February 25, 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 affected gold prices.

What Did Gold Do in December?

The big news for December was gold, setting two new record highs to make 2023 the best year for gold since 2020. The sharp rally that began in late November continued into December, setting new record intra-day and closing highs for gold on December 1st. February gold futures hit a new intra-day high of $2,095.70, closing at $2,089.70. Spot gold posted a new all-time intra-day high of $2,076.10 before closing at $2,071.00.

Things changed in a flash the next Monday. Spot gold gained another astounding $80 to $2,149 before noon. February gold mirrored this trajectory, advancing another $60 to $2,152, both substantially higher than Friday’s record close.

Suddenly, gold prices reversed sharply, forming a blow-off top. Prices had gone “too far, too fast.” Spot gold had gained $136 over the previous week by noon on the 4th, and futures had gained $140.

When the dollar spiked on safe-haven demand over the escalation of the Israeli-Hamas war, it was enough to snap the speculative sentiment driving gold prices. Gold’s exuberant rally had priced it out of being a safe haven compared to a weakened dollar.

Everyone stampeded to the exits to lock in the massive profits gained over the previous few days. By 2 pm, both spot gold and futures had lost $45. Spot gold closed $80 lower than the day’s new record intra-day high, and futures had lost $60 from its own high.

Gold futures lost $96 over seven sessions. Spot gold lost $92. The good news was that the pain was over, thanks to the Fed. The December FOMC policy meeting ended on the 13th, giving the markets a far better Christmas present than they could have expected. The “dot plot” of anonymous rate forecasts by Fed leaders showed that they expected three rate cuts next year, and FOUR in 2025.

All the markets went nuts, gold included. Spot gold jumped $47.70 to $2,027.20. Gold futures, which had closed for the day just prior to the Fed statement, caught up the next day, notching a gain of $47.60 to $2,044. Aside from three minor adjustments, the rally to the end of the year was on.

The cherry on top of the extraordinary gains for December was another set of all-time highs on the 27th. February gold futures settled at $2,093.10, and spot gold closed at $2077.40.

Factors Affecting Gold This Month

MARKET vs FED FORECASTS

After months of telling markets that it would keep rates “higher for longer,” and that it was “premature” to discuss when the first rate cuts would occur, the Fed dropped an unexpected bombshell on the 13th. The FOMC dot plot rate forecast of each member pointed to three rate cuts next year, and FOUR rate cuts in 2025.

Markets went wild, because for once, ”fighting the Fed” had been a big winning move. Of course, herd mentality being what it is, the stock market ignored the fact that it had already priced in these rate cuts long ago, and took off once again.

This led Chicago Fed president Austan Goolsbie to tell CNBC that the market was not acting rationally to the new news from the Fed. “It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear?  “I was confused a bit — was the market just imputing, here’s what we want them to be saying?”

Whether or not this is a case of “don’t confuse me with the facts,” the market is delivering a dollar sitting persistently as 5-month lows and lower bond yields. These are two of gold’s favorite foods to power a rally.

DOLLAR
A solidly weaker dollar was a positive influence on gold demand in December as the DXY posted a 4.62% loss in the fourth quarter and a 2.1% loss for the year. This is the first time the dollar has fallen on a yearly basis since 2020. This is also the first year that the Fed stopped raising interest rates, and became increasingly likely to cut rates.

The dollar fell from 104 in the first week of December to below 103 after the Fed Open Market Committee Meeting on December 12th and 13th.The meeting statement included the release of the Fed dot plot, which forecasts three rate cuts next year and four cuts in 2025. (The dollar depends in large part on high-interest rates for support.)
It was a bumpy ride from there as the dollar fell below the 102 level, then churned in the mid-to-low 101 range to close out the month.

BOND YIELDS
Bond yields were a large influence on gold prices again this month, as they are a more accurate measure of market sentiment regarding Fed interest rate policy. The yield on the 10-year Treasury note began the month at 4.32% and fell from there. By December 15th, the yield was below 4%. It spent the rest of the month bouncing between 3.93% and 3.80%.

Lower interest rates reduce the opportunity cost of owning gold, contributing to new all-time highs for the precious metal.

Central Banks

BANK OF CANADA
The Bank of Canada kept rates at 5.0% this month but told investors not to look south for hints of when they may start cutting rates. A statement from the bank said that rates were not coming down soon, despite what the Fed does. Even so, the BoC hopes to see inflation fall to 2% by the end of the year.
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BANK OF ENGLAND
The Bank of England kept rates paused at 5.25% for the third time on a vote of 6-3. The bad news is that the three dissenters wanted to RAISE rates to 5.5%, not cut them. Investors were told not to expect rate cuts in the UK anytime soon since the UK has been battling the highest inflation in the developed world.

Then, things changed.

On December 20th, UK inflation made a huge, unexpected drop from 4.6% to 3.9%. Although still higher than inflation in the US (3.1%) and EU (2.4%), UK inflation is now at least in the same ballpark. The report caused UK markets to react by pricing in a rate cut as early as May.
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ECB
The European Central Bank paused interest rate hikes at 4.0% for the second month in a row in December. It revised EU growth forecasts even lower and announced it would start reducing its balance sheet. The meeting statement said that “policy rates will be set at sufficiently restrictive levels for as long as necessary.” Bank of Austria governor ECB governing committee member Robert Holzmann added that there was no guarantee of an ECB rate cut in 2024.
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The Central Bank of Turkey hiked interest rates by 2.5% this month to 42.5% as it was still locked in mortal combat with an inflation rate that was 62% last month. That’s better than earlier this year, but they still have a long way to go.

Central Bank Gold Purchases

The official IMF central bank gold purchase numbers, as reported by the World Gold Council, show that central banks are still growing their gold reserves, but at a slower pace than in September. A net 42.4 tons of gold was purchased by the world’s central banks in October.
The big buyer once again was China, buying 23 tons of gold. Turkey came in second place, adding 18.5 tons. Poland extended its gold purchases for the seventh month, buying 6.2 tons (more about that in “Market Buzz,” below.) India bought 2.8 tons of gold in October despite rising prices in rupees. The Czech Republic purchased 1.9 tons of gold, with Qatar and Kyrgyzstan rounding out the buyers’ column by purchasing 1.1 tons each.
The only central banks selling gold in October were the Central Asian nations of Uzbekistan, which shed 10.6 tons, and Kazakhstan, which sold 1.6 tons

Gold ETFs

Global gold ETFs experienced a net outflow of 9.4 tons in November. Healthy inflows of 10.4 tons into North American gold ETFs were dwarfed by 20.1 tons of outflows from European gold ETFs. Germany was responsible for most of the bullion exodus from EU gold ETFs, seeing 15.1 tons of outflows alone.

Asian gold ETFs saw only minor net changes, recording 0.6 tons (600 kg) of inflows, while the “Other” countries saw a tiny 0.3 tons of outflows.

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

On The Retail Front

Since the US Mint reports bullion coin sales with a lag, I report the final numbers for the previous month before going into the preliminary numbers for the present month.
Final US bullion coin sales for November were 2,378,000 1 oz American Silver Eagles, 52,500 ounces of American Gold Eagles in all sizes, and 14,000 1 oz Gold Buffalos.
The US Mint stops making current-date bullion coins in November every year to build up enough stock to meet the annual heavy demand in the next January. This means that the Mint is just selling the leftovers each December, running empty in the first week or so.

AMERICAN SILVER EAGLES:
The big news for the month for ASEs is that December sales of 525,000 coins pushed total Silver Eagle sales for 2023 to just over 25 million coins – 25,110,000 in fact. This beat the 15.9 million ounce total for 2022 but came short of meeting the 28,275,000 total for 2021.

AMERICAN GOLD EAGLES:
AGE sales for 2023 broke 1 million ounces back in October, which was a good thing. December’s AGE sales were a mere 17,000 ounces. Total AGE sales for 2023 were 1,092,000 ounces.

AMERICAN GOLD BUFFALOS
There were even fewer Gold Buffalos left at the end of the year. Only 5,500 were sold, bringing total 2023 sales to 387,000.

All told, the US Mint sold 1,479,000 ounces of gold bullion in 2023. This beat the 2022 total of 1,385,500 ounces but came up short against 2021’s 1,603,000 ounces.
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PERTH MINT
It was a very bad month for silver bullion sales at the Perth Mint in November. The 672,623 ounces of silver bullion sold was the lowest since February 2020. These numbers were down 37.3% from October and 49% lower year over year. Higher silver prices in the second half of the month saw holders of physical silver in Asia cash out in large numbers to take profits.

Perth gold bullion sales were better, rising for the fourth month in a row. The 53,520 ounces sold in November was 26.5% higher than in October but was still down 53% year over year.
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ROYAL CANADIAN MINT
The RCM only reports sales by quarter now, so they recently released their 3Q ‘23 results. The news wasn’t good. Gold bullion volumes fell 52% from the second quarter to 170,100 ounces. Silver bullion volumes fell 64% to 3.4 million ounces.
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Costco’s foray into the retail precious metals market was a hit with customers. The wholesale giant sold $100 million in 1 oz gold bars last quarter.

Market Buzz

After outlining last month how the Dutch central bank was preparing for a shift to an EU Gold Standard, Jan Nieuwenhuijs at Gainesville Coins covers how the Polish central bank is making its own preparations to join this new monetary regime.
(Note that all articles at Gainesville Coins are 100% Human Written)
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On December 1st, Ole Hanson at Saxo Bank noted that December has been a strong month for gold prices for the last six years. He said that gold’s gains in 2024 would be complicated because the markets have already priced in multiple Fed rate cuts.
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TD Securities expects gold prices to be range-bound below $2,100 for the next quarter, estimating that it will take that long for inflation to ease to 2%. After this, they expect prices to remain over $2,100 on a sustained basis, supported by heavy institutional buying
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Head of Real Assets at Wells Fargo, John LaForge says, “Right now, gold has to prove itself. Investors are saying, ‘Show me the breakout’. I think once the market gets over $2,100 with some conviction, then it’s going to be a lot of fun.”
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JP Morgan updated their annual gold forecast for next year, saying that they expect prices to peak at $2,300 an ounce.
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China’s gold imports through Hong Kong were 46 tons –  37% higher in November than October, and 120.9% higher than last November.
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Plans are afoot in the legislatures of Missouri and Oklahoma to remove state capital gains taxes on gold and silver. Both states have already removed sales tax on them.
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Looking Ahead To Next Month

When I predicted last month that we’d see a price correction in early December, followed by a rally, I never thought things would blow up like this!

Looking ahead to 2024, January is always a big month for precious metals. The release of the new date Silver Eagles after the drought in December traditionally makes January the best month of the year for ASE sales. The thing that I am most interested in watching next month is how gold demand plays out after a blazingly hot December. One big factor will be how far bond yields can fall from here. There doesn’t seem to be much of a chance of a big dollar rally, with so many rate cuts expected.

Our treasure story this month is the time I was able to spend with my loving family this Christmas season. I hope your gift of family was just as wonderful. Everyone here at Gainesville Coins wishes you a happy and prosperous 2024!

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