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Data Wrap Up – September 2014

Metals Prices
ResourceLast1 Month Ago3 Months Ago1 Year Ago

On the whole, precious metals had a tough month. Although improved physical demand in Asia and safe-haven buying ahead of the two-day US Federal Reserve Open Market Committee meeting have helped buoy prices as of late, a strengthening US dollar pushed both gold and silver down 6.4% and 6.8% respectively over the last 30 days.

Silver is down over 10% over the last two months, driven primarily by the strong US dollar and short sellers in Comex futures and options markets. However, this downward pressure could turn positive in the next few weeks—as we saw when silver rallied in June after a strong selloff—and we’ll be watching closely to see if that comes to fruition.

A strong US dollar was also a hindrance for platinum and palladium; they fell 6.7% and 5.6% respectively since last month. Besides an agreement between Russia and Zimbabwe to begin construction on the African country’s biggest platinum mine, there was little news out of the platinum market, so the weakness is likely attributable to a strengthening US dollar.

After traders sent palladium futures to a 13-year high last month in anticipation of a Russian supply disruption, palladium has lagged the broader market. A rising US dollar didn’t help; however, the weakness in this market can be chalked up to the ceasefire between Ukraine government forces and pro-Russia rebels.

We’ll continue to monitor changes in the precious metals market and will alert you if anything pressing comes to our attention.

Not Everyone Is Flocking to the Dollar

Last October, our featured chart revealed how major foreign debt holders were shifting away from the US dollar. At the time, net foreign holdings of US Treasuries had declined four months in a row. Recently, this trend reversed as investors have flocked back to the US dollar. Still, not everyone is a buyer these days.

China—the largest foreign holder of US Treasury securities—has trimmed its Treasury holdings slightly since the beginning of the year.

It’s probably too early to declare this trend, but additional selling can’t be ruled out. China has repeatedly expressed concerns about the dilution of the dollar. If China decided to unload a significant quantity of Treasuries, the dollar would surely enter free fall, causing interest rates to shoot through the roof.

Perhaps more importantly, the Chinese central bank has been stockpiling gold—albeit behind the scenes. China last reported an official gold reserve figure in 2009, though all signs indicate serious buying on behalf on the People’s Bank of China.

Russia, on the other hand, has been aggressively selling US bonds, along with other foreign-currency reserves, and replacing them with gold.

The Russian central bank now holds 1,100 tonnes of gold in its vaults, or three times what it held in 2005. This makes Russia the fifth-largest official national holder of gold—ahead of even Switzerland.

The Russian and Chinese central banks are clearly trying to put space between their economies and the US dollar. You too can protect your wealth from the debasement of the US dollar—or any other fiat currency, for that matter—by owning hard assets.

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