Metals Market Report Archive

The Mike Fuljenz Metals Market Report

June 2024 - Week 2 Edition

Friday Brought Us Yet Another Silly Excuse to Sell Gold Based on “Good News”

Gold fell sharply this past Friday – down $100 at one point and closing down $70, almost 3% – while silver closed down over $2 an ounce, for a drop of nearly 7%. To speculators and market amateurs, Friday might be termed a “bloodbath” for the metals but that isn’t reality and gold’s short-term drop was just a reaction to sensationalized headlines based on an over-hyped jobs report and profit-taking. Gold has since started to recover this week, but silver, which has been on a huge run so far this year, is lagging behind. What’s the story?

As I touched on, this is yet another classic case of blind overreaction.  You can compare it to that annual run of the thoroughbreds at Belmont Park in New York, where many horses wear “blinders,” so they won’t get distracted. Gold ETF traders are blinded to the facts about gold, mainly because they aren’t experts in precious metals and focus mostly on trade numbers and government reports.

Some pundits say that gold fell Friday mainly because of a “strong jobs report.” Others cited a month of China’s central bank not adding more gold to its coffers and some cited secondary reasons, like “gold is taking a breather after rallying to record highs.”  That last reason is probably closest to the truth since short-term traders were looking for reasons to take profits and a positive jobs report was that excuse. Their reasoning, albeit incorrect, is that a strong jobs report implies the Fed will now take longer to start cutting interest rates and “since gold doesn’t offer interest income,” higher rates for longer puts gold at a disadvantage.

As I’ve often said, this reasoning flies against the facts of history, since gold has often (and usually) risen when interest rates have risen; however, the ignorance of gold ETF traders goes deeper. If those same traders had merely taken a few minutes to read all the line items in Friday’s jobs report, the news about May jobs really wasn’t positive at all. Many observers took the time and posted the details on-line. On Friday, Larry Kudlow’s daily economics review on the Fox Business News channel listed these line items, which were clearly available to anyone who looked at the details of the jobs report:

  • There are two job totals released each month. (1) The headline-making Payroll Report showed a 272,000 job gain, which everyone reported but (2) the equally important “Household Survey” showed a 408,000 decline in workers last month (the household survey is targeted more toward small businesses).
  • Among the May job totals, part-time jobs grew by 286,000 but full-time workers fell by 625,000.
  • Foreign-born workers grew by 414,000, while jobs for native-born Americans declined by 663,000.
  • The civilian labor force shrunk by 250,000 workers, netting a rise in the unemployment rate to 4.0%
  • The employment-to-population ratio fell in May to 60.1%, down from 61.1% in the Donald J. Trump years

These details tell us that not all jobs are equal.  When we see the four-letter word “jobs” in print, many assume it means productive work in growth-oriented businesses by full-time workers but that’s generally not the case.  In the past year, more part-time jobs (1,511,000) have been created than full-time jobs (1,163,000) and we’ve created more government jobs than in any three-year period in history. In private sector jobs, healthcare leads the way and they are heavily subsidized by Obamacare or Medicare,

So, why did every news outlet call this a “positive jobs report” and why did gold traders sell their gold ETFs based on this report?  As we said last week, and many times before that, gold ETF traders tend to be “weak hands.” They tend to buy too late and then sell prematurely, often for the worst reasons, like now.

Longer-Term, Gold Mines are “Drying Up” while Paper Printing Presses Run Overtime

Beyond the daily news – which seems to transfix traders – the long-term trend is higher debt, paid for at higher interest rates and higher inflation based on more “fiat” money creation, while less and less new gold is being mined. The main reason why gold has risen almost 70-fold since 1971 when President Nixon took the dollar off its last connection to gold, is that there has been mostly no limit on the printing of new money while the logistics of mining new gold have become increasingly difficult for miners each year.

According to the latest report from the World Gold Council (WGC), the gold mining industry is now struggling just to break even with the previous year’s production of new gold as deposits are increasingly difficult to find and extract. WGC Chief Market Strategist John Reade said, “… gold production effectively plateaued around 2016, 2018 and we’ve seen no growth since then. It’s getting harder to find gold, permit it, finance it and operate it.” The mining trade association stated mine production grew only 0.5% in 2023 over 2022 and 2022’s growth was only 1.35% over 2021.

A producing mine takes an average of 10 to 20 years to go into production and many years before that for exploration, often in lands unfriendly to capitalist enterprises. Even then, only about 10% of mines contain enough gold-rich ore to justify ongoing mining operations.

Meanwhile, the M2 money supply, which is an estimate of the available short-term deposits and available cash flow available to people, has grown at nearly a 10% annual rate over the last five years, first to fuel liquidity during the COVID crisis. That money was never removed from circulation, so the bottom line is that the M2 Money Supply grew from $14.531 billion five years ago, on April 1, 2019, to $20,867.3 billion on April 1, 2024, the last complete quarter. It’s an increase of 43.6% in five years. Compared to the much smaller rise in gold supply and population growth since then, it helps explain the very high level of inflation since 2019.

Keep your eye on the long-term – not the short-term reaction to daily news – for maximum gold profits. As you can see, I stay up to date on the trends in precious metals when others do not and our professional representatives are available to help you easily invest in rare coins, gold and silver bullion or even with converting your traditional IRA into a precious metals IRA. Give our team a call and ask how we can help with your investing future.

Gold and Silver Climbing After Short Break in Strong Upward Swing

Gold fell from $2,385 to $2,285 this past Friday, but it closed above $2,300 and scratched back to $2,338 by Wednesday morning, June 11. The quick dip came after a “false alarm” about a positive jobs report on Friday, which could possibly lead to a delay in the Federal Reserve’s first-rate cut. For knee-jerk traders, it is another classic example of overreacting to the misinterpretation of an attention-grabbing headline, without looking at any of the underlying details. Silver fell from $31.50 to $29.30 Friday and has not yet recovered to $30.15. However, the need for silver in the industrial sector is expected to send its price up rather quickly. I believe this drop was just another example of traders taking profits after silver’s incredible rise so far this year.


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