Renewed Gold ETF Inflows as China Begins to Strategize?

Welcome to the newsletter that offers you an in-depth insight into the world of finance, investments, and precious metals. It is aimed at those who wish to actively manage their wealth and make informed decisions in all economic conditions.

As an advisor, I am particularly interested in the security and diversification of assets. I pay special attention to important financial topics, investments, and precious metals.

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Higher Unemployment and Surpassed Job Expectations in the U.S.

• In May, the U.S. saw a net opening of 272,000 jobs, surpassing expectations. This allows the Federal Reserve to consider lowering interest rates as early as September, especially since wages increased by 0.4 percent month-over-month and 4.1 percent year-over-year.
• Regarding the unemployment rate in the USA, a recent increase from 3.9 percent in April to 4.0 percent serves as a sharp reminder of the volatility in the labor market and the broader economic environment. Such an increase can have far-reaching consequences, including reduced consumer spending, weakened business confidence, and potential further impacts across various economic sectors.

Fear of a New Inflationary Cycle

• The goal of raising interest rates was to limit economic activity by increasing borrowing costs and reducing demand from households and businesses to curb inflation. Over the past year, the volume of loans in eurozone countries has decreased, slowing economic activity. The eurozone economy contracted by 0.1 percent in both the third and fourth quarters of last year, while it recorded 0.3 percent growth in the first quarter of this year. Employment remains relatively high.
• Analysts generally believe that further interest rate cuts will proceed slowly. If Frankfurt were to loosen monetary policy too quickly and too much, it could boost economic growth but also increase the risk of renewed inflationary pressures before achieving the target two percent inflation. Will we ever reach it?

Alarm from Germany—The "Engine" of Europe

• A new month, the same trend! Industrial production in Germany decreased again in May. The level remains 15% below the peak of 2017!

• Unemployment in Germany has continued to rise since 2022.

• Germany also lags in the global stock market race due to the lack of large tech companies. The value of all German stocks now represents only 2.1% of global market capitalization. In 2023, this figure was much higher, at 2.4%. Only two German companies, SAP and Siemens, are among the top 100 listed companies.

De-euroization in Full Swing

• Before de-dollarization, many countries will first experience de-euroization, meaning a reduction in dependence on the euro in financial transactions and reserves. This process is often motivated by a desire for greater financial independence and diversification of currency reserves by countries and ultimately also by investors.

Precious Metals Market

• Globally, physically backed gold exchange-traded funds (ETFs) recorded their first inflows in a year in May, driven by asset growth in European and Asian funds, according to the World Gold Council (WGC).
• Demand for safe investments, driven by geopolitical and economic uncertainty, and continued central bank buying contributed to the rise in gold prices from March to May, pushing spot prices to a record $2,449.89 per ounce on May 20.

Central Bank Gold Purchases

• Central bank gold purchases in 2023 were exceptional, especially from China. On the other hand, there were also some gold sales, such as from Kazakhstan and Uzbekistan.

China Ending Gold Purchases? Are We Jumping to Conclusions Too Quickly?

• However, it seems that the most "buzzing" news last week was that China did not report official gold purchases in May. This would mark the end of an 18-month buying spree that helped push the price of this precious metal to record levels.
• Personally, I doubt that China will completely stop buying, as markets do not record unofficial Chinese purchases, which occur behind the scenes. China also has not officially announced that it has stopped buying; it just hasn't reported gold purchases in official releases. Let's not forget that China is the world's largest gold producer. Why is this important? Could China have "problems" with gold supply?

Global Gold Production Rates Declining

• According to the WGC, the gold mining industry is struggling to maintain production growth as gold deposits become increasingly harder to "find." We saw record mine production in the first quarter of 2024, which was 4% higher than last year, but the broader picture of mine production is that it has effectively leveled off around 2016-2018, and since then, we have not seen growth, according to the WGC. According to the international trade association, mine production in 2023 increased by only 0.5% compared to the previous year, when the growth was 1.35% year-over-year.
• New gold deposits are becoming increasingly harder to find worldwide, as many potential areas have already been explored.

Gold and silver gains in time

Gold and silver are showing their strength both in the short term and the long term. Protection against inflation will be crucial in the future. Current lower inflation rates should not mislead us in seeking protection of real values.

Which months to buy gold and silver?

• In the commodity trend, it's always the right time to buy. Certain months are even better.
• Looking at the past growth of precious metals, we can see which months have proven to be the best for purchases, based on multi-year averages. Based on the analysis of long-term trends, we can determine that certain months offered better buying opportunities compared to others, of course, based on averages, not taking extraordinary events into account.

Gold Price Seasonality

Silver Price Seasonality

Best regards until next time,

Peter Herman

The newsletter "Financial View Peter Herman" does not constitute an investment advisory service. Its content does not constitute recommendations for purchase or offers to purchase, but I want to inform you about important information that I personally consider important. For all advice and suggestions, I am available with an individual consultation or via email [email protected].