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 May?
Gold started the month with a morning run at $1,800, being brought up short at $1,799.20 an ounce before settling lower. At the same time, silver briefly tagged the $27 mark.
Things trended higher for the remainder of the month. Gold made sustained breaks above the $1,800 mark on the 6th, the $1,850 mark on the 17th, and the $1,875 mark on the 19th. Gold spent the last week of the month making runs at $1,900, falling short each time.
Factors Affecting Gold This Month
INFLATION FEARS
Warren Buffett at this year’s Berkshire Hathaway stockholder meeting said, “We are seeing very substantial inflation” caused by supply shortages, especially lumber for the homebuilders it owns.
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Treasury Secretary Janet Yellen may not be running the Fed anymore, but she can still crash markets with a verbal gaffe. Commenting at The Atlantic’s Future Economy Summit, she said, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.” She was forced to walk back that statement the next morning, to end the market freakout.
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Several economic reports this month pointed towards building inflation pressures.
Core CPI is the Fed’s preferred inflation guage. It rose 0.9% in April, a 39-year high month-to-month. The year-to-year reading hit a 25-year high, at +3.0%. Overall CPI rose 0.8% month to month, and 4.2% year-to-year.
Producers were hit hard by shortages of everything from lumber to steel to computer chips. Wholesale prices rose 6.17% in May, compared to April 2020.
BITCOIN
Dreams around the world of becoming Bitcoin Billionaires came crashing to Earth this month, dragging the whole altcoin market with it. Bitcoin’s value fell from $60,000 down to $30,000 before recovering slightly. On May 17th alone, the crypto market lost more than half a TRILLION dollars. The trauma led many investors to pivot into gold and gold ETFs.
Adrian Ash, director of research at BullionVault, told MarketWatch afterwards “any debate about Bitcoin challenging gold as a ‘safe haven’ just got a very blunt answer from the markets.” “While the precious metal isn’t immune to volatility, gold has never cut its price in half inside a week,” he added.
Matt Gongloff at Bloomberg says that this month’s massive meltdown in the crypto market proves “Bitcoin is more modern art or a religion than money.”
The Governor of the Bank of England warns Britons, “I’m going to say this very bluntly again. Buy them [crypto currencies] only if you’re prepared to lose all your money.”
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The extreme volatility of the crypto market had already caught the US government’s attention even before the catastrophic drop in value.
Major crypto exchange BINANCE is under investigation by the US Justice Department and the IRS on charges of money laundering and assisting in tax evasion.
The FED has issued new regulations that cryptocurrency transactions over $10,000 must now be reported on a Form 8200, the same as precious metals. This is intended to curb money laundering using crypto.
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CHINESE regulators have warned that they are cracking down on illegal crypto use. Financial institutions and payment services are forbidden from accepting crypto as payment AND may not offer products or services tied to crypto. The People’s Bank of China spokesman said that crypto “is not a real currency” and “should not and cannot be used as currency in the market.”
Central Banks
The Federal Reserve stuck to its guns in May, insisting that the increase in inflation this month was due to supply bottlenecks that are expected to ease. It took Fed officials hammering this point home for most of the month before the stock market began believing them.
San Francisco Fed president Mary Daly said a little inflation would do us good. “We should tolerate 2.5% inflation the same as we do 1.5%.”
Richmond Fed president Thomas Barkin says that inflation will come back down next year. He said that he personally will not vote to taper QE until the employment to population ratio is back where it was just before COVID hit the US.
In opposition, Dallas Fed president Robert Kaplan said this month that the Fed would need to start discussing tapering QE sooner than later. He believes that the taper will happen next year.
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The ECB forecasts that composite EU inflation will only be 2% by the end of the year, and will drop to only 1.2% next year.
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The BANK OF ENGLAND tapered monthly bond purchases this month. It is the first major bank to do so.
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Isabel Schnabel, a EUROPEAN CENTRAL BANK executive board member, channeled her “inner Yellen” this month. On the subject of German inflation forecasts above 3%, she assured markets that it would just be a temporary increase.Continue reading“May 2021 in Precious Metals, by Steven Cochran”