This year saw a battle for the direction of precious metals waged between speculators and short-term “paper gold” traders in the West, against record-breaking physical demand in the East. That physical demand from Asia reached new highs in 2013, underpinning a market that saw the outflows from precious metals ETFs eagerly snapped up by the Chinese and Indians.
Gold and silver ended the year about where they ended 2010, while platinum was down only slightly from 2012. Palladium was the big performer, doing even better in 2013 than last year, but not as well as the all-time high reached in 2011.
Central bank money printing didn’t ignite hyperinflation in 2013, as many feared. This was mostly because the banks that were receiving these funds kept them to themselves, instead of lending them out. Sine the money didn’t circulate as intended, inflation was kept in check. The central banks had hoped that the Big Banks would lend money to businesses, and restart the economy. But the banks found someplace they could make more money than by making loans in a time of abnormally low interest rates: the stock market. The Fed kept interest rates artificially low for the fifth year, and companies used low interest loans to buy back shares and boost their stock price.This also had traders dump shares of precious metals ETFs and jump with both feet into stocks.
Outside of blatant manipulation, precious metals showed a tendency to stick to tight trading ranges, faced with good news and bad. Inflation in Asia, combined with low gold prices, kept the gold flowing from west to east. Let’s take a month-by-month look at the year in precious metals for 2013.
The “fiscal cliff” was averted on December 31, but it was just a “kick the can” solution, pushing the sequester to March. The Bank of Japan imitates the Fed by starting its own open-ended Quantitative Easing, and India raises the import tariff on gold from 4% to 6% in an attempt to stop record-breaking demand. In the US, the new 2013 American Silver is introduced in the middle of the month, and completely sells out in under two weeks. The U.S. Mint stops sales of the coins for two weeks, because it has no silver blanks. The Royal Canadian Mint rations Silver Maple Leafs, due to excessive demand.
The German government announces that it is going to repatriate its foreign-held gold, but the Fed refuses to give it to them. It even refuses to let the Bundesbank representatives even see the gold (they wanted to check serial numbers on the bars.) A deal is finally reached to let the Germans have their gold bit by bit, over seven years. Unrest in South Africa rises as platinum miners announce plans to close unprofitable mines.
On the heels of the German repatriation story, news leaks out that the Mexican central bank has never actually seen the gold it supposedly owns in London. The Mexican high court orders an audit. The Shanghai Gold Exchange hits the first import record of many this year. In the U.S., the stock market panics when records show that the Fed considered scaling back its “money printing” of buying $85 billion a month in Treasuries and mortgage-backed securities. Gold drops when it is revealed the George Soros sold 55% of his gold ETF holdings at the end of 2012.
Europe, already in disarray over the Greek bailout, is now faced with a deadlock election in Italy, and the possibility that Italy will default and leave the EU.
A divided Congress is unable to make a deal, and the sequester across-the-board spending cuts hit an economy still in trouble. The banking industry in Cyprus blows up, unable to survive its large exposure to Greek debt. All banks are closed, and credit cards frozen. Cypriots have to resort to bartering to survive. The “Bail-In” is invented, where the government seizes a portion of depositors’ money to help pay for the bail out of the banks. Germany and the rest of the EU refuse to finance a normal bailout, as Cyprus was a tax haven where people hid money.
The Great Manipulation hits the gold market. In the early hours of April 12, gold contracts totaling 400 TONS are sold into the market when everyone was asleep, crashing the price down $200/oz. Whoever did this lost millions of dollars, so it is assumed it was a large player who stood to gain by crashing the market. Things didn’t work out exactly as planned, as a global frenzy for physical gold erupted. The Hong Kong Gold Exchange totally ran out of physical gold, and silver bullion in the U.S. disappears as buyers purchase everything in sight. Production bottlenecks mean that a temporary silver shortage results.
Gold continues to fall, losing $60/oz on the month, but this is mainly from “paper gold” trading in the West. A physical gold shortage in Asia persists, even as gold in the West is resmelted into .9999 fine 1 kilo bars and sent east to eager buyers. In Switzerland, a populist right-wing party gains enough votes on their petition to call a national referendum on repatriating Switzerland’s foreign gold reserves.
Currency exchange rigging among the Big Banks is revealed, yet central banks claim there is no gold or silver market rigging. India increases gold import taxes again, to 8%, after Indians set a record for gold imports after the April price drop.
June 19: Fed Chairman Ben Bernanke tells reporters that the Fed will start “tapering” it’s $85 billion a month in bond purchases this fall, with a complete end by next summer. Stock markets plunge, the dollar skyrockets (killing foreign currencies) and gold falls under $1300/oz. Banks in China, who are the main sellers of gold there, run out of physical gold. The Indian rupee collapses, putting gold (which is denominated in dollars) out of the reach of many.
Gold recovers back over $1300 as physical demand in Asia hits unprecedented levels. Gold import restrictions in India means the market price for gold there is $20 over global spot. Smuggling is exploding, as gold supply dries up. The Shanghai Gold Exchange announced that it has now shipped more gold into China in the first seven months than it did for all of 2012. Iran is hit with more economic sanctions over its nuclear program, and Turkey is found to be paying Iran in gold for for cross-border oil imports. A new 200-ton silver vault in Singapore is pre-booked to 30% capacity before it even opens its doors. A revolution breaks out in Egypt, while a civil war continues in Syria. This lends some safe-haven support to gold.
Precious metals recover more from the June drop, with gold hitting a two-month high and ending at $1394. Silver enters a bull market, rising 20% over the June lows. The U.S. threatens military intervention in Syria after news that the Assad government used chemical weapons against rebels. Violence escalates in Egypt. India raises its gold import tax to 10%. Pakistan bans gold imports for one month, after it becomes apparent that people are using a tax break loophole to import gold and smuggle it into India. The Chinese economy starts improving, raising gold demand. Rumors start that the Fed will start “tapering” next month.
The Fed shocks everyone and decides not to start reducing quantitative easing. The U.S. government is locked into a budget showdown over defunding Obamacare, which threatens to have the government default on its debt. Europe is still unsettled, with Greece wanting to renegotiate its bailout.
The U.S. government goes into partial shutdown for the first time in 17 years, over the budget showdown. The government comes within hours of defaulting on its debt, which shakes global confidence in America so much that the Chinese call for a “de-Americanized world” where nations won’t be so exposed to the dollar. Gold in India hits $120/oz over global spot price due to shortages. Small jewelry companies are rumored to be setting up their own smuggling rings to survive. China and the EU start cracking down on bad bank loans. The Fed doesn’t even talk about the shutdown, and thinks things are great, panicking the markets into thinking, surely, they will taper in December. Gold recovers back above $1,300 again.
The Fed scares markets by talking about a December taper, which knocks gold back under $1300. The U.S. Mint announces that the 2014 Silver Eagle bullion coins will be released a week later in January, to give them time to make enough, but they will still be rationed from day 1. American Silver Eagle sales hit an all-time record on November 12. November 20 sees massive gold manipulation TWICE in the same day. Each time, 150,000 oz (4.66 tons) of gold was sold at once, causing circuit breakers to trip and halting trading for 20 seconds both times. This was paper contracts of course, no physical gold changed hands.
The economy in the U.S., China, U.K., and Germany improve markedly, as the Chinese announce market reforms to make the yuan easier to use in international trade. A surprise deal with Iran and the major powers boosts stocks, but the same day, China puts an air defense zone over Japanese-held islands that are claimed by China. This rallies gold enough to make up some of the losses due to taper fears.
Rapidly improving economies in the U.S., U.K., and China pressure gold to five-month lows, but gold pops back over $50 as the market becomes over-sold.
About the Author: Steven Cochran is with Gainesville Coins