May 2020 - Week 3 Edition
Major Banks and More Hedge Fund Managers are Betting on Gold’s Rise
Every quarter, hedge fund managers are required to file their holdings – including gold holdings – with the Securities & Exchange Commission (SEC) at the midway point of the next quarter. The latest filing was due last Friday, May 15. According to Bloomberg reports on Monday, May 18, there is indication that hedge fund luminaries including Paul Singer, David Einhorn and Crispin Odey are among those bullish on gold, according to recent letters to investors. So are large asset managers like Blackrock Inc. and Newton Investment Management. Bloomberg reported on their filings and letters to investors:
Crispen Odey of the Odey European Fund wrote of his holdings at the end of March: “Gold is the only escape from global monetizing.” Gold futures were the third largest position held by his fund at the time.
Paul Singer of Elliott Management Corp told his investors, “In recent months, gold has gone up in price to some degree, but we think that it is one of the most undervalued investable assets existing today.” He argued that low interest rates, mine disruptions and “fanatical debasement of money by all of the world’s central banks” would lead gold to rise to “literally multiples of its current price.” (Literally, one multiple of $1,750 gold would be a doubling to $3,500. Two multiples would be to $5,250, and so forth…)
Turning to the expected inflation next year, David Einhorn’s Greenlight Capital argued in a letter to the fund’s investors that, “We expect policymakers to target and applaud mid-single digit inflation, which, combined with interest rate suppression, will be the only way to outgrow the mounting debts,”
Catherine Doyle at Newton Investment Management agreed: “It’s almost inevitable that there will be a fiscal tailwind for gold – when markets wake up to the scale of the stimulus.”
Even if hyper-inflation isn’t coming, Russ Koesterich, portfolio manager of the $20.5 billion BlackRock Global Allocation Fund, points to gold’s inverse relationship with real interest rates: When interest rates are low, adjusted for inflation, the opportunity cost of holding gold is low and real rates are negative now.
In February, Bank of America (BofA) Securities came out with a new “Global Investment Strategy” report for the 2020s with recommendations that investors adjust portfolios by going into a strategic posture with 25% in gold.
Monday, May 4, Wells Fargo Bank issued a report on Real Assets, in which John LaForge, Wells Fargo’s Head of Real Asset Strategy opened with this headline: “Gold may test its all-time highs, adding, “Gold has a host of economic and market factors working in its favor, and we are increasingly confident that gold could test its all-time high of $1,900 this year.” Wells Fargo has already upgraded its year-end 2020 gold target price three times this year and now sees this new all-time high above $1,900.
Whenever gold prices are rising, as they are now, and established banks and hedge funds predict higher gold prices, many coin and bullion dealers place more ads, and those ads often bring in more new customers than usual. Say an ad brings in 100 new calls in normal times. Those ads might bring 150 new callers in hot markets like this. A larger percentage of those callers will buy bullion coins. Within 6-24 months, a good percentage (say 10% to 20%) will graduate into rare coins, often pushing up the prices of select rare coins. I urge you to buy select rare coins now before prices rise further!
Unprecedented Debts and Deficits are in the Works but “Fed Can’t Print Gold”
The Nancy Pelosi-led House of Representatives passed yet another $3 trillion “care” package last week. It may be whittled down to $2 billion by the Senate before being passed to the President for signature, but this will amount to about $5 trillion in deficit spending in a two-month period, in addition to $2.5 trillion in liquidity by the Federal Reserve, which they say can be expanded to $5.0 trillion for $10 trillion in total “fiat” money – about half of our annual GDP and more than double the annual federal spending budget.
The Congressional Budget Office (CBO) now foresees a $3.7 trillion budget annual deficit for fiscal year 2020, which ends September 30. That’s over three times the previous record-high deficit under President Obama. The official deficit stood at $744 billion as of March 31 and is $1.482 trillion as of April 30.
There’s a now-famous prediction of Bank of America for $3,000 gold by the end of 2021, with their equally famous four-word response to the printing-press paper profusion: “Fed Can’t Print Gold.” I urge you to Buy Gold Now!!!
Gold Reaches New Highs Worldwide & Near 8-Year Highs in the U.S.
Last Friday, gold prices hit their highest level since September 2012, at $1,762 and reaching record highs in many other currencies. Prices in Europe reached €1,633 euros and £1,458 British pounds, as well as 1,716 Swiss francs, breaking their previous highs. Contracts for gold futures in Tokyo rose 1.7% to ¥6,084 yen per gram, the highest since the Tokyo Commodity Exchange started trading in 1982. On the physical market, spot gold in Tokyo reached ¥6712 yen per gram, when Japan’s consumption taxes are included. China’s gold market, the world’s largest consumer market, also hit a record high of ¥399 yuan per gram.
Gold’s rise is amazing in that Japan and Europe are deep in a recession with their stock markets tanking, and the U.S. is just entering a recession, with most other major asset classes falling – except gold. Part of the reason is that the Japanese yen and euro offer negative interest rates, and the U.S. dollar’s short-term Treasury rates are so close to zero that there is no meaningful interest return to compete with gold now.
As a reflection of this global gold demand, gold-backed ETF funds raised their holdings for the 16th straight day Friday, according to Bloomberg. Both the SPDR Gold Trust (GLD) and iShares gold ETF (IAU) recorded their 8th straight week of growth, paralleling the stock market’s eight weeks of recovery.
These funds must add physical gold to reflect the increased demand of investors, so the world’s largest gold ETF, the SPDR fund, had to add 1,113 metric tons of gold (35,783,000 Troy ounces), a 25% increase in their core holdings, in the first 4-1/2 months of the year. Meanwhile, the iShares ETF had to add 434 metric tons (almost 14 million ounces), a 20% increase of their core holdings, so far in 2020.
Silver is Making a Move
Silver is making a move above $17, while gold remains above $1,735, although correcting from its 7-year high above $1,760. On Monday, May 18, silver rose almost 50 cents (+3%) while gold fell $10 (-0.6%). On May 5, the gold-to-silver ratio was 115-to-1 ($1,700 to $14.75), but since then silver is up 16.5% and gold is up only 2.5%, so the gold-to-silver ratio is down to 101-to-1 in the last two weeks. That’s the lowest gold-silver ratio in the last two months. If you want to buy silver, please call us to learn about some of the best silver values in the industry!
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