Gold Silver Desk

Anna Golubova – Tuesday January 31, 2023

Correction: Originally, the WGC reported that 2022 central bank gold buying was the second highest on record. On Feb. 7, the analysts amended their research, stating that 2022 central bank demand hit an all-time high. The article has been updated to reflect the corrected data.

Central banks had their eyes on gold last year, purchasing 1,136 tonnes — the most on record, according to the World Gold Council (WGC). This also marked a more than 150% increase from last year.

The WGC’s Gold Demand Trends report from Q4 revealed that central banks bought an additional 417 tonnes of gold, following Q3’s massive purchase of 445 tonnes.

“Geopolitical uncertainty and high inflation were highlighted as key reasons for holding gold,” the WGC said in a report published Tuesday.

Central banks are paying attention to gold because of how it performs during times of crisis and its role as a long-term store of value. “It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace,” the report pointed out.

The last time there was so much gold buying by central banks, the U.S. dollar was still backed by gold.

“Central bank purchases are highlighting the fact that gold remains a very important asset in the monetary system. Even though gold is not backing currencies anymore, it is still being utilized. Why? Because it is a real asset,” Juan Carlos Artigas, Global Head of Research at the World Gold Council, told K-News.

Most of the 1,136 tonnes total was once again “unreported,” said the report. “Echoing Q3, data for the final quarter of the year was again a combination of reported purchases and a substantial estimate for unreported buying,” the report highlighted.

Turkey was the biggest buyer in 2022

The Central Bank of Turkey bought the most gold out of all central banks in 2022 as it searched for protection against unchecked inflation. Turkey’s official gold reserves rose by 148 tonnes to 542 tonnes, marking the highest level on record.

In the fall, Turkey’s inflation accelerated to 85% before slowing to 64% in December. Turkey’s central bank was one of the very few that cut rates in 2022, taking the key interest rate from 14% to 9%.

China was also the big highlight from last year, as the People’s Bank of China (PBoC) resumed gold buying for the first time since 2019 by adding 62 tonnes in November and December and lifting its total gold reserves to over 2,000 tonnes for the first time.

“These announcements were significant given China’s historic position as a large buyer of gold, having accumulated 1,448 tonnes between 2002 and 2019,” the report added.

Countries in the Middle East also stepped-up buying, with Egypt purchasing 47 tonnes, Qatar 35 tonnes, Iraq 34 tonnes, United Arab Emirates 25 tonnes, and Oman two tonnes.

In Central Asia, Uzbekistan added 34 tonnes to its gold reserves in 2022, followed by the Kyrgyz Republic with six tonnes and Tajikistan with four tonnes.

India bought 33 tonnes in 2022, which was 57% lower than the previous year. “Intervention in the FX market to support the rupee during the year caused a decline in FX reserves of US$70bn, which may have impacted the bank’s gold buying. Its gold reserves now stand at 787t (8% of total reserves),” the WGC report noted.

Out of developed market central banks, Ireland was the only one that bought gold in 2022, adding three tonnes to its reserves in Q1.

Despite the strong interest in gold, there was some selling. Kazakhstan was the largest seller, reducing its gold holdings by 51 tonnes.

Germany sold four tonnes because of its ongoing coin-minting programme. Sri Lanka reduced its holdings by three tonnes, followed by Poland, the Philippines, and Mongolia, each selling two tonnes. Other sellers of at least one tonne were Bosnia and Herzegovina, Cambodia, and Bhutan.

Russia announced that would resume its gold purchases from domestic producers last year. But there was no update provided since the central bank sold three tonnes of gold in January of 2022.

Outlook for 2023

The WGC admitted that it would be hard to match last year’s demand in 2023, given the historical size of the purchases.

“It is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year,” the report said. “A slowing of growth in total reserves is likely to put pressure on some central banks, reducing their capacity to allocate to gold. We therefore think it likely that 2023 buying will be more moderate.”

The WGC also noted that central bank demand is difficult to forecast because it is often policy-driven. It added that “lagged reporting by some central banks means that we need to apply a high degree of uncertainty to our expectations, predominantly to the upside.” 

By Anna Golubova

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Neils Christensen – Thursday January 26, 2023

In her latest report, Nicky Shiels, head of metals strategy at MKS PAMP, described the sentiment in the precious metals market as primarily gold focused.

The comments come as gold prices have verged on a technical bull market with prices recently up nearly 20% from their November two-year lows. Shiels noted that the pullback in gold has been shallow.

Meanwhile, silver, which outperformed in November and December, has stalled, with prices treading water around $24 an ounce.

February gold futures last traded at $1,926.30 an ounce, down 0.84% on the day. At the same time, March silver futures last traded at $27.060 an ounce, up 0.50% on the day.

Gold’s strong start to 2023 has pushed the gold/silver ratio off its recent one-year lows and is currently trading back above 80 points. It now takes more than eighty ounces of silver to equal one ounce of gold. The historical average for the ratio is around 60.

“If one told any generalist gold was up $300+ in 3 months, most would expect silver at $30 ($25 minimum). However, perhaps it isn’t what’s wrong with silver but more what’s ‘right’ with gold,” she wrote in her note.

Shiels noted that the persistent inflation threat, ongoing volatility in the crypto market, geopolitical uncertainty, including the new debate in U.S. Congress over the debt ceiling and potential default, are all specific supportive factors for gold.

As to where gold goes from here, Shiels said the precious metal still has room to move higher. She added that this is the quietest bull market rally the market has seen in a long time. She said that the market is even close to being “frothy.”

“There are plenty calling out golds overextension and it’s clearly overbought on the short-term technical; however, 1) that view is consensus, urggh and 2) it may be the case that, like in steady bull markets, it doesn’t have to correct lower to work off overbought conditions, but just consolidate before relaunching,” she wrote.

Although next week’s Federal Reserve monetary policy decision poses a risk for gold, Shiels said that she expects the market to overcome the wall of worry. Currently, markets have all but priced in a 25 basis point hike next week, which is a significantly slower pace compared to the Federal Reserve’s last four 75 basis point moves.

“Although it really should be non-event with 25bp priced in for Feb and really, who cares about whether there is another 25bp in March or not when gold’s overcome 4x 75bp super-sized hikes in 2022,” she said. “Context is everything, but its still in Golds DNA to worry about most FOMCs.”

Looking ahead, Shiels said that she expects gold prices to grind higher as she believes this is more than just a momentum trade.

“The opportunity is not in a gold correction, but in silver & platinum playing catchup (in what could get messy given liquidity constraints), which is only more likely after the FOMC and Chinas return,” she said.

By Neils Christensen

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Neils Christensen
Friday January 13, 2023

The U.S. Mint’s disappointing sales numbers in 2022 are raising some questions among bullion professionals and retail investors; however, according to some analysts, these issues are also a part of a more significant trend in the global precious metals marketplace.

Last year the U.S. Mint sold slightly less than 16 million one-ounce American Eagle silver coins, a drop of 43.5% from sales of more than 28.2 million coins sold in 2021. Sales of American Eagle coins dropped to their lowest level since 2019.

However, analysts note that the reduced sales weren’t due to a lack of investor interest. Analysts have reported solid global demand for silver bullion throughout 2022. An indication of investor interest has been record-high premiums for American Eagle coins, pushing above 70%.

While the U.S. Mint reported disappointing sales numbers for 2022, Perth Mint saw record sales of more than 23 million ounces.

Michael Fuljenz, president of Universal Coin & Bullion and chair of the National Coin and Bullion Association American Silver Eagle sales committee, said that there are systemic issues impacting the production and supply of American silver bullion coins. He added that these issues could continue to persist in 2023, which means consumers will continue to face persistently high premiums.

Fuljenz said the biggest problem is that the mint buys silver blanks from private mints. Blanks are silver disks that are then transformed into coins.

Analysts have noted that the U.S. Mint has had difficulty maintaining its supply of blanks as it competes with growing overseas demand.

“The U.S. Mint either needs to start making their own blanks or be more competitive and pay more or loosen their conditions when it comes to buying them,” said Fuljenz. “If the Mint had more blanks, they would probably have had sales matching 2020 and 2021, and premiums would not have risen from about $3 over the spot silver price to $14 over the spot silver price in two years.”

Tom Power, president, and CEO of Sunshine Mining, which supplies the majority of the U.S. Mint’s silver blanks, said his company is running at full capacity trying to keep up with growing global and domestic demand.

He added that the silver market continues to deal with supply chain and production issues, particularly a shortage of skilled labor.

“There is no shortage of silver or the raw metal out there, but there are still ongoing production issues as we all continue to suffer from a labor shortage,” he said. “This has been going on for two years now and we could see it last another year or two.”

Power added that even if he could increase capacity at Sunshine, it would take 12 to 16 months to get the equipment he would need. “We are giving the U.S. Mint everything we can afford to give them,” he said.

Along with ongoing supply issues, the U.S. Mint also has to compete with unprecedented global demand.

Everett Millman, a precious metals expert at Gainesville Coins, said that the supply issues the U.S. Mint faces are part of a much bigger trend as a wealth of precious metals flow from Western nations to Eastern countries. Many analysts have noted that India has seen an insatiable appetite for silver bullion, with record imports in 2022.

Millman explained that this is a trend the precious metal sector sees every time there is a significant drop in gold and silver prices.

“Investors in the East seem to always take advantage of these price dips to stock up on precious metal,” he said. “When prices start to rise, we see the reverse and the metal flow back to the West.”

Millman added that in this environment, it’s not surprising that the U.S. Mint would have difficulty finding enough silver blanks to meet domestic demand.

“If there is more demand in the East and that is driving prices, then that is where the gold and silver are going to go,” he said.

Millman also pointed out that the Perth Mint’s record performance in 2022 indicates robust global demand.

Although consumers could continue to face higher premiums through 2023, Millman said that healthy demand in the East is a strong indicator that prices will eventually rise.

“Traditionally, investors in the East are not looking to buy gold to make a quick profit but are concerned about preserving their wealth and hedge against ongoing currency debasement,” he said. “Those dynamics are good reasons why we see gold flowing to the East.”

Millman said that he expects the tide in the precious metals market to shift when gold prices rise to $2,000 an ounce.

By Neils Christensen

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Jim Wycoff – Thursday November 10, 2022

Gold and silver prices are solidly higher in midday U.S. trading Thursday, with gold scoring a 2.5-month high and silver a 4.5-month high, following a U.S. inflation report that came in just a bit cooler than market expectations and in turn pushed the U.S. dollar index and U.S. Treasury yields sharply lower. December gold was last up $38.60 at $1,737.90 and December silver was up $0.323 at $21.66.

The U.S. consumer price index report for October came in up 7.7%, year-on-year, versus expectations for a rise of 7.9%, year-on-year, and compares to the 8.2% rise seen in the September report. This report may be the most important data point of the month, if not the quarter. A slightly cooler reading in the CPI print may influence the Federal Reserve”s decision-making process ahead of its December FOMC meeting. The Wall Street Journal is reporting the Fed is likely to raise its Fed funds rate by 0.5% in December, following a string of 0.75% increases at past FOMC meetings.

The U.S. stock indexes soared on the cooler CPI print, with Bitcoin also posting solid gains after the report. However, the crypto currency markets remain in turmoil late this week, with fears of a contagion effect and more illiquidity in the cryptos. Broker SP Angel this morning reports in an email dispatch: A proposed takeover of likely insolvent FTX crypto exchange by rival Binance is set to fail, sending Bitcoin down 26% this week and triggering concerns of wider market contagion. FTX exchange, whose founder Sam Bankman-Fried (likened to John Pierpont Morgan during the banking crisis of 1907), is looking for support for a reported $8 billion debt shortfall. The exchange”s insolvency has triggered a further step down in crypto market values, with the total crypto market cap standing at $914 billion, down from over $3 trillion in November 2021. JP Morgan are reporting crypto market participants are facing a “cascade” of margin calls, although it is unclear whether this will feed into wider equity markets.

The key outside markets today see the U.S. dollar index sharply down and hit a two-month low after the cooler CPI. Nymex crude oil prices are higher and trading around $87.25 a barrel. The 10-year U.S. Treasury note is yielding 3.852% and has fallen sharply in the wake of the cooler CPI report.

Technically, December gold futures prices hit a 2.5-month high today. The gold futures bulls and bears are back on a level overall near-term technical playing field. Bulls have momentum as a price downtrend on the daily bar chart has been negated. Prices this week have also seen a bullish upside breakout from a trading range, to suggest still more upside in the near term. Bulls” next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at the November low of $1,618.30. First resistance is seen at today”s high of $1,757.20 and then at $1,775.00. First support is seen at $1,738.70 and then at $1,725.00. Wyckoff’s Market Rating: 5.0.

December silver futures prices hit a 4.5-month high today. The silver bulls have the overall near-term technical advantage and have momentum. Prices are in a choppy nine-week-old uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $23.00. The next downside price objective for the bears is closing prices below solid support at $20.00. First resistance is seen at today”s high of $21.94 and then at $22.50. Next support is seen at $21.00 and then at this week”s low of $20.435. Wyckoff’s Market Rating: 6.5.

December N.Y. copper closed up 720 points at 377.15 cents today. Prices closed nearer the session high and hit a four-month high today. The copper bulls have gained the overall near-term technical advantage. Prices are in a six-week-old uptrend on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at 400.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the October low of 330.30 cents. First resistance is seen at 380.00 cents and then at 390.00 cents. First support is seen at today’s low of 362.85 cents and then at this week’s low of 356.25 cents. Wyckoff’s Market Rating: 6.0.

By Jim Wycoff

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Anna Golubova  
Monday October 10, 2022

The situation is dire, with problematic inflation, oversized rate hikes, unknown effects from the Federal Reserve’s quantitative tightening, and the war in Ukraine acting as primary triggers for a recession.

“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon told CNBC Monday.

Dimon added that the S&P 500 could fall by “another easy 20%” from the current levels. And the next 20% drop is likely to “be much more painful than the first,” he noted. “Rates going up another 100bps will be a lot more painful than the first 100 because people aren’t used to it,” Dimon said.

The type of recession the U.S. is likely to see ranges from something very mild to quite hard. And a lot depends on what happens with the war in Ukraine, Dimon explained.

“To guess is hard, be prepared. One guarantee is volatile markets. You are going to have volatile markets. You’ve already seen markets down quite a bit, which is typical but still [has] been orderly. It’s possible to see it be disorderly sometime in not too near future,” he said.

On the Fed, Dimon said that the U.S. central bank waited too long and did too little, with QT starting too late. But the Fed is motivated to catch up now, he added. “And, you know, from here, let’s all wish him success and keep our fingers crossed that they managed to slow down the economy enough so that whatever it is, is mild — and it is possible,” Dimon said.

Dimon’s comments come as markets adjust to rising rate hike expectations amid fears of an economic recession.

Last week, the United Nations urged the Federal Reserve and other central banks to ease up on rate hikes, warning that tighter monetary policies are pushing the global economy into a recession.

“There’s still time to step back from the edge of recession,” UNCTAD Secretary-General Rebeca Grynspan said. “But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”

The Federal Reserve raised rates by 300 basis points the year to the current range of 3% to 3.25%. Meanwhile, the European Central Bank hiked 125 bps, and the Bank of Canada raised by 300 bps.

At the beginning of June, Dimon also told investors to brace for an economic “hurricane.”

“You know, I said there’s storm clouds, but I’m going to change it … it’s a hurricane,” CNBC quoted Dimon as saying at a financial conference in New York. “You’d better brace yourself … JPMorgan is bracing ourselves, and we’re going to be very conservative with our balance sheet.”

By Anna Golubova

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