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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.

Gold trickled down to yearly lows during the first half of the month before reversing direction and rallying back above $1,200/oz. The same was true for spot silver, which was stuck around $15.50/oz by mid-month before climbing back above $17/oz. The Platinum Group Metals (platinum and palladium) fared worse, as each fell through support early in the month and struggled to regain footing thereafter.

Precious Metals Market Drivers in March

While geopolitical risks–whether economic slowdown or war–remain firmly in place, helping drive safe haven demand for gold and silver, the main drivers for the metals this month came on the domestic front. Specifically, the very public debate over when the Federal Reserve will move on normalizing interest rates had a profound effect on the precious metals, as well as the broader financial markets as a whole.

U.S. Economy Under-Performs

After many were declaring the U.S. economy “recession-proof” amid a global economic slowdown earlier in the year, the situation began to look a lot less rosy in March. The idea that the U.S. is invulnerable to global events is nonsense; many have noted that the current geopolitical situation may be worse than before WWII. Not only were the effects of an exceptionally strong U.S. dollar ravaging American exports, but the continued weakness in oil prices have also put a damper on inflation. If anything, the States are experiencing the same deflationary pressures as their counterparts across the Atlantic.

The supply glut in oil right now is almost unprecedented. U.S. commercial inventories of crude oil–not accounting for the untouched strategic supply–hit an 80-year high in March. (Yes, that’s eight decades, not eight years.) Over 440 million barrels of the gooey stuff has piled up to the point that they literally are running out of places to put it. Saudi Arabia and China have also seen their crude inventories soar to record highs; officials from Qatar have signaled that OPEC and the Saudis, who essentially dominate their oil-producing partners, will not be cutting their oil output until one of their global competitors does so first, allowing them to keep hold of (and actually expand) their current market share. With the tens of thousands of layoffs in U.S. shale fields, which became unprofitable and went offline with the plunge in oil prices, many of the displaced workers have been gobbled up by the Saudis, who are determined to grab an even bigger piece of the crude market. On top of all that, a possible civil war in Yemen (and proxy war between Saudi Arabia and Iran) now threatens to disrupt oil flows through crucial pipelines.

The precious metals were largely unresponsive to these developments, instead following a typical seasonal pattern of gradually pulling back from their equally seasonal rally in January. The stock markets were not so indifferent; all of U.S. equities gains for 2015 were erased on Tuesday the 10th– the worst day of the year for stocks. The data backed up this steep fall; wholesale sales figures showed the biggest drop in six years, and although headline unemployment numbers were strong, the more telling labor participation rate sat at just 62.8%, which is its lowest level since the stagflation and Arab oil embargo of the 1970s. Factory orders also fell for the 6th consecutive month.

All told, the major U.S. stock indices each showed a V-shape on their daily charts this month, plummeting over the first two weeks of the year before bouncing back to their original levels over the next two weeks. The dollar and the euro danced back and forth throughout the month, with the Greenback first rallying at the latter’s expense, and then a reversal of fortunes to close out the month.

The precious metals remained mostly dormant prior to the highly anticipated policy announcement from the Federal Reserve in the middle of the month. Ahead of Fed Chair Janet Yellen’s press conference, however, the metals slid back in earnest; gold plunged to a 4-month low below $1,150/oz, while silver slumped to about $15.50/oz. This was mainly because a hawkish statement was expected to accompany the FOMC’s removal of “patience” from its forward guidance.

As gold expert Peter Schiff often alludes to, Miss Yellen is adept at making hawks out of would-be doves. Although the markets initially took the Fed statement to be a sign that conditions were improving, and a rate hike from the central bank was imminent, it eventually became clear that in fact the Fed was preaching still more patience.

The ambiguity and ambivalence of the Fed’s announcement sparked a rally literally across the board; gold spiked, equities rose, bonds saw fresh demand, and the dollar pushed to a 12-year high above 100.0 on the DXY dollar spot index. It subsequently fell back nearly 4% from this high, giving credence to Schiff’s analysis that betting on the dollar’s interminable rise is like a bet on subprime mortgages.

Keen analysts noted that the poor performance of the U.S. economy could make the Fed hesitant to raise rates too soon, even as the targets it set for when it would normalize monetary policy (such as unemployment at 5.5%, and growth in the labor market) continue to be reached. Instead, the Fed can merely move the goalposts further down the field. The so-called “recovery” does seem to be only felt by the megabanks and the inflated stock markets; the Fed’s balk at pushing up a rate hike is a tacit admission that the robust job growth seen in recent months has primarily been in McJobs.

The strong dollar and low energy prices have kept inflation below ideal targets, giving the Fed cause to push back its rate hike. This doesn’t mean, however, that the central bank is above manipulating the markets to save face. Yellen’s ultimately dovish outlook was very deliberately countered in the ensuing days by sufficiently hawkish comments from outspoken St. Louis Fed President James Bullard as well as San Francisco Fed President John Williams, who both called for the Fed’s ZIRP (zero interest rate policy) to be lifted before the end of the year. The Fed ultimately doesn’t want to raise rates; Currency Wars author Jim Rickards posits that if the Federal Reserve were to raise rates now, it would set off a crisis of sovereign defaults in emerging markets similar to that seen in Asia during the late 1990s.

All of the volatility and uncertainty surrounding Fed policy benefited the precious metals. Silver rallied through both the $16 and $17 thresholds, while gold returned to the psychologically important $1,200 mark. A Kitco report suggests that the more central banks tinker with monetary policy, the more a deflationary environment could actually lift gold prices.

Cracks in the Armor

More and more evidence of the collapse of the insidious banking cartel surfaced this month.

The New York branch of the Federal Reserve was stripped of its special supervisory role over Wall Street banks. A Fed committee in Washington, D.C. will now assume these duties. NY Fed President Dudley, a former Goldman Sachs executive, will now have a harder time shielding the illegal activities of his former employer.

It’s also clear–and no shock–that JPMorgan’s reported mutual fund returns are fallacious.

Firebrand entrepreneur Mark Cuban has also recently commented on how the current tech bubble is even worse than the dot-com bubble. Be wary of the unbelievable bull market in tech shares.

Several of the TBTF banks have revealed in their annual earnings reports that they have turned over information to the Justice Department regarding precious metals manipulation. This may not be an open-and-shut case, however; these megabanks may have “violated parole”, so to speak, by tampering with the forex and precious metal markets after the settlement of the 2012 Libor rate-rigging scandal.

Greek Debt Yet Unresolved

Turning our attention to Europe, the continent saw a considerable reversal of fortunes between its common currency, the euro, and its stock markets this month. The euro began March around $1.14, in terms of exchange rates, while European stocks were souring on the threat of deflation (falling prices) and dwindling manufacturing output. Then came the European Central Bank (ECB) to the rescue, implementing its massive stimulus plan on the 9th. By mid-March, the euro had fallen to a 12-year low of just $1.05, while European shares were returning to all-time highs. When in doubt, just print more money to solve the problem, right?

The fleeting nature of Europe’s turnaround notwithstanding, the ECB QE offers very little to the indebted Greeks, who cannot receive stimulus funds so long as they are being bailed out by the Troika (The Three): the ECB, IMF, and EC (European Commission).

Greek officials were rebuffed by the EU creditors at a meeting of the region’s finance ministers this month. The latter initially rejected a list of proposed economic reforms from the Greek side, then approved the reform list with the caveat that the proposals required further elaboration.

Although talks continue between the two sides, tensions escalated throughout March. An official from the Bank of England commented that Greece will never repay its debts due to the risk of losing political capital at home. (The newly-elected leftist Greek government was elected on an anti-austerity platform.)

The clash between Greece and its European creditors has been particularly caustic with Germany, inciting fiery rhetoric about Greece receiving war reparations from the Nazi regime. The country’s defense minister has even threatened to blackmail the EU by opening the country’s border with Turkey and distributing EU passports to tens of thousands of migrants, refugees, and even jihadists. Greece has also quietly been strengthening its traditional cultural ties with Russia; the latter would have an ally in the EU, which needs a unanimous vote to approve new sanctions against Russia, while Greece could use possible aid from Russia as leverage in its negotiations with eurozone authorities.

Bank runs have unsurprisingly been on the rise in Greece, prompting the ECB to approve more emergency funding for the branch banks. The central bank is still not willing to release further funds from Greece’s bailout loan until the country meets the ECB’s demands; however, as it stands, the Greek government will probably run out of money by mid-April. The government has been scrambling to find cash reserves, raiding public utilities and pension funds in order to pay debts coming due.

Sentiment in Europe is no softer toward the Greeks; the unveiling of the ECB’s new billion-dollar skyscraper headquarters in Frankfurt, Germany was marred by riots and protests that left police cars engulfed in flames.

The writing seems to be on the proverbial wall for Europe; even Ireland’s finance minister very publicly dumped euros from his investment portfolio in favor of buying gold.

Mining News

Fresh earnings data revealed that 2014 was a particularly rough year for the world’s top 10 gold miners. When taken together, these mining companies, which account for as much as one-third of global gold output, reported negative cash flows by the fourth quarter the year. These firms are certainly happy for $1,200/oz gold again, as many are likely unprofitable below this key level.

Locals are insisting upon purchasing a 30% stake in the South African platinum minesthat are being sold off by Amplats (Anglo American Platinum). This follows the legislative rule that at least a 26% stake in any mines must belong to the local black populations, who are largely responsible for the labor that powers the mine.

Reports (erroneous ones, we must assume) that the 18-karat gold edition of the new Apple Watch will contain 2 troy ounces of gold would mean that Apple would have to purchase the equivalent of one-third of the world’s annual gold production at current sales projections.

Mining giant Freeport-McMoRan recently announced a dividend payment for shareholders to be distributed on May 1st. The company’s stock has seen much higher trading volumes at its current price level of about $19 per share. For perspective, the stock’s 200-day moving average is at about $25.

New Chinese-Led Bank

The big news in Asia this month was the announcement of the soon-to-be Asian Infrastructure Investment Bank (AIIB). Against U.S. warnings of poor regulations and oversight, many American allies (the U.K., France, Germany, Italy, and now Australia) have signed on as founding members of the new bank, which is widely seen as a direct challenge to the hegemony of the U.S.-dominated IMF and World Bank.

With its aggressive purchase of gold bullion over the last several years, it seems China is bolstering its case for adding the yuan (AKA the renminbi) as well as gold to the currency basket of the IMF’s Special Drawing Rights (SDR).

As the machinery of the Chinese economy– the world’s second-largest– continues to grind to a slower pace, China will look for new ways to increase its global clout. Between the creation of the AIIB and the effort to make the yuan fully convertible, China is aggressively looking to take advantage of a reshuffling of the global economic order in its favor.

The ANZ (Australia and New Zealand Banking Group) projects that gold will rise to $2,400/oz– doubling in price– by 2030, due to strong Asian demand for the yellow metal. Some analysts have found this figure to be too conservative, however.

Russian Aggression Picks Up

Undeterred by foreign sanctions and a crumbling economy, the Russian bear seemingly awakened from hibernation with the coming of spring. Premier Vladimir Putin was conveniently missing from the public eye for ten days following the assassination of one of his top political rivals in the middle of the streets in broad daylight. Putin reemerged to great fanfare and adoration.

In addition to Russia possibly buying a vote in the EU through Greece, there are also concerns that the Russians are intent on obstructing peacekeeping measures in the Ukraine conflict. Ukrainian officials have issued a plea to the UN for aid in enforcing a ceasefire with pro-Russian rebels in its eastern provinces, but Russia holds veto power as part of the UN’s Security Council.

At the same time, the Russians have been establishing military connections across the region. Cyprus recently approved Russian use of its strategic bases for military purposes in exchange for economic aid. Anxiety abounds about a similar arrangement being struck with Greece. The Russian military has been conducting exercises with increased frequency and is even supposedly using Vietnam’s Cam Ranh Bay as an airbase for refueling nuclear-armed bombers. The Polish are preparing themselves for a Russian offensive in the near future.

India’s Love Affair With Gold

India may well retake China as the site of the world’s strongest gold demand in the medium-term. Despite lifting some aspects of its restrictive gold import laws, India continues to see widespread smuggling for two reasons: a steep 10% import duty on all gold, and the fact that gold premia over spot have risen to their highest levels of 2015 in March.

In fact, a North Korean diplomat was caught trying to smuggle 27 kilos of gold into India through Bangladesh. He was attempting to use his diplomatic immunity to avoid being searched at the airport, but he was unsuccessful.

From April through December of last year (three-quarters of the year), some $26 billion of gold was imported into India. At the same time, India’s silver imports have hit record highs as a cheaper alternative to gold.

Looking Ahead

Don’t be surprised if the narrative being spun about the potential rate hike in the U.S. takes another interesting turn in April. (What that turn will be is harder to say.) The news competes for viewers and readers, and no topic moves the meter for the business news cycle like the Fed talking about rates. Although the timing of the first rate increase is undoubtedly important, all of the hawkish sentiment in the markets right now about the normalizing monetary policy is largely a cover for the Federal Reserve to keep ZIRP in place for as long as possible; don’t expect any movement on this front until at least June, or more likely during the autumn. Meantime, geopolitical risks should provide support for the gold price.

-Everett Millman is the head content writer at Gainesville Coins

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