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Metal Market Report February 2022 - Week 1 Edition

February 2022 - Week 1 Edition

Gold Buyers Do Not Fear the Fed Raising Short-Term Rates Later This Year

The financial pundits constantly tell us that gold suffers when interest rates rise, but that is not the case in recent history. There is no reason to fear the Fed increasing short-term rates from their near-zero levels of the last two years to a modest 1%, or so, short-term Fed funds rate. If we look back at the past three Fed rate-raising cycles – those ranging from 1999 to 2015 – gold has risen in all four of those cycles.

In all of these recent cases, gold was flat just before rates rose because so many pundits warned that gold might fall when rates increased but then the opposite happened – gold rose each time by an average 8.3% a year after the first rate increase. Then, gold kept rising (1999 to 2011, and again from 2015 to 2020). 

Here’s how gold and stocks performed in the year following each of the last three rate-rising cycles.

The lesson is to ignore many of the pundits and look to history. Gold often has nothing to fear from rate increases.

Gold Is Back Over $1,800

Gold and silver corrected after the Federal Reserve meeting on January 26-27 indicated the end of quantitative easing (QE), which is their program of monetary creation in response to COVID and the potential beginning of interest rate increases in March. The Fed is doing this because the nation’s economy is growing rapidly again (+6.9% in the fourth quarter, by the latest estimate) and inflation is still rising.  However, gold recovered back above $1,800 per ounce on early trading on Tuesday, February 1, 2022.

Although gold fell 1.1% in January, it performed far better than stocks and Friday, January 12, marked the biggest daily demand in gold ETFs since the ETF format was created. The SPDR Gold Shares (GLD) reported inflows of $1.6 billion that day, its largest dollar volume of purchases on any single day.

During January, energy prices soared by double digits and the energy sector was the only one of 11 S&P 500 sectors to gain ground as the 10 other stock categories fell in the worst January for the S&P 500 since 2009 – at the end of the worst postwar bear market. It was also NASDAQ’s worst January since 2008.

America has been battered by a number of violent winter storms, sending energy costs skyrocketing. As a result of those energy price increases, be prepared for a big number when the Consumer Price Index (CPI) for January will be released early Thursday, February 10. That news will likely move the stock market down and gold up. Also, we should not be afraid of the Fed raising rates three or four times this year. Remember, Gold has risen in price by an average 8.3% a year after each of the past three rate-rising cycles!

U.S. Mint Bullion Coin Sales and Gold ETF Sales Were Strong in January

Bullion demand continued at the same torrid pace of the last two (COVID-influenced) years during the start of 2022.  However, sales were not quite as brisk as January 2021 during the dramatic events surrounding the transition between the former President Donald J. Trump and the Joe Biden administration. During January 2022, 181,500 ounces of Gold American Eagles were sold vs. 220,500 last year. However Silver American Eagle demand grew from 4,775,000 ounces in January 2021 to 5,001,000 ounces in January 2022 and demand for the one-ounce Gold American Buffalo remained exactly the same – 61,500 Troy ounces in both January 2021 and 2022.

Get to know the “Team Mike” Professionals at 1st National Reserve
Working with Dr. Mike, America’s Gold Expert ®

Klint Myers
1st National Reserve Veteran Account Manager

Klint Myers, is a 16-year veteran employee of 1st National Reserve and has a background in the insurance claims industry. He has two children and his favorite hobbies are hunting and fishing.

His love of coins focuses on the $3 Indian gold coin. The uniqueness and rarity of the low-mintage $3 Indian, also called the $3 Princess because Lady Liberty is wearing a headdress traditionally worn by Native American Princesses, are why this is Klint’s favorite coin. And Klint is always willing to tell people about his favorite coin story, which is how the Saddle Ridge Hoard collection was found in California.

It doesn’t matter if it’s saltwater or freshwater, Klint is an avid fisherman and when it gets too cold to fish, if there is such a time, he does some deer hunting and occasionally goes duck hunting. But when he’s not hunting, fishing or adding to his own personal coin collection, Klint builds custom fishing rods and sponsors the local high school fishing team in his community. It’s his way of giving back to the community and helping educate kids about the outdoors.

 

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