August 2023 - Week 5 Edition
Gold Investors Continue to Fight the “No Yield” Bias on Wall Street
Gold gained $25 (+1.4%) last week and another $13 by Tuesday, August 29, but silver has continued to outshine gold by gaining $1.40 (+6%) last week and maintaining those gains this week. Since the banking crisis hit the front pages on March 9 of this year, gold is up a little over $100 an ounce, from $1818 to $1,938 but silver is up over $4 an ounce from $20.12 to $24.75.
Gold is up fairly significantly this year, considering the U.S. dollar is strong and interest rates are rapidly rising. The prevailing orthodoxy on Wall Street has always been, and continues to be, that “Gold offers no interest or dividend yield, therefore it suffers when interest rates are rising.” That assumption is clearly a bogus correlation in history, as gold reached its greatest peaks in 1979-80, when rates rose to 20% and above, and in the 2001-2011 period, when the Fed was raising rates as well. It gained most notably from 2004 to 2006, when the Fed raised rates very similar to today’s cycle (raising rates from 1.0% to 5.25% in those two years) but gold just kept rising, from $395 at 1% interest rates, to $625 at 5.25% interest rates.
This time around, the Fed has raised rates faster than at any time in history, from near-zero in March 2022 to a 5.25% to 5.50% range as of July 27, for a gain of 5.25% in just 16 months. The U.S. Dollar Index (DXY) has followed that arc, rising from 90 in May 2021 to 104 this week, up over 15%. DXY has risen 4% since July 13 of 2023. That explains why gold has seemed to be in the doldrums this summer.
Here is some more evidence of Wall Street’s anti-gold bias. According to the deans on Wall Street, Morgan Stanley, gold is a “non-yielding asset” which must compete harder for a place in one’s portfolio as bond yields rise. Many traders are following Morgan’s instructions: As of the end of July, total global holdings of gold ETFs have fallen to their lowest level since April 2020, and 14% below the previous record low of 3,919 metric tons, set in October 2020. However, the general population is not convinced!
We already told you about the Gallup Poll for 2023, which shows that gold is America’s second favorite investment, just behind real estate, but ahead of stocks, mutual funds, bonds and cash. Now, there’s another poll taken by Bloomberg, called the MLIV Pulse (Market Live Pulse), in which Bloomberg surveys investors with different questions each week. Recently, they polled investors, asking their estimate of gold’s price in a year’s time. According to Frank Holmes, these investors polled said, “The median of estimates from the 602 respondents was $2,021 an ounce, while the average was $2,074.” That latter figure is just $1 shy of gold’s all-time high of $2,075 per ounce, so investors have faith in gold.
Just for a reminder, here is how gold has ascended the popularity ladder on Gallup since 2020, despite the rise in interest rates since then. Gold was ranked #4 in 2020, then it climbed to #3 and it is now at #2:
Gallup’s Question: “Which of the following do you think is the best long-term investment?”
(Real estate was #1 each year, but gold has risen from #4 to #2 in the last four pandemic years)
Our Clients Lead the Way in Fighting Wall Street’s Bias Against Gold
As if to validate the Gallup Poll and the recent Bloomberg poll, we are enjoying a very good month in August regarding the recruiting of new clients to our company through well-placed ads in major media outlets. Our response rate to the value of investing in bullion coins has virtually doubled this month compared to the two previous months, despite the rising interest rates and somewhat flat performance of the gold market. Most investors seem to realize the federal debt bomb and high inflation have not been cured, the political time bomb is still ticking, and the many global dangers, led by Rusia and China, have not gone away but have become more threatening.
Our new customers are convinced that today’s crop of politicians does not seem willing to address these problems head on, and our new clients know, from our recent postings, that gold has performed extremely well during the last four Presidential Election cycles, in what I call the “Obama/Biden/Trump” era.
History may not necessarily repeat itself in 2024 but the odds appear to be in your favor.
As Mark Twain reputedly said, “History does not repeat itself, but it often rhymes.”
With gold and silver prices projected to continue you their increases, now is the time to contact your professional account representative and find out how to add more of these precious metals to your portfolio.
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