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 January?
Gold began the year with a large $28 drop, to end the day at an even $1,800. A rally to $1,825 was negated on the 6th by a $36 drop, to settle at $1,789. Gold spent two more days under $1,800, rising $20 to $1,818 on the 11th. Prices remained above $1,800 through the 26th, hitting the high for the month at $1,852 on the 25th.
The Fed announced an unexpectedly hawkish reaction to growing inflation on the 25th, immediately leading the market to price in five rate hikes this year. This sent gold tumbling to end the month, falling $77.60 in four sessions.
Factors Affecting Gold This Month
BOND YIELDS
Markets began January unsure if there would be a rate hike at all in March. The narrative began changing almost immediately. Yields on the 10-year Treasury note rose to 1.7% on the 6th and never looked back, hitting successive 2-year highs. The yield on two-year Treasuries rose above 1% and the ten-year yield broke above 1.8% the third week of January, as markets fully digested the likelihood of four rate hikes by the Fed.
Treasury bonds are considered risk-free. When their yields rise, the opportunity cost of gold rises, reducing demand.
US INFLATION
The Fed was forced to move faster than they may have wanted due to spiking inflation this month. If there was any doubt that they would have to raise rates at the next FOMC meeting in March, those thoughts were blown away in the middle of the month.
Consumer inflation hit a 40-year high of 7% and wholesale inflation rose 9.7%. Consumer spending collapsed on inflation worries in December, coming in at -1.9%. Overall wage growth came in at 4.5%, the highest in 20 years. but consumer inflation of 7% means that real wages are actually falling. These high inflation numbers moved the probability of a March rate hike to 95%
It isn’t just the US that is seeing suddenly higher inflation. Inflation in the UK hit a 30-year high of 5.4%, driven by supply shortages and energy costs more than quadrupling. Canadian inflation hit a 30-year high of 4.8%
ENERGY/OIL
Europe continues to pay the price of assuming cheap Russian natural gas would always be there for the asking. Electric bills are expected to triple this year because Russia isn’t shipping any extra gas to Europe. This is forcing steel mills and other industries to shut down because they can’t afford to pay the high energy prices. A shrinking economy and energy-fueled inflation mean that the EU should be falling into stagflation soon.
On the global front, it is increasingly obvious that most of OPEC can’t pump the amount of oil that they are entitled to under the production agreement. This leaves Saudi Arabia and Russia as the only two big oil exporters that can actually increase production.
Green initiatives pushed US oil companies to cut exploration and expansion of existing oilfields. This means that American oil production is lower now than it was five years ago. These supply shortages caused oil to reach $90 per barrel this month. This is having a spillover effect throughout the economy and is one of the main causes of the present spike in inflation.
A Houthi missile attack on UAE this month was foiled by anti-missile defenses. The UAE conducted airstrikes on Houthi-held territory in Yemen in retaliation. The targeting of the UAE’s oil production facilities is raising fears that $100 oil will soon be upon us.Continue reading“January 2022 in Precious Metals, by Steven Cochran”