyone agrees that the Fed will raise rates by 75 basis points on November 2nd. A consensus had been building that the Fed would only hike rates by 50 bp in December, but that forecast was wiped out by the latest inflation numbers. A 75 bp hike is now penciled in for December, and earlier expectations of 25 bp hikes each in February and March have been replaced with forecasts of 50bp each. This will result in an interest rate of 5%.
SAFE HAVEN DEMAND
Briefly-serving UK Prime Minister Liz Truss came within hours of blowing up the UK economy and igniting a global financial crisis. Her “mini budget” proposed doing away with the highest tax bracket while engaging in billions of dollars of unfunded spending.
UK pension funds use leverered bond derivatives to make money, and the wholesale dumping of gilts threatened to wipe them out and force them into insolvency. Only an emergency nighttime intervention in the bond market by the Bank of England saved the British economy.
The threat of a Tory-led economic collapse and the crash of the British pound sent millions of Britons running to gold dealers to lock in their wealth before the worst happened. Major gold dealers reported that they were out of stock on everything, and as soon as they received small gold bars or bullion coins, they were snapped up.
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Russia is also experiencing a shortage of investor gold. Small gold bars have become the bullion of choice as economic sanctions cut off supplies of most major bullion coins, with retailers and banks unable to keep them in stock.
DOLLAR STRENGTH
Safe haven flows and Fed rate hikes have the US dollar pummeling all rivals this month. The euro was pushed below parity with the dollar for most of October, and the British pound was at historically weak levels versus the greenback even before Liz Truss tried to blow up the economy.
The Bank of Japan and the Chinese central bank have both had to intervene in the currency markets to prevent the yen and yuan becoming worthless. Japan and China are still both running expansionary monetary policy in an attempt to rescue their economies, while the rest of the world is tightening policy and raising interest rates. No wonder there’s a shortage of gold in China right now!
Central Banks
Other central banks are also battling inflation, which is made worse by their currencies being devalued by a strong dollar.
The ECB raised interest rates by 75 bp this month, something unheard of this summer. They have waited far too long to start raising rates, afraid of pushing the Eurozone into recession. High energy prices are driving EU economies into recession anyway, regardless of what the ECB does. Now they get to fight stagflation. EU consumer inflation hit a new record of 10.7% this month. Wholesale inflation for the Eurozone rose 43.3% (not a typo!) due to the natural gas crisis.
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The Bank of England sabotaged its own inflation fighting policy in October after it was forced into sudden Quantitative Easing in the bond market to prevent an economic collapse. The Bank assured markets that the emergency QE was just that, an emergency, and reaffirmed its commitment to raise rates to fight inflation even if the UK fell into recession.
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The Australian central bank hiked rates by 25 bp instead of the expected 50bp, leading US markets to hope that it was a sign that the Fed would pivot from its robust rate hike strategy. Those hopes were snuffed out when OPEC announced it would cut production by 2 million barrels a day instead of increasing production, raising inflation forecasts worldwide.
Central Bank Gold Purchases
Central bank gold purchases slowed to a net 20 tons in August. Turkey was the big buyer, purchasing 8.9 tons of gold. Uzbekistan was right behind them, buying 8.7 tons. Kazakhstan bought 2 tons. There were no sellers of note.
Gold ETFs
Gold-backed ETFs saw continued outflows in September. A net 95 tons of gold left ETFs for the month – the largest monthly outflow since March 2021 as gold prices fell.
North American gold ETFs lost 58.9 tons; European ETFs saw 35.5 tons of outflows, while Asian gold ETFs remained nearly unchanged. The nations in the “Other” category saw 0.9 tons of outflows.
On The Retail Front
Sales of 2022 American Silver Eagles continue to be strangled by rationing at the US Mint. Once again, only 850,000 were sold. Lower gold prices during October weighed on gold bullion sales at the Mint, with 57,000 ounces of American Gold Eagles and 32,500 ounces of American Gold Buffalo coins sold.
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Britain’s Royal Mint saw record profits in their fiscal year. Sales of $1.33 billion resulted in pre-tax profits of $20.4 million. This was driven mostly by precious metals sales. Sales to US buyers were 62% higher
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The Perth Mint sold 88,554 oz of gold, and a 5-year high 2,579,941 oz of silver in September
Market Buzz
A survey at the London Bullion Market Association’s (LBMA) Global Precious Metals Conference predicts an average gold price of $1,850 an ounce by this time next year. The same survey predicts a silver price of $28.30 an ounce.
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Gold imports by Turkey quintupled in September, up 543% as inflation hit another 24-year high of 83.45%.
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Gold prices in China spiked at one point to more than $40 per ounce over spot this month as gold importers hit their quota limits early. The Chinese government sets import quotas for gold. Once that limit is hit, imports stop, no matter how high demand is.
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A hike in customs duties in India has sparked enough gold smuggling in India that prices remained mostly unchanged last month. This led gold exporters to divert deliveries from India to China and Turkey, where it was selling for more.
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Jan Nieuwenhijs explains why European nations with large gold reserves have been selling gold, and smaller EU nations have been buying. They’re equalizing gold reserves according to GDP in order to create an EU Gold Standard currency.
Looking Ahead To Next Month
With the world the way it is lately, trying to guess the future is something of a fool’s game. We will start seeing holiday-shortened weeks in November, while the market continues vainly in trying to figure out Jerome Powell’s next move.
If you’re considering giving gold or silver presents for Christmas, you probably should have already ordered them, with shortages causing shipping delays. If you’re looking for something fresh in silver bullion, Gainesville Coins is now carrying a new Buffalo 1oz silver round design from the Mason Mint, with a realistic Indian and bison.
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This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future result.
– Steven Cochran of Gainesville Coins