Metals Market Report Archive

The Mike Fuljenz Metals Market Report

March 2023 - Week 4 Edition

Gold Topped $2,000 For Just the Third Time in History

Gold enjoyed a powerful mid-month rally in March. Rising from a low of $1,811 on March 8, gold peaked at over $2,000 per ounce on Monday, March 20, just 12 days later, mostly due to the global banking crisis, centered in San Francisco and Switzerland, but threatening contagion in other areas.

Gold rose above $2,000 per ounce only two other times – peaking at $2,061 on August 7, 2020, then peaking again at $2,017 on March 7, 2022.  On Monday, gold hit a 12-month high before profit-taking and a stronger stock market fueled an expected correction to the $1,950 range as the market awaited the mid-week decision by the Federal Reserve’s Open Market Committee (FOMC), which meets eight times per year to set monetary policy.

At 2 pm Wednesday, the Fed announced another 0.25% rate increase, despite a run of bank failures earlier this month, which sent long-term interest rates sharply down out of fear of further runs on major banks.

The first reaction of the metals and the markets to the Fed Chair’s press conference was positive, especially considering the fact that in past press conferences, Fed Chair Jerome Powell had a bad habit of tanking the markets with his mostly glum outlook and negative responses to questioning. This time, however, he seemed to confirm that we may be close to the end of rate increases and there could be some rate cuts in the second half of the year, so stocks and gold both rose robustly.  However, as the markets digested the news, gold and silver kept rising while stocks corrected since the long-term results are inflationary.  

Here's how strongly the markets moved today, before and after the Fed’s announcement and press talk. 

The Dow closed down 540 points, falling consistently the last two hours, while gold and silver kept rising.

Gold is Rising Due to Troubled Banks Holding Money-Losing Bond Investments

In the U.S. banking system, the two largest bank failures took place in the San Francisco district, where the Fed’s District President, Mary Daly, appears more concerned about fighting climate change and income inequality than her primary job, supervising bank safety in her district. There were several obvious red flags in Silicon Valley Bank (SVB), which we pointed out last week, but its CEO was on the board of the San Francisco Federal Reserve, so is there perhaps a conflict of interest at that bank?

We have since learned that the problems at SVB have long been known – by the press and by regulators. 

In January 2019, the Fed issued a warning to SVB over its risk-management systems, according to a presentation circulated last year to employees of SVB’s venture-capital arm, and SVB’s risky practices were “on the Federal Reserve’s radar for more than a year,” the New York Times reported last weekend.

The Times reported: “In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as ‘matters requiring attention’ and ‘matters requiring immediate attention,’ flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble. But the bank did not fix its vulnerabilities.”

The Fed then launched a “full supervisory review” last July 2022 and the bank was rated “deficient for governance and controls,” but nothing was done until the bank run started on Friday, March 10. After it was too late to fix the problem, the Federal Reserve and Treasury Department announced massive bailout plans, including emergency measures to shore up any – and all other banks and accounts above the insured limits. Then came the failure of New York’s Signature Bank the following Monday and then other smaller banks, followed by news from Switzerland’s Credit Suisse of “material weaknesses” in its financial reporting. Over the last weekend, UBS agreed to buy the troubled Credit Suisse bank.

All of this is rightly seen as long-term inflationary, as these bailouts involve creating trillions of dollars of new money, on top of the $6 trillion or more in stimulus packages in the three years following the March 2020 COVID outbreak, plus the Biden administration spending bills. At times like this, it is important to maintain a high portfolio percentage in precious metals and rare coins, primarily as an insurance position for the rest of your portfolio. This now includes insurance for the cash in your bank accounts. Gold has usually performed well in past crises of confidence in the currency, in banks or in stock market crashes.  Contact your professional account representative to make your gold purchase now.

Due to High Demand, Supplies of Bullion and Rare Coins are Drying Up

I’m receiving more calls from other dealers asking if we have some common date classic gold coins – such as $20 Libs and St. Gaudens gold double eagles, since these dealers have totally run out of inventory and can’t find any immediate sources for restocking their supply. This is unprecedented. They say the demand is overwhelming, like nothing they have ever seen before.  Unlike others, we have many of these coins in stock as we have been preparing for a situation like this to ensure supplies for our clients.

Overseas, the trends are the same.  The British Royal Mint has reported record bullion coin sales in 2022, with gold bullion sales up 25% and silver demand up 29%.  That is a stark contrast to our own U.S. Mint, which has reported reduced sales – not due to reduced demand but due to their super-high premiums for American Silver Eagles.

The British Royal Mint also noted a rise in the number of new investors interested in holding physical gold rather than “paper gold” ETFs or other representations of gold available in stock market exchanges.

The Royal Mint reported that they saw big increases in bullion demand last March, after Russia’s Ukraine invasion, and during their fall election season for Prime Minister, when the nation had to endure three Prime Ministers being installed within three months. The Royal Mint is looking forward to a strong 2023.

Now, if we could only see the U.S. Mint improve its response in serving rising U.S. demand!


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