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Silver Climbs 68% since Mid-March Low

Precious metals are on a tear this summer.

Silver soared as high as $19.44 last week, and continues to climb today, cementing a 68% gain off the mid-March low.

The rotation toward silver is evident in the precious metals arena, as silver has now outpaced recent gains in the S&P 500 and even gold.

Investors are piling into silver as an alternative to Treasury bonds and even gold.

Industrial demand for silver is growing amid factory re-openings in the U.S., China and elsewhere around the globe. Silver is a critical component in industry and is widely used in solar panels, medical equipment, consumer electronics, car engines and more. Because of the industrial demand, silver demand – and prices – typically rise as economic activity picks up, which is a key differentiator from gold.

Near-term, silver bulls are eyeing the psychologically significant $20.00 an ounce level, with gains easily forecast beyond there.

The gold-silver ratio remains historically wide spread at 94 – which signals that silver remains extremely undervalued compared to gold.

Expect dramatic catch up in the months ahead by silver.

Meanwhile, the gold market has stabilized above the $1,800 an ounce level as modest price weakness quickly sees strong buying action enter the marketplace. Analysts and Wall Street firms remain extremely optimistic on the outlook for gold – with a run through the all-time high just above the $1,900 an ounce level seen potentially even before year-end.

Consumers Losing Confidence…

Last week, we saw the University of Michigan’s consumer confidence index fall to 73.2 in July, down from 78.1. Our take? That’s an indication that the surge in new coronavirus infections across much of the country is worrying consumers.

Backward Looking Government Data Provides Hope, But…

The June retail sales number came in better-than-expected at 7.5%.

Consumers were out buying essentials like clothing, furniture, electronics and sporting goods last month, while online retailers and groceries saw marginal declines.

Looking ahead, August retail sales faces challenges once those $600 weekly unemployment checks expire at the end of this month.

“Economic data out this week point to a historic recovery. But, with coronavirus cases on the rise across the country, concerns are growing that these gains may be short-lived,” wrote Beth Ann Bovino, U.S. Chief Economist at S&P Global Ratings. “Retail has nearly reached its pre-pandemic point, in part because of government assistance, but consumer sentiment data already shows fears of the rising number of COVID-19 cases,” she added.

Kicking the Can down the Road

The U.S. budget deficit hit $3 trillion in the 12 months through June, the Wall Street Journal reported last week. The culprit? Soaring stimulus spending, while tax revenues plunged. That gap could widen even further if Congress moves ahead with another round of emergency spending.

How will our country ever pay its debt? The Federal Reserve’s money printing policies are becoming a crutch for our country. These actions only devalue our fiat money now and in the future.

The Fight Continues

The fight against rising Covid-19 infections continues with new requirements nationwide from some of the largest retail stores. Walmart, Starbucks, Target, CVS and a slew of other major retailers now require shoppers to wear masks while shopping in their stores. What will the fall months bring as seasonal influenza enters into the mix. The health crisis has not yet been tamed.

Looking Ahead

We are just weeks away from August and September – historically and seasonally – the worst months of the year for the stock market. Covid-19 is still spreading. Many cities and states are slowing or reversing the reopening plans.

Is your portfolio ready for what lies ahead?

Gold and silver are proving to be shining safe havens in the midst of this historical health and economic crisis. And, recent news reveals that money market funds may not be as safe as you think. Until next week…

Take care,

David

Suggested Reading:

In April – we let our clients and readers know that the bull market in silver was beginning. There’s still more to go. Don’t miss out on the next leg up in silver.

Special Report: The Long Bear Market in Silver – Part One

Special Report: The Long Bear Market in Silver – Part Two

Gold: One of 2020’s Top Performing Asset Classes

All eyes are on the gold market.

Gold closed higher for the fifth week in a row, cementing its spot as one of 2020’s best performing asset classes.

Gold is up 17% this year and closed above the $1,800 an ounce level last week. Silver wasn’t going to be left behind – and it also closed higher last week above the $19 an ounce level.

The trend for gold points UP – and new all-time highs above $1,900 (scored in 2011) are just around the corner.

This year, gold has already hit new all-time highs in 16 currencies, including Gold/euro, Gold/British Pound, Gold/Japanese Yen, Gold/Australian dollar, Gold/Canadian dollar, Gold, Chinese Yuan, Gold/New Zealand dollar.

Yes indeed. Gold $2,000 here we come.

There are No Easy or Quick Fixes for This

There’s no getting around it.

We heard a bunch of bad news last week – as major companies warned of massive job losses ahead. 

Iconic Brooks Brothers filed for bankruptcy last week after over 200 years in business.

United Airlines warned it may need to fire 45% of its workforce. That follows American Airlines statements suggesting it may have 20,000 more workers than it needs.

In the banking sector, Wells Fargo, the largest U.S. bank employer, is readying to cut “tens of thousands” of jobs in 2020, Bloomberg reported.

There are no easy or quick fixes. It will take at least 10 years for the labor market to recover from the Covid pandemic, according to the most recent data from the Congressional Budget Office (CBO).

While government officials state there is no appetite to force another shut-down, the pandemic continues to accelerate with a new single day Covid case high. Sadly, last week, Florida, Texas, California and Arizona saw their Covid daily death tolls hit record highs, according to Hopkins data.

What lies ahead for our country? The pandemic is spreading fast in Sunbelt states. Will Covid fizzle out on its own soon – or will the United States health crisis grow doubly worse once the seasonal flu season kicks in during the fall months?

The scary truth is that no one knows. If the health crisis continues to accelerate in the months ahead, another lockdown or shelter in place is one of the biggest risks to our economy ahead.

Waiting for the next shoe to drop?

The stock market is on edge, trading sideways last week in a holding pattern.

It’s only a matter of time before the stock market adjusts to the economic reality seen across the country with over 40 million Americans filing for unemployment benefits since the pandemic began just a few short months ago.

Businesses are shedding workers, because their profit and revenues are diving. A full 40% of companies in the S&P 500 pulled their earnings guidance because of the virus. There are real risks ahead.

Another new bullish forecast for gold

We have been asked whether we still like gold at these levels. The short answer is a resounding “yes” – a July 6 Wells Fargo Investment Institute.

In fact, the Wells Fargo Investment Institute issued its 2021 year-end target for gold at $2,200-$2,300!

“In our opinion, gold has a host of drivers working in its favor, and believe that gold is on its way to new highs,” the Wells Fargo Investment Institute report said.

The last word

Any portfolio disruptions you’ve seen this year due to the stock market volatility have been mitigated if you are holding gold now. Gold is in an uptrend, climbing – with more room to run. We are seeing clients increase exposure to gold now – as investors want to capture more portfolio protection and asset growth in these uncertain times.

If you have questions, we are here to help.

Warm regards,

David

By Mark Ferguson

Mark Ferguson is the editor and publisher of CAC Market Values. He has graded coins professionally for PCGS and served as the principal market analyst while managing updates for more than 65,000 price points for Coin World magazine. In other words, Mark knows his coins!

Demand for investment-grade rare coins has surged since the coronavirus pandemic and economic crisis began six months ago; and this demand has been strong for CAC coins.  This month’s market report gives you a behind-the-scenes look at what the country’s oldest and largest precious metals and rare coin retailer is seeing in client activity: Blanchard and Company.  It’s an eye-opening look at where demand is coming from, which will likely continue for the next several years.  This new demand bodes very well if you own high-grade, rare CAC coins.

For more than an hour in late June, I discussed the rare coin market and CAC coins with David Zanca of Blanchard and Company.  David is a senior portfolio manager at the firm and has been with Blanchard since 1993.  Among other collections he’s helped build, over a span of 25 years Zanca built one single portfolio of ultra-rare coins totaling nearly $20 million, a portion of which recently came to auction.

From the launch of CAC in 2007, Blanchard and Company has partnered with CAC founder John Albanese and Certified Acceptance Corporation in establishing a market for CAC coins.  Albanese and CAC are the primary suppliers of rare coins for the Blanchard firm.  Certified Acceptance Corporation makes a market in CAC-approved coins by publishing buy prices for CAC coins in the dealer-to-dealer market.

Blanchard and Company was founded in 1975 by the late James U. Blanchard who began a nationwide movement in 1971 to legalize gold ownership, after it had been outlawed by the Franklin D. Roosevelt administration in 1933.  Blanchard also founded the National Committee to Legalize Gold in 1971.  Success was achieved in 1974 when President Ford legalized the private ownership of gold.  The firm’s focus has been on the investment aspect of rare coins, but in doing so, has built advanced collections such as the one referred to above.

Motives for Private Investors Who Seek Rare Coins

Recent volatility in the stock market has caused many investors to seek alternative investments.  Many of these people are of the age at which they don’t want to take on a lot of risk.  According to David Zanca, the biggest concern of investors is the “printing” of money by the Federal Reserve and the stimulus that has been pumped into the U.S. economy, which may increase.  The concern is rising inflation and the loss of purchasing power of the dollar.  Low interest rates, with the possibility they could become negative rates, is another concern of investors.  They view gold as an alternate currency that’s a safe haven investment and they seek to own tangible assets they can control.  Similarly, rare coins serve this purpose.

Investors who are not collectors get introduced to rare coins through buying precious metals from a firm like Blanchard that handles both.  Other investors are referred by friends or family who have purchased coins.  After buying a few coins, some take an interest in the history of the coins and become collectors.  According to Zanca, what’s changed in the last six months is that many of these new collectors are putting investment money into their collections, rather than just excess “play money” they have sitting around.  He said every portfolio manager at Blanchard is seeing this.  He added that the market is moving from a long-term collector mindset to an investor mindset.  We saw this same change during the inflationary 1970s.  Then, after the coin market peaked in 1989, we experienced a return from an investor-based market to a collector-based market over the next 10 to 12 years.  Dealers generally refer to these phases as “cycles.”

Buying Preferences

Over the past six months, Zanca has been seeing investors put a higher percentage of their assets into rare coins.  Again, people are putting investment money into rare coins.  The pandemic has introduced uncertainty into our financial lives and investors realize that stocks can go to zero, whereas gold and rare coins act like a safety net in that they maintain value, they won’t go to zero, and owners have custody of the assets.  Zanca said this is similar to what he saw in the 2003 to 2004 period when demand for rare coins picked up and accelerated into a bull market that lasted until the financial crisis began in the 2007 to 2008 period.  Because many investors are buying coins with investment money, he sees demand for higher-valued coins increasing.

Zanca stated that high-net-worth individuals and ultra-high-net-worth individuals want high-grade coins.  They seek perfection and are drawn to CAC coins.  They feel comfortable with CAC-approved coins and see the benefits of owning them.  CAC coins “level the playing field.”  Zanca said helping buyers feel comfortable with CAC coins is an educational process.  But it’s become much easier with the internet.  Pictures, data and history are readily available, allowing people to educate themselves about coins.  The internet has opened the market and is bringing more people to coins.

Early gold coins are popular among these investors – they’re easy to understand and have an interesting history.  Humbert $50 “slugs” and branch mint gold coins are especially popular, but these investors are also looking for guidance on what to buy.  In addition to gold coins, these buyers find early silver coins appealing.  One big problem Zanca sees is that CAC gold coins are getting increasingly difficult to find, as are true rarities.  Owners are not selling because they don’t have good places to go with the proceeds.  This is a classic scenario that puts upward pressure on market values.

Zanca brought up an interesting concept.  He said that CAC coins have not been through a bull market yet, so we don’t know the true power they hold.  CAC was launched in November 2007, as the financial crisis was developing.  The crisis sparked a temporary correction in the coin market, but it experienced a strong market between 2011 and 2014.  Even so, that period could not be described as a true bull market.

Zanca sees premiums for CAC coins over non-CAC coins growing even more than they have already, adding that the possibilities for movement in prices for CAC coins are far greater now than at any time in the past.  When CAC coins first came to market, it was difficult for the investor to understand the price premiums they were selling for.  Now, almost fourteen years later, CAC coins have a proven and solid track record of pricing in both public and private sales.  CAC coins have established themselves as the preferred coins investors want to own.

Zanca added that prices for non-CAC coins are irrelevant; CAC coins make up their own market.  In conclusion, he said he believes Americans are beginning to realize the value of holding tangible assets, not just paper investments.  Europeans have practiced this financial strategy through the ages, and he believes Americans are beginning to realize the benefits of owning tangibles that they control.  It’s a new mindset that he sees developing in America.

Analysis

This is a telling look at how demand for rare coins has increased during the past six months.  In an atmosphere where seasoned collector-investors and dealers have been concerned about the graying of the hobby and a diminishing market for their coins, this is new evidence that investors will be buying our coins in the near term, not just a younger generation of collectors.  Additionally, Americans are not the only people who share the same economic worries.  I’ve recently been contacted by a group of investors from outside the U.S. who are looking to buy high-end U.S. coins, for many of the same reasons – they fear inflation.

I’ve read professional wealth studies by large multi-national firms that conclude high-net-worth and ultra-high-net-worth individuals put, on average, approximately ten percent of their investible assets into “treasure assets.”  This could be fine art, antique cars, rare wines or rare coins, for example.  The percentage varies slightly around the globe and for different cultures, but the average hovers around 10 percent.  U.S. coins are appealing to many of these investors because of the standing the U.S. has in the world and the well-organized numismatic market we have in the U.S.

Lastly, this new demand and the scarcity of some CAC coins, such as early gold coins, has to put upward pressure on their market values over time.  Additionally, demand for rare coins has been shown over time to run parallel to trends for the price of gold.  The huge economic stimuli that’s been injected into economies around the world during the past six months, and which will probably expand, has raised inflation fears.  Some experts in precious metals and economics predict the price of gold price will soar into the thousands of dollars per ounce during the coming years.  That will help propel market values for rare coins to new record highs.    

 

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How Long before We See Gold Hit $2,000?

Did you wonder what would happen to the economy once the second wave of Covid-19 hits in the fall?

It turns out the first wave still isn’t over. In fact, it’s getting worse. Covid-19 infections are spreading like wildfire in hot spot states.

Last week, the U.S. recorded a new all-time daily high of Covid-19 cases – at 40,000 in one day. The U.S. now has 2.4 million confirmed Covid-19 cases – and 122,370 deaths – more than any other country. Texas and Florida governors hit the pause button on their reopening plans as those states became the new hot spots.

Covid-19 is indeed reshaping our economy in ways we never could have imagined and it will be months or years before we understand the new landscape we now live in.

Because of Covid-19, Microsoft announced it is permanently closing all physical stores, while retail employees will continue to serve customers remotely and digitally. Hilton Hotels announced it laid off 22% of its corporate staff as business and personal travel could take months or years to return to its pre-Covid-19 levels.

Markets react

In the midst of this news, the stock market cratered last week as investors began to question the market’s swift recent recovery.

And, gold soared to a new 8-year high! With gold closing in on the $1,800 an ounce level, new all-time highs are within easy reach this year.

New economic data

Last week, the government reported a 4.2% drop in personal income in May. If consumers don’t have money, they can’t spend it. The recession isn’t over for millions of American. The latest jobless claims report saw another 1.48 million people file for unemployment insurance benefits.

Presidential election looms

Recent polls show Democratic contender Joe Biden beating out incumbent President Donald Trump. There are still several months before Election Day and sentiment may change. Yet, this looms as a major turning point for the country in 2020.

Early insights reveal expectations that a ‘clean sweep’ for Democrats would hold back the stock market. Why? In large part because that could pave the road for higher corporate taxes and a reversal of the sweeping tax cuts that were put into place under the current Administration. Expect election news to move front and center into daily headlines in the weeks ahead.

Wall Street Embraces Gold

Wall Street is turning to gold in 2020 like never before. From Goldman Sachs, to BofA Global Research, big firms are bullish on the prospects for gold ahead.

A June 24 BofA Global Research report was titled: “Another GOLDen breakout = Stay bullish”

The firm stated that gold is breaking out to the upside, which is in line with their “secular call a year ago targeting $2,114 -$2,296” an ounce.

How long before we see Gold $2,000?

With the country in the worst recession since the Great Depression, the Fed on a money printing binge, social unrest at the highest level in decades and a major President Election just months away, we could see gold hit $2,000 faster than you think.

U.S. dollar won’t be king forever

As the Fed continues to degrade the value of fiat money by printing trillions of new dollars just this year in an effort to stoke economic growth, it puts the future of the U.S. dollar’s supremacy at risk.

For now, we have the benefit of being the “reserve currency” of the world. At this pace of money printing, it is only a matter of time before the U.S. falls from that pedestal. The result won’t be pretty for America. We are talking the potential for sky high interest rates as foreign governments will no longer have any incentive to buy our government debt.

Mainstream money managers are talking about this now.

Scott Minerd, the chief investment officer of Guggenheim Investments, thinks investing in gold could help offset any concern about the status of the U.S. dollar as a global reserve currency, according to recent Bloomberg article.

“With the Fed going all-in on financing the government deficit, the U.S. dollar could be at risk to negative speculation of its status as the dominant global reserve currency,” Minerd said.

With so much uncertainty, it’s no surprise investors big and small, domestic and foreign, continue to turn to gold.

While gold is creeping quietly higher, now is your chance to add gold to your portfolio before it scales the $2,000 mark. Do you own enough gold to hedge, protect, preserve and grow your wealth for now and the future?

Wishing you a Happy Fourth of July!

David

We live in a historic period in which the US economy is experiencing a massive inflow of money. This tidal wave will have a meaningful impact on all investments, including gold. To understand why, one must first understand the M1 and M2 money supply.

The M1 money supply is a measure of currency in an economy. This category includes physical currency, demand deposits, negotiable order of withdraw accounts, and travelers’ checks. These are forms of currency that are highly liquid because they can be used almost immediately for a purchase.

In contrast, the M2 money supply represents the total amount of both the M1 supply and “near money” which includes less liquid assets like savings accounts, money market accounts, and certificates of deposit. The Federal Reserve has the power to influence the M2 money supply by using a variety of tools. For example, the Fed can change the reserve ratio which dictates the amount of reserves a bank must carry against total deposits. When the ratio drops banks are in a position to increase their lending which drives up the money supply. Additionally, the Fed can raise or lower the discount rate which influences the money supply because with a lower rate it becomes more affordable for banks to borrow more. The Fed can also purchase issued securities like Treasury bills from banks which will also increase the money supply.

In mid March of this year, the US saw a dramatic increase in the amount of M2 money in our economy. In fact, when compared to the same point in 2019, the M2 supply has increased approximately 12%, representing the largest jump in over a decade.

This increase has coincided with an increase in gold prices in recent months which is a phenomenon we have seen before. In 2011, gold reached a historic high of $1,900 an ounce just as the M2 money supply surged above 10 percent on a year-over-year basis. This heightened level of M2 money supply is likely to persist for the long-term given the Fed’s recent announcement that they plan to keep interest rates near zero until 2022.

However, the increase of M2 totals and the corresponding rise in gold prices is more than an economic factor.  It is also a psychological one because investors are witnessing the debasement of the US dollar. Debasement is the lowering in value of a currency as a result of a government printing more money. In these circumstances, investors often seek more stable forms of currency that will not be negatively impacted by the Fed’s stated goal of maintaining a low interest rate and thereby keeping the M2 money supply elevated.

In uncertain times investors look for more than a return, they look for consistency. As the value of the dollar comes under scrutiny in the US and abroad, investors are turning to gold as a store of value and a rare place to grow wealth as low interest rates reduce the earning potential of many other investments. 

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Fed to the Rescue. Again.

You may have heard the saying, “Don’t Fight the Fed.”

Last week, the Fed once again turned fear into greed and boosted stocks with an unexpected announcement that it will start buying individual corporate bonds.

Whatever it takes. Yes, indeed.

No matter the future cost, the Fed valiantly continues to support the bubble in risky assets, known as the stock market.

No matter how far the stock market valuations differ from the underlying economic picture, the Fed is all in, willing to do whatever it takes to keep the stock market and liquidity train running.

Until they can’t.

Jeffrey Gundlach, founder and chief executive of DoubleLine Capital, warned recently about the inability of “Superman” Fed Chairman Jerome Powell to save the stock market.

Looking ahead, the billionaire money manager expects the stock market to fall from its “lofty” perch as he foresees corporate credit downgrades and a wave of white-collar layoffs ahead.

And, gold? Gundlach forecasts a move to new all-time highs for gold ahead.

Mixed Economic Signals

Fed Chairman Jerome Powell appeared before Congress last week in his semi-annual testimony and warned about the “potential longer-term damage” from permanent job losses and business closures due to the Covid pandemic.

In the midst of these dire warnings, May retail sales snapped back hard with a 17.7% gain last month. Chalk it up to major pent-up demand after consumers sheltered in place for months.

Looking ahead, capacity in some sectors, like eat-in dining, remains severely limited by social distancing requirements.

Also, the extra $600 in weekly unemployment insurance is set to end at the end of July, which could once again dampen retail sales.

People Are Still Getting Laid Off …

The number of people who lost their jobs last week and filed for unemployment benefits stands at almost twice as much as the 2008-09 recession. A total of 1.5 million people applied for unemployment benefits last week, plus another 760 thousand gig workers filed through a special Pandemic Unemployment Assistance program for unemployment compensation.

Over 2.2 million additional people were thrown out of work last week. And, no matter how many corporate bonds the Fed buys, those people still won’t have a regular paycheck.

Covid Cases Jump in Some States

In Texas, hospitalizations due to Covid jumped 11% last week, while the list of states reporting record-high daily cases hit nine. While economists talk about what the second wave could do to the economy, we still haven’t finished the first wave.

Meanwhile, November Presidential Election Looms

Polls last week revealed that Joe Biden edged ahead in the polls by more than 8% to President Donald Trump. Much could change over the next five months, but this remains a key flashpoint in 2020.

As social unrest hit the highest level in decades, a health crisis gripped our nation and a recession forced millions of Americans out of work. The November vote will be a significant election for the economy and the markets. Stay tuned.

Gold Stands Strong

In the midst of the recent stock market recovery off the March lows, it is useful to note that gold maintained its double-digit gains that emerged since the start of 2020.

Gold is up 14% year-to-date and stands at an 8-year high.

In the midst of the uncertainty and the stock market rebound, gold continues to perform well.

Indeed, last month the World Gold Council stated that “Gold is a clear complement to stocks, bonds and alternative assets for well-balanced US investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing robust performance in both rising and falling markets.”

The WGC explained the four ways that holding gold can support your portfolio:

  1. Generate long-term returns
  2. Act as an effective diversifier and mitigate losses in times of market stress
  3. Provide liquidity with no credit risk
  4. Improve overall portfolio performance

Many economists and hedge fund managers warn that another leg down in the stock market is just around the corner. Consider using this time now to prepare and get ahead of the next selling phase with an increased allocation to gold.

Parting Words

Gold is money. Everything else is credit.     – J. P. Morgan

Best Wishes,

David

It turns out money printing isn’t just for rich nations any more.

Emerging market countries like Chile, Costa Rica, Croatia, Hungary, Indonesia, Poland, Romania, the Philippines, South Africa and Turkey are taking a page from the developed nation’s monetary policy playbook this year.

In an effort to combat the economic slowdown foisted onto the world by Covid-19, emerging market central banks are playing copycat to the United States by buying bonds of various kinds in a new asset purchase programs, also known as quantitative easing.

What is quantitative easing (QE)?

Quantitative easing, often called money printing, describes an unconventional monetary policy dreamed up by advanced nation central bankers a decade ago – to combat the 2008 global financial crisis.

In November 2008, the U.S. Federal Reserve began quantitative easing – extremely controversial at the time – in an attempt to keep the American economy afloat during the credit crisis meltdown.

Essentially, the Fed expanded its balance sheet (by creating new money) and then began buying bonds with that new money.

The Fed expanded its balance sheet from $870 billion in August 2007 to an all-time record high of $7.21 trillion today. That’s a lot of new money created over the past decade. Several trillion of that occurred in just the past few months as the Fed pledged to do whatever it takes to support the economy during the Covid crisis.

In our largely electronic banking system, the Fed simply adds money to its digital balance sheet and then uses that “money” to buy bonds. This, of course, dramatically increases our nation’s money supply.

Other rich nations like the UK and Japan also instituted these money printing policies back in 2008.

Fast forward to today

Not everyone thinks it is a good idea for emerging markets to join the money printing party.

“I don’t think it is either advisable or necessary for emerging markets to go into QE right now,” said Divvuri Subbarao, governor of the Reserve Bank of India from 2008-2013 told Reuters on May 6. “It is not necessary. They have enough conventional instruments available and they can still cut rates now,” he added. “And also, central banks are taking on a credit risk, and I don’t think emerging market central banks are in a position to take on such a credit risk.”

Our neighbor to the north

The Bank of Canada is also falling back on the ‘quantitative easing’ policy in an attempt to ease recessionary conditions inspired by Covid-19.  In April, the Bank of Canada began buying $5 billion of Canadian government bonds each week. Similar to the U.S. Fed stance (whatever it takes), the bank of Canada pledged to continue to do this until the economy recovered.

What’s the big deal?

The 2008 global credit crisis was the first time that central banks got involved in “credit creation” or  money printing.

The big concerns by many mainstream economists?

Hyperinflation and people needing wheelbarrows full of money to buy a loaf of bread.

What about gold?

Countries around the world are adding on more government debt and massively expanding their paper money supplies. This is a startling combination of questionable monetary and fiscal policies that leads many economists today to warn that our nation could be close to “monetizing our debt.” That would simply mean that when Congress spends more money, the Federal Reserve prints more money to buy the bonds to fund the deficit spending.

In the midst of this monetary policy shenanigans, the United States remains the world’s largest holder of gold, officially that is.

There are many mainstream policy watchers that believe that China’s official gold holdings are vastly under-reported and that China could indeed hold more gold than the U.S.

For now, all we have are official numbers.

June 2020

Tonnes

  1. United States 5
  2. Germany 6
  3. IMF 0
  4. Italy 8
  5. France 0
  6. Russian Federation 7
  7. China PR Mainland 3
  8. Switzerland 0
  9. Japan 2
  10. India 0

Source:  World Gold Council

Central banks are buying gold in 2020

In the midst of the Covid-inspired money printing frenzy, central banks are buying gold, real money. In the first quarter of 2020, Turkey, Russia, India, UAE, Kazakhstan and Uzbekistan all bought gold.

It’s no surprise that the central banks that can are buying gold.

Why not trade paper money that is becoming increasingly devalued for gold, a tangible asset that can’t be desecrated by a central bank printing press.

In 2020, it’s becoming increasing clear that central bankers around the world have grown bolder since the 2008 global financial crisis.

Quantitative easing is becoming an accepted practice and money printing is spreading to emerging markets as Covid wreaks havoc on the global economy.

But, in the end, will we simply be awash in paper money that has increasingly less and less actual value?

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Gold prices are often cited as a simple example of how supply and demand works. However, beneath this basic dynamic is something far more complex: the gold supply chain. Supply involves more than just mining yields. It also involves intricacies like recycling operations, transportation, and refinery What is Happening to the Gold Supply Chainactivity. In the months following the COVID-19 outbreak, all three of these components have experienced significant shocks.

Consider gold recycling, which commonly represents approximately 25% to 30% of the available supply. Of this total, an estimated 90% is considered high-value gold consisting of jewelry. The remaining 10% is industrial recycled gold sourced from electrical components. This portion of the total, while small, has great potential as technology continues to expand its out-sized role in our lives.

Research from the World Gold Council determined that even the high point of gold recycling (2009) captured only 1% of the above ground stock. The 2009 high point represents another characteristic of gold recycling which is that it tends to increase as economic conditions become unfavorable. The global economic crisis was taking its toll in 2009. Another example of this principle can be seen in the late 1990’s Asian Financial crisis which was responsible for a 19% boost in gold recycling.    

By this logic, gold recycling should be increasing today given record high unemployment numbers. However, this is not the case. In fact, recycling activity fell to just 4% of the gold supply on a year-over-year basis in the first quarter of 2020. The reason: social distancing and shelter-in-place measures dramatically hindered activity.

Next, let’s look at transportation, which is necessary for moving gold from mining operations to refineries. This part of the supply chain relies on road, air, ship and rail activity. Again, social distancing and government mandated shutdowns put heavy pressure on these areas. Moreover, of the few flights occurring during the pandemic, many were reserved exclusively for medical supply transportation. This disruption has significantly increased the cost of moving gold as the number of commercial flights dropped from approximately 100,000 per day to roughly 30,000 a day.

Finally, refinery operations also experienced a downshift in operations as a direct result of the virus. By the end of March, three of the largest refineries in the world halted all activity in an effort to slow the spread of COVID-19.  As the World Gold Council explains, “the consequent reduction in global refining capacity – approximately 1,500t of gold annually – meant that bars and coins could not be produced in the necessary forms as quickly as needed.” Other refineries in Africa and the U.S. also temporarily ceased operations in response to the global health crisis.

These three factors illustrate the complexity underpinning the gold supply/demand dynamic that, on the surface, appears so simple. The value of gold is tied to much more than miners ability to pull it from the ground and the consumer’s appetite. Gold prices hinge on the ability to get the raw material into the hands of buyers. In recent months, that chain has been disrupted. The good news is that easing restrictions are reintroducing activity into recycling, transportation, and refinery activity all of which will favor investors.

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Welcome to summer. As the Great Lockdown ends and states continue to loosen Covid-19 restrictions, Americans are venturing out to shop, socialize, get their hair cut and eat at outdoor restaurants, tables spaced six feet apart. The U.S. economy is slowing returning to work.

While the reopening is encouraging for the economy, there remain many challenges for customer-facing businesses. This is likely to be a long process as social distancing measures remain in place limiting full capacity of restaurants, hair salons and other in-person businesses.

U.S. – China Tensions Flare

On the global stage, U.S. – China tensions flared last week, which could warn of a hot summer ahead, and we don’t mean the weather.

The latest escalations of friction between the U.S. and China remind us that the global power struggles that faced the world’s two largest superpowers before Covid-19 haven’t gone away.

Gold gained on news last week that China hardened its stance on Hong Kong democracy demonstrators, with a resolution to impose national security laws intended to suppress protests.

The Trump Administration, meanwhile, continues to seek a trade deal with China. The on-going trade talks could limit an American response that could anger China as long as talks continue.

Meanwhile, protests at home cropped up last week…

Nationwide Social Unrest

Protests were seen in 30 U.S. cities last week over the death of George Floyd, a black man, at the hands of a Minnesota police office. At least 25 cities were forced to impose curfews. In Washington D.C. clean up crews worked on Sunday to sweep up broken glass from storefront windows and office buildings and were cleaning graffiti off buildings near the White House.

The Economy and Markets

Over two million additional Americans applied for unemployment benefits last week, bringing the total to an unprecedented 40 million claims over last 10 weeks.

Second quarter U.S. GDP growth is estimated to be an unheard of 40.4% decline, according to the Atlanta Fed’s GDPNow model.

In the midst of this truly devastating economic news, the stock market rallied last week. The S&P 500 closed above its widely-watched 200-day moving average, in another sign of a major disconnect between Wall Street and Main Street.

It is often said the markets are not the economy. And, the economy is not the markets.

That is quite clear.

The market is pricing in perfection – a perfect reopening with a fast-tracked Covid-19 vaccine and a swift return to pre-pandemic activity.

Stock market investors are betting the economy will recover and corporate earnings won’t be far behind. They aren’t taking into consideration the true economic wreckage of 40 million lost jobs in ten weeks and a 40% decline in growth in the second quarter.

Companies can’t make money if people don’t have jobs and can’t spend. Even though the businesses are reopening, they are not at full speed. To think that corporate earnings will rebound to pre-pandemic levels is folly.

Expect to see tough economic numbers over the next several months.

What do we know? History shows us that financial markets overreach. They overreach on the downside and they overreach on the upside. The recent gains in the stock market are just one more overreach in a series of wild of swings that we’ve seen since the start of the year.

It’s All About the Consumer

Even with the reopening, the coronavirus has already had a significant impact on American’s everyday finances, from their paychecks to their spending habits. These trends are likely to stay in place even after the pandemic resolves.

It’s consumer spending that makes our economy go round, with roughly two-thirds of U.S. GDP driven by things you and your neighbors buy. The willingness of Americans to buy at a normal pace will be the key consideration on whether we have a “V” shape economic recovery or a lengthier, “U” shape recovery.

What’s Next?

This Friday, the Labor Department will release the May employment report.

Forecasts are calling for a 20% unemployment rate. That’s right. The unemployment rate in the Great Depression stood at 25%. We aren’t far behind. We’ll let you know how the numbers look and what it means for you, your portfolio and the economy in next week’s report.

The Bottom Line

In 2020, we’ve seen the Fed slash interest rates back to zero, making cash and bonds an unappealing alternative to investors. Make no mistake, gold’s relevance and importance to both global monetary bodies and individual investors is climbing every day.

As we entered 2020, gold was already showing the beginnings of a bull market, or rising market. There is growing evidence that this was indeed the Dawn of a new Bullish Decade for gold, with multiple forecasts for new all-time highs ahead.

New Study Shows Heightened Financial Worries

Over seven in 10 (72%) say the impacts of the COVID-19 pandemic are making Americans rethink how to protect their retirement savings from volatility, according to a new study released by Allianz Life Q2 Quarterly Market Perceptions Study last week. Other findings include:

  • 58% of Americans say the economic impacts of COVID-19 are having a negative effect on their financial retirement plans.
  • 54% of Americans are worried the market hasn’t bottomed out yet.

In the midst of these financial concerns, gold stands strong, with gains of over 14% since the start of 2020, acting as it has for centuries a safe-haven in the storm and a vehicle to preserve and grow your wealth.

David

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Harold Hamm lost more than $3 billion in March.

The self-made billionaire is scrambling to survive the bust in oil prices, which saw New York crude oil trade below $0 a barrel last month. With no college degree, Hamm first hit it big by drilling in an overlooked North Dakota oil field over a decade ago. The coronavirus pandemic tanked global demand for crude oil, another market completely disrupted by the crisis.

While you probably didn’t lose $3 billion in the last few months (we hope), your portfolio is likely still suffering, which reminds us all about the importance of asset allocation and portfolio diversification.

The stock market has rebounded partially off its recent lows. Yet, the S&P 500 index remains down about 9% for the year, which could easily mean thousands of dollars in losses for you, depending on the size of your portfolio.

Speaking of billionaires, legendary hedge fund manager John Paulson, is still betting big on gold right now, CNBC reported last week. This is not surprising. Recent market action has reminded us all about the importance of portfolio diversification and investing in assets like gold and silver that go up when stocks go down.

Gold is one of the best performing asset classes in 2020, up about 13% for the year.

Now, silver is playing catch-up, as we’ve long expected, with a swift rally to almost an $18 an ounce level last week.

In the second quarter, silver climbed 27%, an impressive recovery from the sell-off earlier this year. Investors are piling into silver, amid expectations for a pick-up in industrial demand now that economies around the globe are beginning to reopen.

Looking Back at Last Week

Most of the 50 states have relaxed coronavirus lockdown restrictions. Economists expect a long road to recovery as many people remain cautious about resuming normal activities.  Data like TSA airport screening levels and OpenTable restaurant bookings show demand for these services at well below normal levels.

Last week, another 2.4 million Americans filed for unemployment benefits, bringing the total to about 38 million Americans who have lost their jobs since mid-March, a staggering figure.

Existing home sales collapsed 17.8% in April, to a 4.33 million annual rate. No surprise really. Buying a home is a major purchase and it can be a little unsettling to make an offer on a property you have only see through a Zoom video app.

The stock market wasn’t fazed by the steady stream of Depression-like economic figures. The stock market mostly consolidated sideways last week in a wait and see mode. The unprecedented fiscal and monetary policy boosted the market off its lows. From here, however, additional stock market gains will be difficult to achieve as the economy remains mired in a massive slowdown.

There is a long economic recovery ahead. Consumer spending accounts for about two-thirds of the U.S. economy. With millions out of work and millions more hesitant to resume normal activities, the recovery will be slow.

‘Smart Money’ Players Are Buying Gold

Central banks intend to buy more gold this year, according to a new survey from the World Gold Council. Twenty percent say they will increase their gold reserves over the next 12 months, versus only 8% in 2019.

Why? Central banks purchase physical gold for the same reason individuals do – for diversification, liquidity and wealth preservation. Other reasons central banks want to buy more gold include concerns about negative interest rates, gold’s performance during a crisis, and gold’s lack of default risk, the World Gold Council said.

Here’s what Goldman Sachs said about gold two months ago…

“We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy makers act to accommodate shocks such as the one being experienced now,” said analysts at Goldman Sachs led by Jeffrey Currie, as quoted in a MarketWatch article.

The Bottom Line

The coronavirus pandemic is creating a new normal for us in many ways. However, the rules of successful investing have not changed.

This crisis reminds us all about the importance of diversification – especially into tangible assets, like gold, that are not correlated to the stock market. Other rules of investing include, regular rebalancing, understanding your risk tolerance level, defining your investing goals and measuring your success on a quarterly basis.

Wishing you and your loved ones a safe Memorial Day!

David