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.
The marketplace in September was dominated by two big factors– paranoia over when exactly the Federal Reserve would start raising rates and the absolute dominance of the U.S. dollar in the currency markets. These two factors not only affected precious metals, but they caused large gyrations in the stock market, especially towards the end of the month.
Precious metals started September almost exactly where they ended August. Gold closed September 1 at $1287, silver at $19.45, platinum at $1419, and palladium at $902. Unfortunately, that was the highs for the month. The dollar began its rampage that night, hitting a 13-month high in London the next morning. Gold ended the day down $21 and silver down 32 cents. Platinum dropped $18, and palladium swooned by a whopping $23.
The playbook for the month was stocks going up and the dollar going down on bad news (because that means the Fed won’t raise interest rate), and stocks down/dollar up on good news (which meant interest rates would rise sooner than later).
Precious Metals Market Drivers in September
Ebola
The ebola epidemic is leading to evacuation of foreign mining personnel in West Africa, and mines are being shut down. The economy of Liberia has almost collapsed, and the World Health Organization says that there may be over 1.4 million cases of ebola before the epidemic is contained. Doctors and health workers are being attacked and even killed in affected areas by villagers who think they are responsible for the disease.
While Ghana, which neighbors the affected areas, has not been stricken yet, it is leading efforts to combat the disease in other nations, while educating its own population. Ghana is also a major gold producing area, and AngloGold is providing health symposiums for the villages surrounding its main mine in Angola. Conducted in their native language, doctors explain that personal hygiene is the key to preventing the spread of the disease, and they explain how to avoid dangerous foods.
Low Oil Prices
Low oil prices all month were a bearish factor for gold. Even though Saudi Arabia cut production to support prices, Iraq and Libya increased production to pay for their wars against rebels. Economic slowdowns in Europe and China have contributed to an oil glut, and the strong dollar is depressing oil prices the same as gold is being affected.
Ukraine
Ukraine dominated the news in the first part of September, with Russian armored vehicles and self-propelled artillery reported to be openly providing fire support for the rebels. Russian president Putin boasted to the president of the European Commission that “I could take Kiev in two weeks if I wanted to,” rattling markets. France announced it will not deliver the finished helo-carrier it built for Russia until the Ukrainian situation was resolved, and NATO held training exercises near the Polish border in western Ukraine. Talks of cutting Russia off from the SWIFT international banking system may have had some influence, as Ukraine and the rebels agreed to a ceasefire.
Combat continued to flare up, but by the 22nd of September, the Ukrainian government announced that it was pulling tanks and heavy artillery out of the front lines to further de-escalate the situation. These developments erased any safe haven bid for gold over the situation.
Russia, Ukraine, and the EU are all in serious pain over the sanctions and counter-sanctions that have been put in place, and winter is coming. Look for more efforts to resolve the situation, even if it ends up being a solution that Kiev doesn’t necessarily want.
Fed Fright
All month long, the markets freaked out on every little rumor that the Fed may raise interest rates from 0.25%. Wall Street was all worked up on whether the September FOMC meeting statement would continue to say interest rates would stay low for a “considerable time.” The Fed kept that phrase in the statement, despite some Fed officials wanting the remove it. Stocks jumped, while the dollar gave up gains and precious metals declined. Even after the FOMC meeting concluded on the 17th, stock markets were still getting whipsawed over different Fed officials saying different things regarding when interest rates would move.
Federal Reserve enforcer Carmen Segarra bought a tape recorder and taped regulatory meetings after repeatedly being told by her bosses to quit investigating Goldman Sachs and to let their illegal activity slide. She was fired after refusing to look the other way and has released the tapes to show how Big Banks rule the regulators.
Now everyone from Yellen to Congress will have to smear and discredit her in a frantic attempt to make the truth go away.
Scotland
An event that rivaled the crisis in Ukraine, as far as unsettling European markets, was the independence vote in Scotland. Splitting up the UK would not only cause the greatest disruption in the economy of the British Isles since WWII, it would give fresh life to regional independence movements in French, Spanish, and Italian territories.
It was reported that net gold imports into the UK totaled 70 metric tons– the highest net monthly inflow since 2012– ahead of the vote, in which the “no” vote for independence won by 10%.
Dollar Domination
The dollar was up sharply in September, as the euro collapsed to 22-month lows, and the yen plummeted. This rally, hitting its 11th week at press time, is the longest dollar rally since the greenback was decoupled from gold in 1971 during the Nixon Shock.
Eu Economy
The European Union, already struggling to rescue its economy, was pushed to the brink by the consequences of economic sanctions levied against Russia for seizing Crimea and supporting the rebel movement in eastern Ukraine. With deflation staring the EU in the face, the ECB cut its benchmark rate to 0.05%, announced that outright Fed-Style QE was being worked on, and raised the negative interest rate (read: fee) that it charges banks on excess funds to 0.2%, to force them to actually make loans. The European Composite PMI sat a 9-month low in September, and consumer confidence fell.
Apple, Alibaba, and Wall St
Stock market “irrational exuberance” continued in September, despite growing skittishness over when the Fed would take away the “free money.” The release of the new iPhone sent Apple stock soaring, only to be hit after defects in the cases of the new phones were revealed. Chinese mega-corporation Alibaba entered the stock market in the largest IPO in history, worth $25 billion. Alibaba stock was up 38% the first day, as speculators sold small cap stocks and precious metals (among other things) to buy into the stock. The party was short-lived, though, as the stock falls every day afterward. This spectacle led many to ask if the Alibaba IPO marks the top of the bull run for stocks?
Stocks get beaten down in the latter part of month, partially because of Fed Fear but also because more people are waking up to the fact that this is a very unhealthy market in which the bull market is relying on the strength of a fewer and fewer number of very large-cap stocks. Even though people can see the bubble, they believe the Fed will ride to the rescue with new money printing to prevent a bear market.
China
China announced an $81 billion stimulus program for the nation’s five largest banks, helping revive Asian markets. On September 18, the Shanghai international gold market debuts, with all contracts denominated in yuan. All the usual players in the Western “paper gold” market pile in, because the new Shanghai market gives foreign companies access to the Chinese gold market. Since it accepts “offshore yuan,” which is usually not allowed to flow back into China’s domestic economy, it gives companies who export into China a venue for their yuan reserves.
Isis
Airstrikes by U.S., France, and Arab monarchies against ISIS began on September 23, giving gold a $15 boost. While the other nations restrict air attacks to ISIS territories in Iraq, the U.S. strikes ISIS targets in Syria, without asking the Syrian government for permission. The U.S. positions is that, since ISIS doesn’t recognize national borders in building its “caliphate”, it can’t hide behind borders to avoid payback. An Algerian group linked to ISIS kidnaps a French hiker and kills him on video in retaliation for French airstrikes in Iraq.
Concerns in the West grow about how many Western citizens have joined ISIS and are expected to come back and start domestic terrorism.
On The Retail Front
U.S. Mint sales pick up for September, as prices drop. Sales of American Gold Eagles in September increases 84% over August, to 46,000 ounces. This is a whopping 253% over September 2013 sales. American Silver Eagle sales for September jump 45% from August, to over 2.9 million coins.
The Perth Mint, which announces sales figures on a one-month delay, noted that silver sales in August were the strongest since January. Those numbers should increase in September, with the introduction of the 2015 Lunar Goat gold and silver coins, and the 25th anniversary 2015 silver Kookaburra.
The Royal Canadian Mint introduced a new MapleGram .9999 fine gold coin in September that is seeing an enthusiastic response. These tiny, 1 gram Gold Maple Leaf coins are individually sealed and come attached together in a 25-pack. Each one can be separated from the rest and still remain sealed. This may be a good way to keep fractional gold on hand for barter that is immediately recognizable.
Physical Demand
The super-rich in the UK didn’t bother with gold Sovereigns or Britannias when running to gold as a safe haven ahead of the Scottish independence vote. Sales of 400oz Good Delivery gold bars surged in the UK in September.
Have you seen these stories in the mainstream business news that Indians, who were the world’s largest gold consumers before a government crackdown on imports, have lost their love for gold? Don’t believe it. The Hindustan Times reported on September 24 that 50 metric tons of gold was smuggled into India in just ten days!
Silver is seeing love in September from savvy investors, too. Silver dipped late in the month, leading to more monster deposits into the SLV silver ETF. Ed Steer at Casey Research reported that nearly 4.8 million ounces of silver was added to SLV in two days– September 24 and 25.
Market Buzz
Manipulation
“Turd Ferguson” at TF Metals Report thinks gold market manipulation has about come to the end of the road in this retrospective of a July prediction.
Speaking of market manipulation, Bloomberg fills us in on another case of Big Banks Being Bad, in this report that banks colluded to rig the rates on interest rate derivatives, known as the ISDA fix. The manipulation resulted in billions of illegal profits for the banks and billions in losses to companies and pension funds, also known as their customers.
In a similar vein, Eric Sprott tells people to “Get Your Money Out Of Banks And Into Something Tangible.”
Venezuela Goes Full Monty On Gold Reserves
A Bank of America economist was in Venezuela meeting with central bank officials, when he asked out of the blue “Hey, can I see your central bank gold reserves?” The Venezuelan bank official says “Sure!” and took him to the vaults to see the $13 billion in gold with his own eyes. Your turn, Yellen!
Luke Broman asks “Can the Petrodollar Survive Low Interest Rates?” in a guest column on Sprott Group.com, coming to the conclusion that OPEC and other commodities markets are going to begin rejecting trade in U.S. dollars, because Washington is enslaved by the Big Banks that want low interest rates.
China is a big force in hamstringing the dollar as it works to make even more bilateral agreements with other nations to trade in yuan. Alisdair MacLeod looks at what that will mean for the U.S. and its debt-fueled existence.
Shrinkflation
More mainstream press coverage of stealth inflation, as even the media cheerleaders can’t ignore what the Fed has done to the economy. Beef prices jumped 4.2% in August, with no relief in sight.
Fox Business News warns that more is coming, as two noted inflation hawks at the Fed are retiring, doubtless to be replaced by people more compliant to the wishes of the Big Banks.
Recovery For The Rich
Consumer confidence hit the lowest point since early June, but if you’re rich, you’re feeling fine! A booming stock market had consumers who earn over $50,000 a year feeling much more confident than people making less, due to the whole “stagnant wages and rising food and housing prices” thing. Bloomberg notes “Consumers are still looking for some tangible sign of economic improvement and have yet to see it.”
Looking Ahead
Gold Miners may be setting themselves up for a fall by cutting exploration almost completely out.
South African Pgm production fell 45.2%, gold production fell 14.6%, diamond production fell 10%, and copper production fell 15.9% this year, so far. The five-month platinum workers strike in South Africa has put producers between a rock and a hard place. Implats earnings dropped 74%, and Amplats has decided to expand its plat mine in Zimbabwe while it searches for a buyer for four South African mines, even though the government of Mugabe has seized the company’s bank account once before and forced it to sell 51% of the company to native interests (including, surprise, the government).