Precious Metals Struggle in a Volatile Week [Global Nuggets Newsletter]
Precious Metals Struggle in a Volatile Week Due to a Strong US Dollar
Global Nuggets
12/07/2022
Global markets have been in turmoil for much of the first half of 2022 – inflation continues to cause major headaches for advanced economies, and this, combined with a strong US dollar, has forced both silver and gold downwards. Tuesday saw a 2% drop in both gold and silver as the strong US dollar and rising interest rates forced gold below US$1800. Also caught in gold’s slipstream, silver slipped just over 4%, and platinum also slipped 2.4%. The longer-term outlook for precious metals remains positive, however, with ongoing geopolitical turmoil due to the Ukraine war and increasing tensions between the US and China over Taiwan. Also, keep an eye on the US Fed on Wednesday as further interest rate rises are almost guaranteed in the US, and as we all know, this ripple out across other advanced economies.
El Salvador
Elsewhere in the news, there’s an interesting contrast in strategy between two developing countries. 9 months ago, El Salvador bet its economic salvation on Bitcoin, but it isn’t working the way President Nayib Bukele hoped it would, with the government’s crypto coffers cut in half. El Salvador needs cash fast to meet debt repayments, but because Bitcoin has crashed by 55% since President Bukele made his strategic change, the country is edging towards economic ruin.
Zimbabwe
Compare this with Zimbabwe, which has also taken an innovative, if not more cautious approach to stabilize its economy. Zimbabwe will start issuing gold coins as legal tender in late July. The governor of the Central bank, John Mangudya, said the gold coins would act as a store of value and were expected to reduce the demand for US dollars – a phenomenon largely blamed for the tumbling value of the local currency. "The gold coins will be available for sale to the public in both local currency and US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production", Mangudya said in a statement. Of course, we are slightly biased, but we feel that Zimbabwe’s economic solution is much smarter than El Salvador's. Gold is a real store of value.
Market Manipulation by JPMorgan
And finally, be careful who you trade with – last week, I talked about the importance of provenance – this week, a well-known US investment house is on the rails for an historic market manipulation. JP Morgan has admitted to market manipulation of precious metals futures in the US from 2008-2016 and has been fined US$920m as a result. I hasten to add that MyGold does not operate in the futures market. We just buy and sell good old-fashioned physical gold, silver and platinum, and we’re here to give you straight, uncomplicated advice.
This Week's News
Here are a few links to support the stories above.
Gold Prices Drop Over 2% in Selloff Sparked by Strong Dollar
Gold Is ‘Undeservedly’ Cheap Relative to Equities As Inflation Sticks Around
Zimbabwe To Introduce Gold Coins As Local Currency Tumbles
El Salvador’s $425 Million Bitcoin Experiment Isn’t Saving the Country’s Finances
https://www.cnbc.com/2022/06/25/el-salvador-bitcoin-experiment-not-saving-countrys-finances.html
China Crushes Mass Protest by Bank Depositors Demanding Their Life Savings Back
https://edition.cnn.com/2022/07/10/china/china-henan-bank-depositors-protest-mic-intl-hnk/index.html
JPMorgan To Pay $920 Million for Manipulating Precious Metals, Treasury Market
https://www.reuters.com/article/jp-morgan-spoofing-penalty-idINKBN26K325