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  • Metal Market Report February 2022 - Week 1 Edition

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 American Reserve
Working with Dr. Mike Fuljenz, America’s Gold Expert ®

Ken Laxton
1st American Reserve Account Representative

Ken Laxton, an Account Representative at 1st American Reserve, was born in Houston and then moved to New York before returning to Texas after high school. He has been with the company for five years and is proud of its A+ rating and standing with the Better Business Bureau – being accredited since 2002.

Ken likes to fish and hunt, especially for Texas White Tail deer and he also loves to cook. He said he enjoys trying recipes and sharing the results with his friends and family. Locally, he donates to Boys Haven of America and area law enforcement charitable activities. He also gives to the Wounded Warrior Project and is a big supporter of our armed forces. Ken also collects hockey cards, concert tickets and has a vast movie collection.

The $2 ½ Indian gold coin is Ken’s favorite and his passion for coins came from his father and grandfather, who both introduced him to the hobby at a young age. He said he loves the history of coins and how they tell the story of the nation.  “The $2 ½ Indian is one of the most unique coin designs our country has ever produced,” he said. Ken pointed out that part of that story includes how people turned in the coins for destruction due to their incused design, which some believed helped transmit germs. One of Ken’s favorite coin stories involves the redesign to an Open 3 from a Closed 3 on 1873 coins because the Closed 3 made the date resemble an 8.

Ken specializes in multiple types of American numismatic coins, but he is also well-versed in helping his clients convert a portion of the retirement funds and 401Ks into gold IRAs.

 

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