Last month, several economic and geopolitical factors drove more investors to buy gold as a safe haven asset, leading to its biggest monthly gain in over three years.
Here’s what happened:
Uncertainty in Europe
Switzerland de-pegged their currency from the euro, which caused the value of the Swiss Franc to spike overnight and led to a run on the banks as people tried to exchange their Swiss Francs for other currencies. ATMs throughout the country ran out of euros.
The European Central Bank announced a quantitative easing program that will require the purchase of $69 billion dollars worth of public and private debt each month that many economists believe will not be large enough to generate any real economic stimulus.
The Greek elections left many wondering if the new socialist Syriza government will default on the country’s debts. The new Greek Finance Minister Yanis Varoufakis has already voiced his hardline opposition to the troika of the ECB, the IMF, and the European Commission and many believe he will not be willing to compromise. The ECB has threatened to cut off funding to Greek banks but Varoufakis has remained strong. He told the Telegraph, “These threats are perfectly illegitimate. They are trying to asphyxiate us with arbitrary deadlines… We are going to end the debt-deflation spiral and do what should have been done five years ago. That is not negotiable. We have a democratic mandate to challenge the whole philosophy of austerity.”
False Sense of Prosperity in the U.S.
As nearly every other currency weakened, the dollar strengthened, which hurt U.S. exports.
New U.S. auto sales declined for the 2nd straight month and Consumer Spending for December was at its lowest levels since 2009, indicating a larger economic slowdown.
The Dow and S&P 500 experienced its worst month since January of last year.
Gas prices continued to tumble forcing many energy companies to scale back operations and close rigs. Nearly half of all of the jobs added to the economy since the recession have been in the state of Texas, in the energy sector.
Collapse of the Ruble
Declining gas prices led the ruble to continue its free-fall and Ikea and Jaguar in Moscow ran out of everything as citizens desperately tried to buy something tangible with their rapidly collapsing currency. Just like the price of oil, the ruble has fallen by more than 50% in the past six months.
Increasing Conflict in Africa, the Middle East, and Eastern Europe
Boko Haram, an Islamic terrorist group in Northern Africa, escalated its efforts and attacked the capital city of Nigeria.
The conflict in Ukraine continued to worsen as the Ukrainian government lost a battle to Russian separatists over the airport in Donetsk.
The Islamic State in Syria released more videos of hostages being executed, the latest being that of a captured Jordanian pilot. ISIS announced they would pay 100 gold dinar for each captured coalition pilot.
Chinese New Year and Festival Season
And through all of this turmoil and uncertainty, China did the same thing it has always done. It bought gold. Gold demand in China has skyrocketed ahead of the Chinese New Year and withdrawals from the Shanghai Gold Exchange are up 15% over the same period last year.