What Did Gold Do in June?
Gold prices don’t usually see much activity during the summer months, but there were lots of things pushing and pulling prices in different directions in June. in June.
The largest moves happened in the middle of the month. June 13th was the Monday after a worse-than-expected CPI report, and it seemed like the world caught fire. The bottom fell out of the stock market, bond yields shot up and briefly inverted, and the dollar index jumped to over 105. Spot gold closed the day $53 lower.
Gold prices inched higher in the following days, but fell at the end of the month to end June $40 lower, just above $1,800 an ounce.
Factors Affecting Gold This Month
Official gauges of inflation keep signaling that hard times aren’t going away anytime soon. The latest CPI report showed that retail inflation hit a higher than expected 8.6% last month, a 40-year high.
Things will not be getting better soon, as fuel and energy costs increased at the fastest pace since 2005. Gasoline prices rose more than 48%, while fuel oil prices doubled. Food prices rose 10%, the first time they have jumped that much since 1981.
It’s no consolation, but most of the world has it worse, due to the strength of the dollar and rising Treasury yields here in the US.
Some people were hoping that the economy would recover by the end of June after GDP fell 1.6% in the first quarter. That doesn’t seem likely. Today’s Atlanta Fed GDPnow forecast estimates that the economy shrank 1% for the second quarter. With food, water, and fuel becoming ever-scarcer, and droughts setting up another disastrous wildfire season, the recession is probably going to get worse.
FED RATE HIKE POLICY
It is generally acknowledged that the only way the Fed has historically been able to stop runaway inflation is to cause a recession. The Fed has caused a recession while hiking rates to fight inflation eight out of nine times since 1961. The impression of how hard the Fed will push rates higher seems to increase by the week.
Last month people thought St. Louis Fed president James Bullard was on drugs when he called for the Fed to raise rates to 3.4% by the end of the year. That view now seems to be the average prediction now.
His recent quote that the Fed has to be very aggressive to “nip inflation in the bud” might sound like Barney Fife, but more of his colleagues are getting on board with the “shock and awe” approach to rate hikes. Support for a 75 basis point hike next month is near unanimous.
The plan is that hitting inflation hard and fast will bring it down from 40-year highs before the economy tanks, then they can ease rates back towards 2%.
Central banks around the globe are wrestling with inflation at multi-decade highs. A 7.7% inflation rate in Canada is pressuring the central bank there to stay aggressive with its rate hike policy. They raised rates from 1% to 1.5% this month.
The Bank of England raised rates 25 basis points, but not without some internal grumbling that the central bank was pussy-footing around with inflation, which is at 9.1% in the UK.
The European Central Bank shocked markets by calling an emergency meeting over the sudden and widening gap in bond yields between healthy EU economies and Italy, Greece, and Spain. This has put fears of a new Eurozone Financial Crisis front and center. The ECB has confirmed a 25bp hike next month, and has left the door open to a 50bp hike in September instead of 25bp.
There other, lesser surprises by central banks in Europe. The Swiss central bank, which has not raised rates since 2007, hiked rates 50bp. The crazy part about that is that rates are still at a negative .25%
In other central bank news, the Austrian central bank has been waiting seven years for the Bank of England to return 50 tons of its gold that has been stored in London.
Central Bank Gold Purchases
This month’s central bank gold report covers the month of April. Global central bank gold reserves rose by 19.4 tons, as traditional buyers who had become sellers became buyers again.
Uzbekistan led the charge, adding 8.7 tons to its gold reserves. Turkey (5.6 tons) and Kazakhstan (5.3 tons) followed suit. India increased its gold reserves by 0.9 tons.
Sellers included Germany (-0.9 tons,) and the Euro Area (-0.8 tons.)
The central bank of the Czech Republic announced this month that it will increase its gold reserves from 11 tons to 100 tons.
2022 Central Bank Gold Survey
The World Gold Council surveyed 46 central banks for their annual Gold Reserves Survey this year. 25% of the central banks said that they intend on increasing their gold reserves this year. And,
- 74% agree that gold plays an important role in times of crisis.
- 75% agree that gold is an important inflation hedge and long-term store of value for central banks.
- 69% agree that an important property of gold is that it carries no default risk.
61% think that global central bank holdings of gold will increase this year.
Global gold ETFs snapped a four-month rally in May, with the largest monthly outflows in more than a year. 53 tons of gold left the world’s ETFs, with most of the losses occurring in North America. A higher dollar and higher interest rates (and possible margin calls in the stock market) were the main culprits.
North American gold ETFs saw 34.2 tons of outflows (1.6% of total AUM). Gold ETF holdings in Europe shrank by 17.4 tons (1%). Asian gold ETFs saw outflows of 1.3 tons.
On The Retail Front
The US Mint sold an updated 1.35 million American Silver Eagles in May, and 861,000 by June 28th. They sold 175,000 ounces of American Gold Eagles in May, and 44,000 by June 28th. 56,000 Gold Buffalos were sold in May, but only 11,000 by June 28th.
American Platinum Eagle bullion coins made an appearance on this month’s US Mint bullion sales report for the first time since March. 18,500 APEs were sold, bringing the 2022 total to 58,500 ounces.
Gold imports into the US are up 170% year to date. The US was the destination for 30% of Swiss gold exports this year. Traditionally, the US has not imported gold from Switzerland in any meaningful amount.
Speaking of Switzerland and gold, import data shows that 3.1 tons of gold was imported into Switzerland from Russia last month. The big four Swiss gold refiners swear that it wasn’t them, but it’s not a good look for anyone.
An international ban on Russian gold was discussed at this month’s G-7 meeting, with the US, UK, Canada, and Japan putting gold sanctions in place. The other three nations of the Group of Seven (France, Germany, and Italy) did not follow suit. German Chancellor Olaf Schultz said that the EU’s major members should not take part in Russian gold sanctions without the whole EU agreeing to it.
Billionaire hedge fund manager and gold bull David Einhorn says that the Fed is pretending that it can tame inflation, but it really can’t. Raising rates forces the government to spend more money servicing its debt, which ties the Fed’s hands. “Just wait until they’re forced to loosen into an inflationary spike to support the Treasury. At that point, it’s best to have some gold.” he says.
The government of Uganda says that 31 million tons of gold reserves have been found in various parts of the country, and wants to partner with outside gold companies to exploit it. As a point of reference, Russia is recognized as having the largest gold reserves, at 11,000 tons. Why do I suddenly think of Nigerian princes when reading about this?
Looking Ahead To Next Month
Expect inflation to remain at crisis levels next month, though some analysts think it may be starting to top out. If I were a betting man, I’d say that another .75% rate hike by the Fed is certain.
The stock market selloff is likely to continue. The S&P 500 just had its worst first-half losses since 1970. This is the traditional time of year for gold to basically do nothing.
This month’s gold story comes from the Holy Land, where members of a scuba diving club in Caesarea found a gigantic pile of more than 2,000 gold coins on the bottom of the ancient harbor. Archaeologists believe that the 1000-year old coins were part of the taxes collected from the region, destined for the Fatimid imperial capital in Egypt.
We wish you a safe, happy, and blessed Fourth of July, and I will see you next month!
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