March 2020 - Week 2 Edition
We Warned You: “When Stocks Fall Fast, Gold Usually Rises Fast.”
Late last year, we wrote a segment here with the title “When Stocks Fall Fast, Gold Usually Rises Fast.” We also placed full-page advertisements in major publications with that theme. Congratulations to those who responded! In it, we listed six times in the last 50 years in which stocks fell very fast and gold rose fast, namely 1973-74, 1976-80, late 1987, 2000-02, 2007-09 and 2011. Now we can add 2020 to that list. The stock market peaked during the week of February 17-21, when gold traded below $1,600 per ounce. Since then, stocks have lost almost 20% and gold gained $100 (+6.3%) even while crude oil and nearly every other commodity was falling fast.
Here are the price changes in just the last three weeks – The Dow is down 18.9% and gold is up 6.3%.
Nearly every other commodity is down, since those commodities are based on global growth, and the coronavirus has caused an immediate slowdown in growth prospects. As Goldman Sachs’s Jeff Currie said in a note to clients last Friday: Gold “unlike people and economies – is immune to the virus.”
It’s not too late to get on board with gold, since stocks will remain volatile as long as (1) the coronavirus keeps expanding around the world, slowing growth and spreading panic; (2) Bernie Sanders or Joe Biden gain in the polls during this controversial election year; (3) Saudi Arabia wages a deflationary price war on the global price of oil; (4) global central banks push interest rates further below zero in this deflationary environment; and (5) the world’s nearly-forgotten “hot spots” take advantage of global unrest to expand their power, testing America’s will during a time of crisis. Gold is a proven crisis hedge in times like this. I implore you to call us now to add more high-quality gold to your portfolio!
A reminder: Regular flu has killed more people than novel flu bugs. Always get a flu shot. Over 95% of those who get the flu didn’t get a flu shot, and 95% who get hospitalized for flu didn’t get the flu shot.
Gold Reached a 7-Year High
Gold briefly climbed over $1,700 on Monday, March 9, reaching another 7-year high, before dropping back to its support level at $1,680. Stocks faced their worst point decline ever, with the Dow down over 2,000 points on Monday, following two full weeks of jagged 1,000-point down (and some up) days in the Dow Jones Industrials. Monday’s decline came after the price of oil collapsed over 35% in two days, as production reduction talks between Saudi Arabia and Russia (“OPEC+”) collapsed over the weekend.
Gold Shines During a Commodity and Stock Market Meltdown
Gold is up over 10% in 2020 despite a stock market meltdown – and a commodity market meltdown as well. Monday morning, crude oil prices collapsed almost 30% on the opening after falling 10% on Friday. A barrel of crude oil sells for about $33 now, down nearly 50% from $61.21 at the end of 2019.
The oil price collapse resulted from a breakdown of talks between the Saudis and Russia for setting limitations on the production of crude oil during the global economic slowdown, due in part to the spread of coronavirus.
In this case, the Saudis hold the stronger hand as they are flush with cash and can produce oil for as little as $3 to $5 a barrel, while Russia is cash poor (and U.S. shale oil costs $30 or $40 or more to produce a barrel), so Saudi Arabia is willing to flood the world with oil, depressing the price and thereby “weaponizing” oil in trade.
The “long game” for the Saudis is to destroy or at least minimize the North American shale boom. So many of the American operators are deep in debt and they can’t operate if oil prices stay below $35 or even $40 per barrel. It actually helps the Saudis if oil prices collapse, so they don’t mind this price war.
Industrial metals are also down for the year to date (that is why silver is down). The overall CRB commodity index is down 21% year-to-date, which makes gold’s stand-out +10% performance all the more amazing, since gold is not an industrial metal. Gold is responding to the world’s ongoing crises, especially its financial crisis, with European and Japanese bonds yielding below zero and U.S. 10-year bonds dipping to 0.53% on Monday.
The longest (30-year) U.S. Treasury bonds have fallen from 1.66% to under 1% (0.97%) yield in the last week, historic low yields never before seen. One-year Treasury notes have fallen from 0.89% to 0.20% yield in the last week. Imagine investing $10,000 for one year and getting $20 interest income – virtually nothing. That’s why gold is now so attractive. Even though gold offers “no income,” neither does a short-term Treasury bond!
Don’t forget silver. The gold/silver ratio is nearly 100 now ($1,680 gold and $17.04 silver yields a ratio of 98.6 ounces of silver to one ounce of gold), but that only means that we are in a time of crisis, favoring gold, when industrial demand is declining, but industrial demand will return and silver should return to at least an 80-to-1 ratio in the near future, perhaps within a year, so be sure to invest in some silver at these historically high ratios to gold.
Update on Project 2020 – We’re Stockpiling Tomorrow’s Winners Today
We’ve been preparing a long time to assemble an inventory of what we think will be tomorrow’s top rare coin winners – based on several factors, including sheer beauty, historical importance and low population “capitalization” (value times numbers of coins certified by PCGS and NGC). These coins are becoming tougher to buy. Over the last few months, we have posted over $1.1 million in higher bids to get the finest specimens of $2.50, $3.00, $5.00 and $10.00 Indians, Type II and Type III $20 Liberty Gold, and the best classic Commemorative half dollars.
While bids on many of these coins are now rising 2% to 5% higher this month, we continue to invest in these coins, because we believe they are still underpriced relative to their population capitalization. In the process of accumulating these coins, we scrutinize each coin very carefully. We never sacrifice quality. We buy only hand-selected quality, which is why you should only buy rare coins from national award-winning experts, like us. Each coin should have nice eye appeal. When you see these coins, you will know what I mean.
Call your representative for a description of our fresh inventory of classic American gold and silver coins. Each one is an expert picked piece of American history. Owning these coins is like holding history in your hands.
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