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 April?
Gold hit triple-digit gains in March, which allowed April to start off strong. Gold futures gained $122 in March. Spot gold did even better, ending $143 higher. This put prices 7% higher for the month, and up 9% year to date.
Gold futures started April by settling at $2,000 per troy ounce on the 3rd. It got a big boost early, thanks to a shockingly low number of job openings. The JOLTS report on April 4th sent gold prices more than $40 higher. June gold futures settled $37.80 higher at $2,038.20, with spot gold closing $35.40 higher at $2,019.70. These big gains allowed gold futures to stay above $2,000 until April 21st.
Conflicting headwinds (stronger dollar) and tailwinds (lower bond yields) limited price action in either direction late in the month. Gold futures ended the month at $1,999.10. Spot gold closed out April at $1,989.40.
Factors Affecting Gold This Month
RECESSION FEARS
Weaker than expected economic data boosted recession fears and gold demand in April. Investors moved assets into bonds, which lowered yields, and improved gold demand.
First quarter GDP came in at 1.1% vs estimates for 2%. This was before the recent regional bank failures, and so paints a bleak picture for the economy. Falling GDP with high inflation means that stagflation may be rearing its head.
Falling wholesale prices and big drops in manufacturing activity are likely going to bleed over into consumer inflation in the next couple of months, and have supported gold prices this month.
The core PCE is the Fed’s preferred inflation gauge. It unfortunately rose to 4.6% from 4.47% in Feb, versus estimates for 4.5%, and is a strike against a pause in Fed rate hikes next month.
BANKING CRISIS
Medium-sized regional banks continued to suffer contagion effects from a zombified First Republic Bank. Its stock price fell more than 90% after it lost 40% of its deposits ($100 billion) in April. There is no path forward to rescuing the bank, since it doesn’t qualify for “too big to fail” status, and the big banks are balking at bankrolling its operations after sinking $30 billion into it.
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UBS says that the contraction in lending after the collapse of Credit Suisse and Silicon Valley Bank has reached levels associated with a recession. This was before the First Republic crisis.
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NY FED President John Williams expects access to credit to deteriorate this year after banking crisis/SVB failure.
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FIDELITY says that the biggest threat to the economy is a credit squeeze that was accelerated by the failure of SVB, Signature, and Credit Suisse.
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Warren Buffett warns more banks ‘will go bust,’ calls Bitcoin a ‘gambling token’ as prices surge above $30k.
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CHIEF ECONOMIST of the IMF says many banks are in the same basic position as SVB, where long-term assets like 30-yr Treasuries have fallen enough to endanger capital requirements. Most banks are tightening
Central Banks
Federal Reserve officials are in general agreement that interest rates need to be raised at least one more time.
Cleveland Fed president Loretta Mester says that interest rates need to be above 5% and stay there until inflation is down to 2%. Fed Board of Governors member Christopher Waller backs her up, saying rate hikes need to continue.
San Francisco Fed president Mary Daly believes that the strength of the US economy and elevated inflation suggests that they have more work to do on rate hikes.
Atlanta Fed president Raphael Bostic was slightly more dovish than many of his colleagues, saying that the Fed should pause after May’s 25 bp hike to see how the economy is reacting.
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The Bank of Canada declined to raise rates for the second month in a row, to no one’s surprise.
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The Bank of Japan refused to raise rates again (no surprise), but did announce that it will conduct a review of past monetary policy.
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The ECB is publicly considering another 50 bp rate hike next month, to try to catch up to the Fed.
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On April 3rd, the Australian central bank decided to not raise rates, electing to pause to see what effect their rate hikes were having on the Australian economy.
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In contrast, the New Zealand central bank caught markets by surprise by hiking rates by 25 bp on April 5th, even though their economy is teetering on the brink of recession.
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Several news outlets have noticed that Latin American central banks are faring much better than the G7 banks in coping with the present inflation crisis, since they have had to deal with high inflation and high interest rates for practically forever. Many officials at the major central banks have never seen an inflationary crisis before.
Central Bank Gold Purchases
The world’s central banks purchased a net 52.1 tons of gold in February, marking the 11th month in a row of positive net central bank gold purchases. This continued demand for gold by central banks has become a major driver of gold demand. It is not only affecting supply and prices, it is driving buyer sentiment. “If the central banks are buying gold month after month, they must know something,” conventional wisdom goes.
The largest gold buyer in February was the Chinese central bank, which purchased 24.9 tons of gold. This was the fourth month in a row that China has reported gold purchases. The actual amount of gold that China has purchased is assumed to greatly exceed the reported numbers.
China was followed closely by Turkey, which bought 22.5 tons. This is the 15th month in a row that the Turkish central bank has added to its gold reserves. Other buyers included Uzbekistan with 8.1 tons, and India with 2.8 tons of gold purchased. Mexico rounded out the central bank gold buyers with a modest 0.3 tons (300 kg) gold purchase.
The only seller of note was Kazakhstan, which sold 13.1 tons of gold. Germany sold 0.2 tons (200 kg).
Singapore’s central bank bought 6.8 tons of gold in February, after shocking gold markets by purchasing 44.6 tons in January. This brings Singapore’s total gold holdings to 205 tons.
Gold ETFs
Physically-backed gold ETFs saw net inflows of 32.1 tons in March, as higher gold prices whetted demand. North American gold ETFs saw a net 11.5 tons of inflows. European gold ETFs grew by 18.4 tons, and Asian gold ETFs gained 3.3 tons. The “Other” nations were the only sector to see net outflows from gold ETFs, of 1.1 tons.
NORTH AMERICA: US +11.8t, Canada -0.3t.
EUROPE: UK +17.9t, Italy +1.9t, France +0.6t, Switzerland +0.2t, Germany -1.8t, Ireland -0.4t.
ASIA: China +3.2t, Japan +0.6t, Hong Kong +0.1t, India -0.6t.
OTHER: Turkey +0.7t, South Africa -1.0t, Australia -0.8t.
(“Other” are Australia, South Africa, Turkey, Saudi Arabia, and UAE)
On The Retail Front
Since US Mint total bullion sales for each month aren’t known until the first week of the following month, I will be giving final updates of the previous month’s sales when reporting on the present month.
On that note, sales of American Silver Eagles remain capped at 900,000 per month, as the Mint continues to defy the law that instructs the Secretary of the Treasury to mint enough ASEs to meet demand.
April sales of American Gold Eagles as of the 27th totaled 169,500 oz, compared to 215,000 in March. In .9999 fine gold, American Buffalo gold bullion coins totaled totaled 61,000 in April, with 73,000 sold in March.
500 American Platinum Eagles were sold in April, compared to 7,500 in March.
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The Perth Mint saw both gold and silver bullion demand increase sharply in March. Sales of gold bullion coins and bars hit 80,541 oz, the best month since November. This was 54.2% higher than in February, but a large 34% decrease from last March.
March sales of Perth Mint silver bullion coins and bars hit 1,823,096 oz. This was 22.8% higher than February, and a 10.5% increase from last March.
This 1.8 million oz of silver sold is more than twice the 900,000 oz of American Silver Eagles sold by the US Mint, and shows how rationing of ASEs has pushed silver demand in the US into increased purchases of Perth Mint silver products from Australia.
Market Buzz
Who knew that an AI could be a goldbug? The ChatGPT AI was asked to come up with a “recession-proof” portfolio, and it recommended putting 20% into gold!
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It’s not just Skynet that’s interested in gold. The Wall Street Journal reports that Google searches for “how to buy gold” hit an all-time high this month, with more queries than during the height of the previous gold boom in 2011. According to the Journal, a lot of this interest is from “crypto bros” looking to preserve their wealth after suffering big losses from crypto exchanges failing.
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Gold prices hit yet another record high in India this month with an intraday high of 63,000 rupees ($2,397) on April 14th.
Indian jewelers were afraid this would dampen demand for the Akshaya Tritiya holiday, but sales were actually 40% higher than last year. Buyers were opting for lighter-weight jewelry compared to the thick and clunky ornaments that are customarily preferred on this auspicious holiday.
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The spike in gold prices in April had consumers in Dubai moving to the sidelines to see if prices would come back down.
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High prices were also affecting demand in China. “With the gold price in both dollar and renminbi shooting to the moon, investors prefer to stay on the sideline than chase the market,” said Bernard Sin, regional director, Greater China at MKS PAMP.
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Bank of America sees gold pushing to new highs around $2,200 by mid-year, and holding that level into the new year.
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UBS says that further dollar weakness and money markets pricing in a Fed rate cut will push gold further above $2,000 to $2,100 by the end of the year and $2,200 by next March.
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Credit Suisse is doubling down on its call for record-high gold prices after sequential closes above $2,000. This time, they say that $2,300 is in the cards if prices can sustain a break above the $2,070/75 level.
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Citibank echoes the call for $2,300 gold.
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Tim Waterer of Kohle Capital Investments sums up the present gold market succinctly. “In the case of gold, it’s appearing to be an ‘asset for all seasons’ at the moment because not only is it still seeing buying flows as part of inflation-hedging, but it is also rallying during risk-on sessions as the dollar slides lower.”
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According to data from the China Gold Association, 114.87 tons of gold was mined in China in the first quarter of this year, but has done little to satisfy the Chinese appetite for gold.
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The $15 million gold heist at the Toronto’s Pearson International airport on April 17th was obviously an inside job, according to Canadian authorities. The container containing the riches arrived on an international Air Canada flight, and was stolen soon after being placed in a leased warehouse outside the airport’s security zone that is controlled and staffed by Air Canada.
Someone had to know when the gold would be arriving, where it would be stored, and how how to get it without being caught. Police say if the gold isn’t found soon it’s likely it never will be. Stolen gold is easy to hide by melting it and recasting it for sale on the black market.
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Citibank analysts say that silver is in “near-perfect” position to take out the $30 mark by the end of the year.
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The Silver Institute says that silver shortages, already near records, are only going to get worse. The world’s oversupply of silver was more than wiped out in 2021, when there was a 51.5 million oz global shortage. This was followed an “unprecedented” 237.7 million oz shortage last year.
Industrial demand for silver (think electronics and solar cells) is projected to hit a record 576.4 million oz this year. Investment demand for silver should increase even more when the Fed is forced to reverse course and cut rates, exacerbating the current supply shortage of coins and bars.
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Analysts at MKS PAMP expect silver shortages of at least 100 million oz in total over the next five years.
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InvestingHaven has proclaimed that silver is now officially in a secular uptrend. They call this the second upward wave in a multi-year three-wave formation.
Personally, I discount their assertion that the May-July 2020 rally was the first secular bull wave. This period saw panic buying in both gold and silver as COVID hit the US and caused government lockdowns and business failures, and was not normal business activity.
Looking Ahead To Next Month
The Fed meets again next Wednesday (May 3rd), when it is expected to raise interest rates by another 25 bp to 5.25%. Special attention will be paid to the official statements, with Chairman Powell’s press conference being able to move markets even more than usual. The CME FedWatch tool is predicting a 66% chance of no rate hike at all in June, and even a 12% chance of a rate cut.
The Fed already expects a recession to begin in the second half of the year. The question becomes “how deep will the Fed push the recession in order to bring inflation down?” A pause in rate hikes will be good for gold. Rate cuts will be even better.
Expect pressure on medium-sized banks to continue, as more of them risk becoming insolvent and causing bank runs. This is already making it more difficult for small businesses and families to get loans. It’s likely to only get worse. Again, this is a classic case where holding gold makes sense.
Our treasure story this month is actually about a bizarre theft. An 18-wheeler full of new US coins left in the parking lot of a Philadelphia Walmart overnight was hit by a dedicated (and strong!) gang who broke into the trailer and stole more than 2 million new dimes.
At least ten of the giant 2,500 lb bulk bags holding 200,000 dimes each were torn open and emptied by the thieves before making their escape. Photos from news helicopters showed dimes strewn across the parking lot as police investigated. Authorities are on the lookout for anyone wearing a back brace and trying to buy beer with nothing but dimes.
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
