April 2020 - Week 2 Edition
Gold Continues Rising, Even as the U.S. Dollar Rises
Historically, gold tends to rise when the U.S. dollar falls, but the recent breakdown of the “inverse gold-dollar correlation” is likely due to the coordinated “race to the bottom” in global interest rates by the three major central banks of the world – the U.S. Federal Reserve, The European Central Bank and the Bank of Japan. They have all pegged short-term interest rates near zero, giving gold an “even playing field” and leaving currencies to fight it out in terms of a “place of safety” rather than in terms of any interest income.
The Federal Reserve has unleashed an unprecedented amount of new liquidity (available cash) into the system. They have increased their balance sheet by $1.77 trillion in just the last four weeks. This is the opposite of the Great Depression, when the Fed shut down liquidity and made the Depression longer and deeper. They learned from that lesson and will err on the side of inflation, not deflation, this time around.
My friend Gary Alexander won a bet from a global commodity and currency analyst – twice – in 2017 and 2018, when Ivan Martchev bet that gold would go below $1,000. This year Ivan predicts that gold could double from its $1,515 start-of-year price to $3,000 in 2-3 years. This week, Ivan writes: “As bearish as I was on gold in 2017 and 2018, when the Federal Reserve was tightening monetary policy, I am double bullish now because the Fed is double-loosening monetary policy.”
The rise of gold in U.S. dollar terms is welcome, but in terms of other currencies it is a life saver. In the “emerging markets” (poorer nations), currencies are collapsing due to the loans they took out in U.S. dollars which must be paid in their local currencies, thus nearly bankrupting them. So far this year, most of the emerging markets’ currencies are down double-digits, which means gold is up spectacularly there:
Gold is also rising rapidly in current or former British Commonwealth nations like Australia (+24.5%), New Zealand (+24.8%), India (+20.4%), Canada (+21.0%) and the United Kingdom itself (+20.0%). Only the Japanese yen is slightly (+0.3%) stronger than the almighty U.S. dollar so far this year. Gold’s phenomenal rise in the last two years is the first time gold has made such a strong move in parallel with a strong U.S. dollar, which reflects the fact that gold has become a global haven of safety during this crisis.
“Gold Prices Could Be Heading for a Record” – Barron’s, April 13, 2020
The last time gold traded over $1,700 was in late 2012, and it only traded over $1,800 for less than a month in the late summer of 2011, so we are nearing “nosebleed” territory for the yellow metal again.
Can gold sustain this assault on a new record high? Gold has already attained record highs in terms of most global currencies, so the answer is clearly YES. Can it also attain a record high U.S. dollar terms?
The weekend edition of Barron’s addressed that question in their Commodities column. They began by saying that gold’s initial response to the Covid-19 crisis was bearish, falling to $1,474 during the week of maximum pessimism. The stock market and precious metals fell in tandem during the week of March 16-20, but then both of those markets started rising from the ashes during the following three weeks.
Part of gold’s move was a supply line problem: “Because of Covid-19, refiners were knocked offline,” said Steven Dunn, head of exchange-traded funds (ETFs) at Aberdeen Standard Investments, “and the ability to move gold became a challenge as normal means of transport became almost impossible.”
On the futures market, gold made a dramatic move from $1,477.90 on March 18 to $1,759.90 (its highest mark since November 2012) as of noon (EDT) on Monday, April 13, for a 19% gain in just 26 days. Gold is now just a 10% move away from setting a new all-time high above $1,920 per ounce, but there is probably a need for some backing and filling, some base-building, before mounting such an assault. It is always healthier, from a technical standpoint, to take time assaulting a record, rather than spiking higher.
The chief engine of gold’s next rise, according to executives quoted in Barron’s, is the new record high level of debt being engineered by Congress and the Federal Reserve. A CEO of a major investment firm said “There is too much debt at all levels. We have borrowed from the future, and there is not enough economy to pay it down. That equation requires much more financial repression going forward, and gold is a great hiding place from that process.” He said the “trading and flows in the bullion markets, as well as the underlying technical analysis … point to gold over $2,000 sometime late this year or early next.”
Gold Shines Again
Gold rose $140 in the first 8 trading days of April, from $1,575 on April 1 to $1,715 on April 13. Silver rose nearly 10% in the same time, from $14.01 to $15.30. Since California and New York went into lock-down on March 19, silver has risen from a low of $12 to $15.30 (+28%) and gold has risen from $1,475 to over $1,715 (+16%). To be fair, stocks have staged a powerfully rally too, but gold is still up over 12% year-to-date while stocks are down well over 15%, giving gold a 32% advantage over the Dow in 2020.
Update on Project 2020 – We’re Hunting 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. Fewer and fewer of our bids bring offers!
While bids on many of these coins are now rising 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.
Important Disclosure Notification: All statements, opinions, pricing, and ideas herein are believed to be reliable, truthful and accurate to the best of the Publisher's knowledge at this time. They are not guaranteed in any way by anybody and are subject to change over time. The Publisher disclaims and is not liable for any claims or losses which may be incurred by third parties while relying on information published herein. Individuals should not look at this publication as giving finance or investment advice or information for their individual suitability. All readers are advised to independently verify all representations made herein or by its representatives for your individual suitability before making your investment or collecting decisions. Arbitration: This company strives to handle customer complaint issues directly with customer in an expeditious manner. In the event an amicable resolution cannot be reached, you agree to accept binding arbitration. Any dispute, controversy, claim or disagreement arising out of or relating to transactions between you and this company shall be resolved by binding arbitration pursuant to the Federal Arbitration Act and conducted in Beaumont, Jefferson County, Texas. It is understood that the parties waive any right to a jury trial. Judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. Reproduction or quotation of this newsletter is prohibited without written permission of the Publisher.
Metals Market Report Archive