May 28, 2024

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 affect gold prices.

What Did Gold Do in March?

Gold saw choppy trade all month as safe-haven demand whipsawed between easing inflation and a global banking crisis. Prices bottomed out at $1,813/oz on Wednesday, March 7th, but were $100 higher a week later on the 15th. That $1,913 mark was the low for the rest of the month.

Futures hit an intraday high of $2,011 on the 20th, then broke $2,000 temporarily again on the 23rd and 24th. Intraday prices rose above $2,000 two more times on the 30th and 31st. Heavy selling in the futures market just before the end of trading on the 31st knocked prices down $20 from $2,005, as traders booked profits for the end of the month and the quarter.

In contrast, silver forged its own path this month, proving more resilient than gold due to support from the continuing shortage of physical supply. After bottoming out at $20/oz on March 9th, silver began a rally that topped out at $24.30 midday on the 31st.

Factors Affecting Gold This Month

BANK PANIC

Due to the “Zero Interest Rate Policy (ZIRP)” of the last several years, many banks were pushed into buying longer maturity bonds in an attempt to earn yield. When the Fed began raising rates, many of these banks either ignored the effect it had on their bond holdings, or thought they could ride it out until the Fed cut rates again. This did not happen.

The first bank to go under was Silvergate, which had an out-sized exposure to the crypto market. After the collapse of major crypto exchanges earlier this year, the crypto that Silvergate was holding for collateral became worthless. It was forced to close on March 8th.

Two days later, banking authorities shut down Silicon Valley Bank (SVB). Instead of taking small losses and rotating out of long bonds like other big banks, SVB ignored the losses in its Treasury holdings until it was forced to liquidate them for pennies on the dollar when it suffered an old-fashioned bank run.

Most of SVB’s depositors were venture capitalists and tech startups, many of whom had exposure to crypto. When some companies pulled money out of the bank to cover losses, others quickly noticed that SVB’s assets were smaller than the amount of deposits it had on the books. Since venture capitalists and techbros are a tight-knit group, word got out and everyone tried to withdraw their cash at once.

Banking regulators took control of SVB on Friday, March 10th. By Sunday, regulators had decided to also shut down Signature Bank. The failure of three big banks pummeled banks across the world. Things only got worse when it was revealed that First Republic Bank was on the verge of failure due to its own bank run. To prevent a fourth bank failure in a week, regulators leaned on the big Wall St banks to provide $30 billion in temporary assistance to First Republic before the Monday open so it could meet withdrawal requests.

The banking contagion next spread to Switzerland. Years of criminal fines and mismanagement had weakened TBTF bank Credit Suisse to the point where the failure of SVB and Signature pushed it to the verge of insolvency. CS was rescued by a bold intervention by the Swiss central bank. After giving CS an emergency $54 million loan, it then forced UBS to merge with it to protect depositors.

BOND YIELDS

Bond yields were hitting multi-year highs on the back of hawkish Fed policy in March before the largest bank failures since the Global Financial Crisis sent yields plunging.

On March 7th, Fed Chairman Jerome Powell’s aggressive testimony before the Senate sent the yield on the 2-year Treasury note above 5% for the first time since the collapse of Lehman Brothers in 2007. This sent the 2yr-10yr yield curve inversion to 105 bp.

It was only a week later that the bond market saw the largest rush into bonds in decades. The failure of SVB and Signature Banks saw the largest single-day drop in 2-year Treasury yields since 1982, falling 61 bp.
The more bond yields fall, the higher gold prices go, and this time was no different. Spot gold ended the week $121 higher, while gold futures gained $106 for the week.

Central Banks

The Fed didn’t allow the failure of three US banks to derail its plans for a 25 bp rate hike this month. Market watchers are increasing their bets that the turmoil in the banking sector and bond markets will force the Fed to pause its next planned rate hike in May, with some predicting that the Fed will cut rates before the end of the year.
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The Bank of Canada took a more cautious approach this month, pausing its rate hikes at 4.5% to assess the effects of current rates on the economy.
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The ECB went into barbarian mode this month, hiking rates by 50 bp the same day that (formerly) TBTF bank Credit Suisse failed. They said that they expected no more contagion in the EU banking sector after the Swiss central bank forced Credit Suisse to merge with UBS.  If anyone doubted their resolve in fighting inflation before this, they don’t now.
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The Swiss central bank followed suit with their own 50 bp hike.
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The Bank of England hiked rates after inflation hit a shockingly high of 10.4%.
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Blackrock believes that the stock market is making yet another mistake by thinking that the Fed will stop raising rates after the government was forced to rescue Silicon Valley Bank and First Republic Bank.

They say that the Fed and other major central banks have made it clear that they will not let the failure of risk-taking banks deter them from hiking rates until inflation is under control.
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On the other side of the coin, Jeffery Gundlach of Doubleline Capital says that he believes the markets over the Fed. Warning of “red alert recession signals” being flashed by the bond market, he expects that the Fed will be forced to “substantially” cut interest rates before the end of the year.
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Saying that higher interest rates by the Fed will not stop inflation, billionaire fund manager David Einhorn is staying bearish on stocks. “I think that both long- and short-term rates are headed higher and probably higher than what people are expecting… the Fed does want stock prices lower. They’ve made that clear.”

Central Bank Gold Purchases

The January central bank gold report revealed a net 32.5 tons of gold purchased by the world’s central banks. The largest buyer was Turkey, at 23.3 tons. The next highest was China with 14.9 tons. The other two buyers were Kazakhstan at 3.9 tons, and the European Central Bank at 1.9 tons. The only seller was Uzbekistan, which sold 11.5 tons of gold.

The gold inflow at the ECB was a deposit from Croatia, as part of their conversion from their own currency to the euro.

Singapore increased its gold reserves by 29% by purchasing 44.6 tons in January. Gold now makes up 1.56% of currency reserves, up from 0.62%. This is the island city-state’s second-largest gold purchase in its history, eclipsed only by a purchase of 100 tons of gold it bought from South Africa in 1968.

Singapore does not report central bank gold purchases to the IMF and therefore does not appear in the World Gold Council’s monthly central bank gold reserves report.

Gold ETFs

A stronger dollar and rising bond yields pushed gold 5% lower and drove 34.5 tons of net outflows from global gold-backed ETFs in February.

North American gold ETFs lost 10.1 tons, with 9.8 tons from US funds. European gold ETFs saw more than double the outflows, losing 25.5 tons. Nearly half of those losses were from UK gold ETFs, which dropped by 12.0 tons. Switzerland was the only other country with large outflows. 6.3 tons were withdrawn.

Asian gold ETFs saw a tiny 0.1 tons (100 kg) of outflows, while the “Other” category saw the only month’s only inflows: 1.3 tons. Turkey was the only gold ETF market that saw inflows. Turkish gold ETFs grew by 1.4 tons, while Australian ETFs lost 0.1 tons.

(The “Other” nations are Australia, South Africa, Turkey, Saudi Arabia, and UAE.)

On The Retail Front

The US Mint is still “allocating” (rationing) American Silver Eagles. This means that ASE sales in March were capped at 900,000 once again. The jump in gold prices caused by the big bank failures this month boosted sales of American Gold Eagles and Gold Buffalos. 204,500 ounces of AGEs in all sizes were sold as of March 27th, up from 146,500 in February. 67,000 ounces of American Buffalo gold coins were sold in March, trouncing the 19,500 sold in February.
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Gold bullion sales at the Perth Mint fell to their lowest level since October 2020 in February as the price of gold fell below $1,850 per ounce. The sales of 52,241 ounces of gold bullion coins and bars were 18.9% lower than January, and 28.1% lower than last February.

Perth Mint silver bullion sales in February totaled 1,484,936 ounces. This was an increase of 20.4% from January but 9% lower than last February.

Market Buzz

Gold hit all-time record highs in both Australia ($2,983 AUS) and India (60,317R /10gr) this month.
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Lebanese consumers, who have been locked out of withdrawing their own money from the bank, are buying as much gold as possible. Gold sellers refuse to take checks or Lebanese lira, only accepting US dollars. This, of course, has sent black market exchange rates for dollars soaring.
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Fund manager Jan Van Eck says that this month’s banking crisis is why you own gold. He sees gold’s performance in March as the start of a multi-year bull cycle.
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A bill introduced in the Texas state Senate would make gold and silver specie (coins) issued by the United States legal tender for all debts public and private incurred in the state. As gold and silver coins, new and old, would be legal tender, capital gains taxes would not be levied on their sale.
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Jan Nieuwenhuils’ latest article at Gainesville Coins is The Hierarchy of Money and the Case for $8,000 Gold. He argues that the trend of record central bank gold purchases and the shedding of foreign currency reserves will continue until gold makes up around half of all central bank reserves. To do this, the price of gold will need to increase at least four-fold.
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Putting its money where its mouth is, Societe Generale says it is maintaining a 6% allocation to gold in its latest multi-asset portfolio strategy.
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Saner heads prevailed in the UK government this month, when it was announced that plans for the Royal Mint to create and sell government-issued NFTs were scrapped after the public displayed a total disinterest in the idea.
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Also in the UK, customs officials at Heathrow airport seized $5 million worth of gold on its way from Venezuela to Switzerland. The haul is presumed to have belonged to Latin American drug lords.
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Spain is allocating 40 million euros ($43 million) to expand its gold coin program to meet domestic investor demand. It produced 12,000 gold coins in 2021 and 15,000 in 2022. The coins will be sold at spot price plus a 10% coinage fee.
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The UAE is introducing a gold and silver bullion coin program, with the coins being produced at the Czech Mint.
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NOT EVEN YOUR SAFE DEPOSIT BOX IS SAFE

A couple are suing JP Morgan for seizing and auctioning off $10 million of jewelry that they were keeping in safe deposit boxes at the bank. Jorge and Stella Araneta said JP Morgan sent the safe deposit box rental bills to the wrong address, then seized the valuables and auctioned them off when the account became delinquent.

The Aranetas paid the past-due amount in full when they learned of the mistake but say that JP Morgan lied when they said that the valuables would be returned since they had already been auctioned off.

Looking Ahead To Next Month

We have another treasure story this month that proves, with a bit of luck you don’t need a $10,000 metal detector. An Australian gold hunter recently found a 4.6 kg (~10 lb) quartz gold specimen that contained 83 ounces of pure gold worth $250,000 AUD.

The gold nugget was found 12 inches deep, at the very edge of the maximum depth that his budget metal detector could see. Luckily he took his find to a reputable place, as he initially thought the rock was only worth 1/10th of its actual value!

This column is intended for educational purposes only. It is not intended as investment advice. Past performance does not guarantee future results.

– Steven Cochran of Gainesville Coins