When people ask why they should invest in gold or buy silver coins, we often explain that they should do so because they are a form of insurance. Many of us are taking steps right now to protect ourselves from the impact of inflation on our day-to-day spending, others are trying to manage the increase in interest rates and maybe you are preparing your home so your energy bills won’t be impossible to manage.
These are all ways of insuring ourselves against major changes that we all face. But how are you insuring your savings and portfolio against the impact of inflation, war in Europe (or elsewhere) and other unforeseen events? This is where gold bars or silver bullion comes in. As today’s blog outlines, the energy crisis appears to just be in its infancy, and gas prices might not be the only thing that is beginning to cause problems, giving us even more reason to insure our portfolios.
Europe was dealt another blow in the energy crisis at hand this week as oil supply from Russia was cut off for three European countries over a payment issue that resulted from sanctions.
The problem occurred when the Russian pipeline operator paid the transit fee on July 22 to the Ukrainian operator.
However, they received the money back because it was not authorized under sanction rules which prohibit European bank involvement with any transactions from Russia.
Only with explicit authorization from European regulators to conduct settlements could Russia’s money be sent. The authorization did not come.
Moreover, the payment dispute has resulted in the southern section of the Druzhba pipeline being turned off.
The three countries, Hungary, Slovakia, and the Czech Republic are all very reliant on oil from Russia to fuel their economies (estimated at about 250,000 barrels a day in 2022).
Also, if the dispute over payment doesn’t resolve in the coming weeks a dire situation will ensue.
Moreover, oil flow through the northern end of the Druzhba pipeline through Poland and Germany was not halted.
Europe is also heavily reliant on supplies from Russia for diesel, natural gas, and coal. Supply problems which started in December 2021 (see our January 20 post European Energy Crisis: 4 Things You MUST Know!) have only escalated as the Russia/Ukraine war continues.
The flow of natural gas in the Nord Stream 1 pipeline has been reduced to around 20% of normal capacity. This is making it very difficult for Europe to increase its reserves for winter.
Major Energy Crisis: The Worst Nightmare
Germany is the bloc’s largest consumer of Russian natural gas, followed by Italy which gets approximately 40% of its supply from Russia.
Additionally, concern has grown that Russia could cut its supply of natural gas completely.
Although countries are running “save energy” campaigns and looking into alternative sources of energy this crisis is far from over.
Additionally, Europe is not the only region affected. Fatih Birol, IEA Executive Director, warned in mid-July that
“the world has never witnessed such a major energy crisis in terms of its depth and its complexity. We might not have seen the worst of it yet.
It is affecting the entire world... soaring prices are lifting the cost of filling gas tanks, heating homes and powering industry across the globe, adding to inflationary pressures.”
Also, Birol went on to say that
“like the oil crisis of the 1970, which prompted huge gains in fuel efficiency and a boom in nuclear power, the world may see faster adoption of government policies that speed the transition to cleaner energy.”
Also, this faster adoption of government policies are already evident inside ‘The Inflation Reduction Act’ passed by the U.S. Moreover, the Senate which injects upwards of U.S.$360 billion into the U.S. clean energy economy.
Part of the money is earmarked for the power sector and electric vehicles with another section awarding tax credits, grants, and loans totaling US$260 billion to companies in the clean energy sectors.
These clean energy incentives include mature sectors such as solar, wind, and nuclear along with innovative technologies such as hydrogen and carbon capture and storage.
The Chinese Dominance
With the shift away from Russian energy comes also a shift away from China’s manufacturing advantages.
Chinese companies currently control around 80% of the global supply chains for solar power.
Its current pacing is set to reach 95% by 2025 according to the IEA.
China also currently dominates much of the lithium-ion battery sector. It also is a key producer of wind turbines. Also seeking to quickly build capacity in clean hydrogen technology (Bloomberg.com).
Although, this major shift is going to take time, money, and security of resources. New resources and new supply chains must be found and built which means more government spending. This will lead to central banks buying that debt.
The short of it is that the economic environment is shifting again as governments continue to scramble to speed up spending for new initiatives.
Gold and silver will benefit from higher prices because more printing and borrowing push the metals higher.
If you’re enjoying our market commentary, why not tune into our podcast or our YouTube Channel?
Check out our interview with Steve St. Angelo for more on how energy dynamics are evolving and how this will increase the need to own gold and silver. Or, see the latest The M3 Report with silver guru David Morgan and technical analysis from Gareth Soloway, as well as insights from our own team.
From The Trading Desk
Market Update
CPI numbers released out of the US yesterday for July rose 8.5% year over year and were flat when compared to June.
Also, the market had been expecting an increase of 8.7%.
Equity markets celebrated with a sharp rise. The USD weakened on the expectation that the next Fed rate rise may be a lower 50bp instead of the 75bp that had been priced in before the CPI was released.
However, we still will have another CPI print along with another job print before the next Fed meeting in September.
These are strange times, when an 8.5% inflation print is an improvement and celebrated, the Fed has put the economy into a deliberate recession but GDP falling for 2 quarters is no longer a recession. I think we can say the system is broken!
The gold price has continued to hold onto its recent gains after critical support levels were tested a few weeks ago.
Gold has closed higher over the last three weeks and is up again this week.
Gold needs to clear the $1,800 psychological level and a move to the $1,830-1,832 level would be the next upside target.
Silver too has had a nice move up, nearly 10% in USD terms since it’s low’s in July.
We are continuing to see clients’ dollar costs averaging in at these levels with a buy-sell-through rate of 90%.
Stock Update
Silver Britannia offer UK – We have just taken delivery of 10,000 Silver Britannia’s at our London depository.
Available for storage in London or immediate delivery within the UK.
These are available at the lowest premium in the market (which includes VAT at 20%).
You can purchase these online or contact our trading desk for more information.
Excellent stock and availability on all gold coins and bars.
Please contact our trading desk with any questions you may have.
Silver coins are now available for delivery or storage in Ireland and the EU with the lowest premium in the market.
Starting as low as Spot plus 37% for Silver Britannia’s.
GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)
10-08-2022 1793.50 1795.05 1482.15 1468.17 1753.33 1739.22
09-08-2022 1790.60 1795.25 1477.42 1482.34 1748.88 1753.60
08-08-2022 1775.70 1784.05 1469.92 1471.48 1744.09 1748.90
05-08-2022 1786.75 1773.25 1472.82 1473.04 1747.26 1744.35
04-08-2022 1777.90 1783.20 1460.90 1473.28 1744.48 1749.85
03-08-2022 1766.60 1761.25 1450.03 1451.62 1734.09 1735.54
02-08-2022 1772.90 1779.75 1452.36 1457.26 1732.30 1743.62
01-08-2022 1766.75 1772.40 1443.26 1444.86 1722.23 1727.91
29-07-2022 1758.90 1753.40 1447.40 1451.64 1724.07 1725.70
28-07-2022 1746.60 1753.50 1436.23 1445.94 1713.07 1728.07
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