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Metal Market Report September 2022 - Week 3 Edition

September 2022 - Week 3 Edition

Gold Prices React to War and Fed Action

Gold is up in all currencies due to (1) rising tensions in the Russia/Ukraine war and (2) the announced 0.75% increase in the Fed funds rate, somewhat less than the possible full 1% that some expected.  The gold price spiked in short order from $1,655 to $1,685 after the Fed’s announcement at 2:00 pm Eastern time. The U.S. Dollar is also sharply up, tempering gold’s rise in dollar terms and magnifying gold’s rise in terms of most other currencies – especially since the Japanese yen and euro still only yield zero to 1%.

While the Fed was dominating the headlines, we can’t ignore the more disruptive development overseas, as Russia’s President Vladimir Putin announced a mobilization of 300,000 more troops, including military reservists, in Moscow’s ongoing invasion of Ukraine. There is also word he is calling in border guards to fight in Ukraine in this all-out, last-ditch effort to win the war before winter weather sets in.

Believe it or Not, Fed Rate Increases are Positive for Gold (and Stocks)

We have repeated this many times here, but the press and the pundits seldom look at the historical record of gold during rate increases. The press keeps saying, “rising rates are bad for gold since it does not earn interest.? Really? Then why did gold score its greatest gains – rising from $300 to $850 – when U.S. interest rates were at their peak (20%) in 1979 and 1980?  Gold’s other great big bull market came from 2001 to 2011, at a time when the Fed raised rates from 1.0% to 5.25% in the years 2004 to 2006.  Gold also grew strongly from 2016 to 2018, when the Fed was raising rates in a three-year period.

Here is the statistical record of what happened to gold and stocks in the Fed’s last two rate-raising cycles:

The last two rate-raising cycles show that gold and stocks both rose but gold outpaced stocks by about 8-to-1 from 2004 to 2006, and stocks edged gold in the last rate-raising cycle by about 2%. Either way, we have nothing to fear from a normal rate-raising cycle by the Federal Reserve. Rising interest rates may; however, hurt real estate investments more than gold or stocks. Home prices began declining when rates hit 5.25% in 2006 and real estate fell until 2012, while gold kept rising during those six years from 2006 to 2012.

American Silver Eagle Bullion Coin Premiums are Still Too High

We have reported the fact that Rep. Alex Mooney (R-WV) wrote a letter to Secretary of the Treasury Janet Yellen and Mint Director Ventris C. Gibson on August 25, inquiring about the Silver American Eagle bullion coin delays and shortages. We took a look at the Mint’s September 2022 bullion coin sales and found they had sold 833,000 ounces of Silver American Eagles through September 20. Last September (2021), the Mint sold 2,735,000 Silver American Eagles. This is not an improvement over last September.

Bear in mind that silver is performing well now, outperforming gold recently. In the first three weeks of September, gold is down 2.6%, while silver is UP 6.6%, which is a rare reversal of roles (gold usually leads silver up). This is mostly attributable to the strong dollar. Our experience is that when silver is outpacing gold, demand for silver rises, but at the Mint, gold sales are rising faster than silver sales this month. Through September 20, Gold Buffalo sales are 38,500 ounces vs. 24,000 for ALL of September 2021, and 22,500 ounces for ALL of August 2022. Gold American Eagles have also matched all of August’s sales in just three weeks of September, so there is still a major blockage to U.S. silver sales.

Historically, silver coins are “the entry gate” to gold and then rare coin investing. Silver is where most precious metals investors begin, due to their low prices, but dealers can’t market Silver American Eagles when their premiums are $6, $8, even $10 an ounce higher than competitive products from other Mints.

Therefore, we must reluctantly point customers to the more reasonably priced Canadian Silver Maple Leaf, Austrian Philharmonic or other silver bullion coins due to the fact that our U.S. Mint is the only major world Mint that does not manufacture its own supply of silver planchets to strike its national silver coins.

Our Mint has struck only 12.8 million Silver Eagles through mid-September of 2022 vs. more than twice that number struck at the same time last year – in the head of COVID delays – even though silver demand was similar in both years.

We anxiously await a more revealing response from the U.S. Mint regarding the shortage of American Silver Eagle bullion coins and the exorbitant premiums we are all being charged.

 

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