Welcome to SurvivalBlog’s Precious Metals Month in Review, by Steven Cochran of Gainseville Coins where we take a look at “the month that was” in precious metals. Each month, we cover the price action of gold and examine the “what” and “why” behind those numbers.
What Did Gold Do in September?
Gold was pulled out of a 2-month low by the non-farm payrolls report that was substantially under predictions. Prices were slowly worn down as the month went on, until the Federal Reserve FOMC meeting on the 22nd. When the Fed did not raise interest rates, gold jumped $20 an ounce. Prices were pushed down later in the month, as the stock market staged a big rally on expectations that Hillary Clinton would win the election. Gold took another hit when the revised GDP numbers for the second quarter came in above expectations.
When all was said and done, Gold ended up increasing a mere $9 an ounce for the month. Seeing as how September is supposed to be the worst month of the year for gold, we’re looking forward to increased demand later this year.
Factors Affecting Gold This Month
Fed Interest Rate Policy
The big news for gold was the Fed not raising interest rates on the 22nd. This caught many traders by surprise as the dollar crashed, and gold jumped $20 an ounce that afternoon. Since the November FOMC meeting is only six days before the election, there is zero chance that the Fed will raise rates then. At press time, bond markets were giving a 62% chance of a December rate hike.
Bank Of Japan
The Bank of Japan caught everyone on the wrong foot when they announced that they would soon begin winding down their quantitative easing (money printing) program in favor of working on long-term bond yields
Gold prices gained ahead of the first Presidential debate between Donald Trump and Hillary Clinton. Political analysts believed that Trump had a good chance of winning the debate, which would increase his momentum headed into the election. A Trump presidency is seen by Wall St as a disruptive force, and markets went into a defensive stance ahead of the debate.
When it was over, general consensus on Wall St was that Hillary won the debate. This triggered a stock market rally and led to falling demand for safe havens, such as gold.
A big influence on all markets heading into the end of the month was the “deathwatch” for German megabank Deutsche Bank. The largest bank in Germany, Deutsche Bank, has been hounded by financial regulators for years regarding questionable practices in the lead-up to the 2008 financial crisis. When news broke that the U.S. Department of Justice was seeking a $14 billion fine against DB for wrongdoing in selling mortgage-backed securities, bank stocks across Europe crashed. The news also sent U.S. bank stocks lower, as fears of a “new Lehman moment” swept through the markets. With a reported €42 billion in derivatives on its books, if Deutsche Bank collapsed, it would pull nearly every other big bank in the world down with it.
Rumors and reports regarding the huge fine sent DB stock down to all-time lows, below €11 a share, down from $30 a share a year ago. Stocks rose and fell day to day, dragging gold along in the volatility. Near the end of the month, Deutsche Bank shares recovered on news that it was negotiating a lower fine with the DoJ, reducing safe haven demand by investors.
On the Retail Front
American Silver Eagle sales were down in September, as primary buyers were taking in thousands of ounces from the secondary market. Some investors were cashing in on the silver rally, selling ASEs that they’d purchased in the past at lower prices. The U.S. Mint only sold 1,675,000 Silver Eagles in September. Gold coin sales were higher for the month, with 94,000 ounces of American Gold Eagle coins of all sizes sold, along with 17,500 ounces of .9999 fine gold Buffalo coins. The 2016 Theodore Roosevelt Memorial National Park is the theme of the latest American the Beautiful coins, and this just may be the best design that has come out of that program in years. The reverse shows Teddy on horseback, surveying his North Dakota ranch.
Since the Royal Canadian Mint only releases sales figures once per quarter, we’ll have those numbers next month.
Have the central banks messed up the global economy? William White should know. He was the Chief Economist at the Bank for International Settlements (BIS), the central bank of the central banks. He says that ultra-easy money policy is doing more harm than good. While those who have been paying attention already know this, Yellen, Draghi, and Kuroda still need convincing. Will they listen to one of their own? (Don’t bet the house on it.)
Some state politicians are saying that the proposed Texas Bullion Depository is only the first step in building a physically-deliverable commodities exchange in the Lone Star State.
To those who call him a broken watch for his predictions of an upcoming economic crisis, Bill Gross says “This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies. “Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield. $11 trillion of negative yielding bonds are not assets — they are liabilities. Factor that, Ms. Yellen, into your asset price objective.”
Reuters notes that official Chinese gold reserves rose by 160,000 troy ounces in August to 58.95 million ounces (1,833 metric tons), but at the same time their foreign currency reserves fell to the lowest point since 2011, as they intervene in the currency market to prop up the yuan.
Chinese gold market analyst Koos Jansen wonders what’s up with the billions of dollars of precious metals on the balance sheet of the big Chinese banks?
Russia is still in the bullion game, adding a huge 700,000 troy ounces (21.77 metric tons) of gold to its reserves. A bunch of this every month comes from the government buying domestic gold production that is subject to international sanctions.
Gold mining giant Robert McEwen is calling for gold to hit $1,700 to $1,900 an ounce by the end of the year, noting “the big argument against gold used to be it costs you money to store it. Right now, it’s costing you money to store your cash.”
Gold imports by India are down, but that’s because people are flocking to cash in their old jewelry at a profit.
Our friends at Casey Research say the music’s about to stop on Wall St, and it’s time to leave the dance floor.
Claudio Grass at Acting Man takes us on a tour on what is wrong with trade agreements made behind closed doors.
With all the attention on the CEO of Wells Fargo getting curb-stomped in Congress over the bank’s employees making hundreds of thousands of fake bank accounts using customer names, some people wonder if this is all an election season show by the politicians. To see where their loyalties lie, we took a look to see which banks are among the top 20 donors to the members of the Senate Banking Committee.
Stand ready to be bombarded by political ads everywhere as the Presidential election draws near. (It’s not like we haven’t had a ton already.) There’s no Fed policy meeting in October, but we will get the minutes of this month’s meeting so we can see how split the Fed is on raising interest rates now or later.
The European Central Bank will release the minutes of their September policy meeting on the 6th. The next policy meeting is on the 20th. Watch for Deutsche Bank to play a major role in what Draghi decides. (Will he ever figure out that he’s killing European banks with negative interest rates? Probably not.) The Bank of Japan holds its policy meeting on Halloween and November 1st, so we will cover that in November’s report.
OPEC isn’t meeting until November 30th. U.S. oil stockpiles have fallen the last four weeks, but can it keep it up? Watch for warfare (Libya) and terrorism (Nigeria) to play a major factor in crude prices.
“Banks Behaving Badly” will likely be a theme we continue to see next month between Wells Fargo and Deutsche Bank. Watch for financial stocks to lead the markets up or down.
We end this month with a story from Canada. An employee at the Royal Canadian Mint apparently smuggled $136,000 of gold out of the facility by stuffing it up his butt. The caper only came to light when an alert teller noticed all the checks from gold buyers that the defendant was depositing and contacted authorities. The Mint was totally unaware of the thefts until contacted by police.