During my early investment days, I came across the term bullion and I had no idea about the meaning of it. I imagine there are many folks out there in exactly the same position I was during my early days. In this article, my aim is to answer the question of what is a gold bullion and how the markets use it.
What is a Gold Bullion?
What is a gold bullion, and how it can be a tool of investment? Gold bullion is when gold itself has been refined to such a degree that it is now in its purest form.
The word bullion comes from the French Minister of finance Claude de Bullion. The value of the bullion is determined by the value of the precious metal content, which is defined by its purity and mass.
Many people actually confuse gold bullion with large gold bars. In fact, gold bullion can be small golden bars from 1gram to 1 kilo and even more. In addition, gold coins are also considered to be gold bullion.
The specifications of bullion are regulated by market bodies or legislation. In the European Union, the minimum purity for gold bullion is 99,5% for gold bars and 90% for gold coins.
Gold Bullion Characteristics
Gold bullion is gold in its purest form often kept in the form of coins, bars, or ingots
Gold bullion is not just an asset in many cases it has been considered to be a legal tender
Central Banks and other institutional investors hold large amounts of gold bullion
Investors small and large can buy gold bullion through specific dealers
Investors can also put money in gold bullion through exchange-traded funds (ETFs) or futures contracts
Why Central Banks Hold Gold Bullion
It is estimated central banks hold 20% of the gold bars mined. Central banks hold gold bars for a number of reasons. One of them is to protect their portfolios from inflation and a market downturn. In addition, they use gold bullion to settle the international debt or to stimulate the economy through gold lending.
Moreover, central banks sell and lend gold to other banks and mining companies. Gold is a useful tool in the hands of the central banks.
Why Investors Buy Gold Bullion
Portfolio diversification
A hedge against inflation
Geopolitical uncertainty
Currency risks
Political instability
Gold is a non-correlated asset (its price tends to rise during a market downturn)
How the Price of Gold is Determined
The price of gold bullion is influenced, by demand from companies who use gold to make jewelry and other products, and by perceptions of the overall economy. For example, political, or financial instability, affects the price of gold bullion.
Gold Bars or Gold Coins?
When the time comes to invest in physical gold you could find yourself wondering what would be better gold bars or coins? I am in favor of gold bullion coins as they are easier to store and sell rather than bars.
However, gold bullion bars are still an excellent way to invest in gold. Bare in mind, that it could be better to own ten 100 gr bullion bars rather than a 1-kilo bar. It is much easier to sell the ten 100-gr bars rather than the 1-kilo bar.
Ways to Invest in Gold Bullion
There are many ways an investor can obtain gold bullion. This can be done in physical form, (physical gold I recommend) gold coins, bars, or even ingots.
Another way for the investor to get access to the bullion market is through exchange-traded funds. (ETFs) Gold ETFs are securities that track the gold market. Gold ETFs are the easy way to own gold and it can be done through a standard broker or an IRA broker.
The futures market is another way for the investor to enter the bullion market. A futures contract is an agreement to buy or sell a commodity or an asset at a particular price with the agreement ending at a preset date. You can invest in futures through a broker but I do not recommend it. A futures contract might lead you to extremely high gains and it might also lead you to bankruptcy.
Final Words
Gold bullion is a popular investment asset. Institutional investors, central banks, and smaller investors are including gold bullion in their investment portfolios for their own reasons.
The supply and demand basics for precious metal markets got tossed into disarray this year, resulting in heightened volatility– initially on the drawback, then on the upside. Will the gold and silver supply and demand in 2021 will be such that will drive the prices of the two assets higher?
The Gold and Silver Supply and Demand in 2021
Although gold and silver will complete 2020 listed below their highs for the year, the gold price will end up with a yearly return of nearly 25%; and silver around 45%.
Can Precious Metal Investors Expect More Price Appreciation in 2021?
Yes, however, there are some near-term threats to the favorable long-lasting supply/demand outlook.
Assuming financial conditions begin stabilizing next year, we would anticipate demand– specifically from commercial users– to increase. Mine production is expected to rebound also.
The mining market, like numerous others, faced extraordinary operational challenges in 2020 due to COVID-19 interruptions. Many mines around the world were required to scale back or suspend production in the first half of the year.
By the third quarter, mining output among significant producers started to ramp back up. In general, however, the top 20 gold miners will end up in 2021 with an approximate 5% drop in output.
The mining industry is issuing positive assistance for 2021. Whether it fully recuperates to pre-covid19 numbers remains to be seen.
While mine supply is likely to increase versus 2020, so is consumer demand for refined precious metals items such as fashion jewelry. The financial investment need for bullion will, as usual, be a wild card that could move the marketplace at the margins.
A related wild card is the COVID-19 virus. Epidemiologists hope something near herd resistance can be reached through mass vaccinations. However, the virus stays unforeseeable and might mutate into numerous new strains.
Virus dangers, political dangers, and inflation risks originating from the Federal Reserve‘s unrestrained printing of money and the European Central Bank’s money flooding are all potential drivers for safe-haven investment purchasing of precious metals.
Silver’s 2020 Historic Low Could Turn to a Historic High in 2021
A massive rise of investment demand hit the bullion market this spring as panic gripped Wall Street and bargain hunters came out in numbers.
What occurred was a once-in-a-generation event. Some markets reached unprecedented extremes that defied centuries of recorded history.
For instance, crude oil futures traded deeply into the unfavorable area for many months. Silver got historically oversold versus gold, as the gold-silver ratio surged to as high as ever prior to being seen at 130:1.
Near the outright bottom of the market on March 17th, we wrote, “Never has silver been as low-cost to acquire in genuine terms as it is today. Never has the silver market traded so extremely detached from its fundamentals.”
That post recommended we had actually hit “peak fear”– out of which “a new uptrend in silver, and a corresponding constricting of the gold/silver ratio, can be expected to extend for many years.”
The very next day, March 18th, silver struck its outright low point for the year at $11.75/ per troy ounce. It went on to surge as much as nearly $30/per troy ounce in August.
A less remarkable 2021 may be the case. However, an international economic recovery and return to some form of normalcy would assist in stimulating demand for commercial metals along with silver, platinum, and palladium.
A major trend set to accelerate in the months ahead is the move away from nonrenewable fuel sources and toward electrification.
Solar energy and battery technologies are experiencing explosive growth, and with that development comes a need for lots more copper, nickel, silver, and strategic metals. In fact, photovoltaic panels are among the fastest-growing sources of silver demand.
The “green” programs of the incoming Biden administration, paired with ongoing fiscal and monetary stimulus into the economy, could have the unexpected repercussion of stimulating metals markets.
Demand can grow a lot more quickly than supply. Some analysts expect to see broadening supply deficits for silver and platinum in 2021.
According to Bloomberg Intelligence commodity strategist Mike McGlone, silver will head towards a new record high on improving principles and collecting technical strength.
Silver investors must anticipate some volatility and maybe some surprises on the way to an eventual brand-new high in dollar terms above $50 per troy ounce. It might take place next year. It might take a bit longer.
Having a long-lasting horizon is important to be able to participate in the full magnitude of a precious metals bull market.
A brand-new nominal high in silver will just be the very first major turning point in a booming market that might increase several times from here prior to being overvalued in genuine terms.
Silver prices have underperformed gold for many of the time since 2011. Nevertheless, if we take a look at the past we will see that silver outperforms gold most of the time. Annual ordinary gold prices climbed more than those of silver every year from 2012 to 2019 with the exemption of 2016, and also right into the initial quarter of this year. The gold: silver rate ratio increased to a record 126:1 in the center of March 2020. However, the silver-gold price ratio is now at 74:1.
And also past performance has actually been a rather regular sign in highlighting that silver costs surpass gold in a time when gold costs are rising sharply, a gold rate rally. As can be seen in the table listed below, silver prices have actually surpassed gold almost every time throughout the duration of climbing gold prices because gold prices were released from their dollar secure in 1968.
CPM Group has actually mentioned that silver prices out-perform gold ‘most of the moment’ when gold prices are climbing, or remain in a bull market. We were asked to examine the extent to which this held true and/or if silver constantly out-performed gold. The table right here reveals the information made use of in the research study.
The first set of silver price data makes use of the same dates as gold’s troughs and tops for gauging silver’s efficiency. The second set of silver price information is gauged from silver troughs and peaks that are close to or ‘in the very same cycle’ as the duration of gold cost increases. When utilizing silver’s troughs and peaks that were close to or ‘in the same cycle’ as the duration of gold cost boosts, silver constantly exceeded gold and the percent gains were additionally a lot more powerful than when making use of the various other time structure.
What Contributes To Silver’s Out-Performance
There are numerous reasons silver often lags behind gold in starting a major upward rate relocation, but after that climbs faster in portion terms. One of the most essential is that the silver market is dramatically smaller than the gold market. In 2019, for example, the dollar value of the gold market was around 5.5 times that of silver. The marketplace dimension for silver and gold is defined here as the summation of yearly physical supply (including recently improved mine results, second healing from scrap, and when it comes to gold net authorities transactions in those years when the main field has been a web distributor of gold to the market), futures and options exchange trading volume, and also London Bullion market-clearing quantities.
Provided the smaller size of the silver market it takes much less effort for financiers to move the rate of the metal higher or lower. The smaller size of the marketplace basically increases volatility, which while supportive of outperformance contrasted to gold when prices are increasing additionally adds a threat to the performance of silver as a stand-alone property and to any portfolio in which precious metals are included. (This is a topic reviewed in higher deepness in the second part of this collection.).
While the silver market is extremely fluid, it is fairly much less liquid than the gold market both in terms of deepness and breadth, with fewer institutional investors, retail capitalists, bullion banks, and trading firms interested in the silver market versus gold. This lack of liquidity also contributes to the sharper relocation of silver to gold.
Silver Commonly Lags And After That Outshines Gold.
It has been continuously observed that the gains in silver rates commonly delay those of gold. For one, as stated in the past, even more capitalists and more kinds of investors get gold than silver.
In addition, silver capitalists consistently have actually shown a willingness to sell their silver when the positive view toward the metal discolors. En masse, financiers have consistently been net sellers of silver for long periods of time, showing themselves to be a lot more opportunistic than several yet not all gold capitalists.
Gold capitalists have a tendency to purchase less gold when the sentiment sours yet they just seldom and for a short duration of time transform into internet gold sellers as a team. Because silver investors will certainly sell silver, some of that silver will back up in market makers’ stocks. Since silver investors transform web vendors when belief sours, those stocks that were marketed earlier by capitalists get backed up in market manufacturer inventories and they come out sooner, maintaining the silver rate down much longer than gold, which does not face this obstacle.
Since silver has numerous commercial usages, economic distress injures the construction need for silver much more than for gold, which at first weighs on silver’s cost. Silver investors are and have always been a more dominant force in affecting prices than producers. Generalist investors generally divert their interest towards silver just when gold starts to rise higher. This delayed focus from generalists likewise has a tendency to add to the lag in silver cost efficiency relative to gold.
What We Anticipate This Time.
From the end of 2019 to 14 August 2020, the cost of silver was up 46% basis the neighboring energetic Comex agreement. Rates have softened in current days: Silver prices had actually been up 54% on a negotiation cost basis on 10 August from the end of 2019.
Is Silver Playing Catch or is it Out-Performing Gold?
After years of underperformance in gold, shown in the sharp boost in the gold: silver proportion, the silver cost is now playing catch up with gold. The proportion has actually slid reduced but is still at traditionally elevated degrees.
While the daily gold cost broke its past document and also already has made several brand-new ones, the price of silver at the height of its existing run-up on 7 August 2020 at $29.91, still is 39% below its record high in 2011. That is stated because, since July, the price of silver has actually outmatched that of gold, increasing 32% versus gold’s 7% gains over the same duration.
To date, silver is playing catch-up. For a brand-new capitalist getting into the market as a customer, silver is outperforming gold. For a veteran holder of these steels, silver is playing catch up. The solution lies not in the actual cost performance but in the point of view of private onlookers and capitalists.
Just How Sustainable is the Toughness?
Even though silver rates currently have actually risen greatly up until this year, there is more potential for advantage in the brief to tool term. There are numerous essential resistance degrees to be crossed but a go-to silver’s past record ought to not be entirely unexpected.
Some visitors of this note will certainly examine the strength in silver costs offered the weakness in silver construction need arising from the decline in economic development. While fabrication demand no doubt plays a vital duty in the silver market, financial investment demand has been the dominant factor in affecting the rate of steel. Silver’s financial investment demand is driven by both expectations of manufacturing demand for steel and a bush against macroeconomic and also political dangers. Currently, the extra leading variable driving silver investment demand is its use as a hedge against danger.
Capitalist sentiment toward silver is turning extremely favorable. This favorable capitalist view is being driven by financiers searching for a bush to the increased political and economic threats worldwide combined with silver’s loved one value to gold.
Additionally, the recent break out of silver costs is most likely to attract generalist investors searching for relatively undervalued possessions to park their funds and the unfavorable return on the 10-year IDEAS definitely makes possessions like silver and gold attractive. The approaching U.S. election, Brexit, wearing away UNITED STATE– China relationships, and also the pandemic provide additional factors for investors to add silver and gold to their portfolios, which should aid in sustaining the strength in rates.
While silver costs can possibly increase back to their document levels, they might not be able to receive those high levels for a prolonged amount of time, with several of the much shorter-term capitalists locking revenues and fabrication demand being hurt by the high cost. That claimed, while costs might not remain at those previous record levels for also long and will certainly come off they should not be anticipated to sink back to the degrees experienced in the last few years, and even earlier this year, in any type of hurry. The fallout from the pandemic should help to keep the prices of these steels at elevated degrees for a long period.
The vital to future silver, and also gold, rate trends lies much less in the degrees to which these steel costs already have actually increased and will certainly be much more a function of the underlying environmental aspects, financial, economic, political, social, public health, that press financiers to buy basically silver and gold. That will identify the height, more than any type of provided price level.
The pandemic and subsequent global lockdown have actually trembled the worldwide economy to the core, and the unfavorable economic fallout of these occasions is expected to have a long-term unfavorable impact on business real estate values, air travel, and jobs as a result of the acceleration of automation, to name a few. Governments and reserve banks worldwide have actually rushed to give assistance to the economic situation from this shock, which has actually injected a flood of money out there that is seeking return. The increased liquidity on the market has pushed prices into the unfavorable region, making non-interest-bearing possessions like silver and gold interesting capitalists. These all are expected to be essential aspects stimulating financial investment need and subsequently pressing silver prices up in the near to medium term. Additionally, while silver costs have actually lowered the deep discount at which they were to gold rates only recently, silver still is underestimated relative to gold. This suggests even more room for silver costs to rise in the medium term. The gold and silver bull markets seem still in their early days; this is particularly the case for silver, which has started climbing sharply and burst out of some crucial resistance levels only three weeks ago.
Where do the two Metals Fundamentals Factor in?
The currently sharp increase in gold and silver prices coupled with reasonably weak economic problems in the near-to-tool term ought to weigh on the construction need for these steels. Solid capitalist need for these metals in the face of the financial and political concerns dealing with the United States and also the globe need to a lot more than countered any weakness in fabrication demand for the steel in coming quarters.
On the supply side, it will certainly be years prior to the sharp gains in costs seen in current weeks and months that will affect mine supply. Miners also have become more careful concerning investing in growths after the last advancing market in these steels, offered their development of high financial obligation degrees and developing of poor quality possessions. So any type of positive effect of stronger prices on mine supply must not be anticipated for numerous years out. The secondary supply of these steels is normally more receptive to costs and economic conditions and needs to be anticipated to climb. This will certainly be a headwind to prices yet not a variable that can drive costs greatly lower.
Exactly How to Navigate Around Silver Investment and More
Capitalists are required to be careful. While the outside world is motivating capitalists to stockpile silver, the reality is that large parts of the financier’s anxiousness driving investors into silver can disappear swiftly. While we state that the price levels are lesser than those exogenous factors, high costs due and will certainly have an impact on rates.
CPM’s view is that costs of silver and gold are likely to rise for many years. We specified in 2000 that we saw a ‘gold renaissance’ that would bring many more capitalists in more parts of the globe into the market purchasing even more gold for a longer amount of time at greater rates than ever before. There was an upward change in the financial investment demand curve for gold and silver on a semi-permanent basis.
We claimed that gold and silver enjoyed a secular booming market that would certainly be in 2014 if not decades. When costs peaked in the Global Financial Crisis and Great Economic Crisis of 2007– 2011, we forecasted intermittent descending relocate prices that could last 3 to 5 years within the context of that secular advancing market, saying we anticipated rates to return to increasing eventually after 2015– 2017, because every one of the financial and political problems that were driving capitalists to acquire gold stayed un-repaired, and oftentimes had intensified and would intensify further.
All of this still Appears a Valid and Logical Expectation for Silver and Gold.
That claimed, there plainly are extremely unsupportable remarks about silver and gold circulating the market by precious metals and mining advertising and marketing groups, followers in the faith that state the financial imbalances that have actually built up since the 1970s can just be dealt with by a disastrous failure of the global economic system, and others who relatively have neglected silver and also gold market fundamentals, including the massive quantity of silver and gold formerly gotten by investors that can cost massive revenues throughout periods when the financial and political atmosphere look a little far better.
This is what happened from 2012 up until around 2017, much to the irritation of the believers and marketing representatives. It needs to be anticipated to take place once again.
Many people in the community are now wondering whether capitalism is still a healthy system, or whether it has changed for the worse, and whether capitalism faces its biggest crisis ever.
We are living in a world that can not survive without a constant budget deficit, can not survive without cash printing, can not survive without negative interest rates, there is something extremely rotten. In fact, we are living in a world that accumulates government and public debt, a world that gives us a false sense of fulfillment by spreading around worthless currency. Well, this world is not only rotten but also disgusting! Yes, it stinks of lies, deception as well as ethical decadence.
Capitalism Faces its Biggest Crisis Ever
Why does not anyone stand up to warn the community where we are heading? Well, for the straightforward reason that no politician can tell the truth. Since if they did, they wouldn’t be chosen. The principal function of any politician is to buy or obtain votes and as a result, they can never speak the facts.
Additionally, there are so many beneficial interests with endless rewards. The money men who regulate the monetary system have all to obtain, from developing false markets, false money, and false interest rates.
The Reality Never Dies
The Roman philosopher and also statesman Seneca said: “Veritas Nunquam Perit” (The Truth Never Perishes). That could very well hold however it can be suppressed for a very long time as we are seeing now all over the world.
Let us initially think about the greatest lie which is cash. For 5,000 years, the only genuine cash has been gold (and sometimes silver). Whenever the financial system has differed from that basic principle, by creating false money, it has finished in disaster for the world, whether that has been done with silver coins full of zinc or copper or by just printing paper money.
Complete Disaster of the Currency System to Follow
Which is where we are heading currently. A tragic course of events was triggered when Nixon closed the gold window on August 15th, 1971. Ever since international debt has taken off and also all money has imploded. Financial obligation, derivatives, and unfunded liabilities have gone from workable amounts in 1971 to over $2 quadrillion today. As well as every single money has shed 97-99% in actual terms.
We are currently at the point when we will certainly not be able to change the training course of either of the two. The environment is figured out by really long cycles that humans have no impact on. Now we just have to allow it to take its course which will be devastating for the whole world.
So why is nobody seeing what is taking place and why is nobody taking on the claim that the Emperor is completely naked?
The truth is unpleasant and painful yet it does never die.
It is an indisputable reality that essentially all the fiat cash that is printed by federal governments, central banks as well as commercial banks is pointless as well as for that reason incorrect.
If a federal government prints cash out of nothing to cover deficit spending, that cash has NO worth given since all the jobs needed to develop it was to push a button on a computer system.
We likewise recognize that the money has no worth because no financial institution or central financial institution is prepared to pay interest in deposit accounts. Instead, because cash is worthless, these bankers desire to be paid to hold the money. There is no reason to pay interest on worthless money.
There is an Abundance of Worthless Money
American Dollars
As well as when a financial institution receives a $1,000 down payment and after that lends out that very same cash 10 times or even more, that cash is likewise worthless, considering that it has set you back $0 to provide the funding.
It is the same with a credit card company or car funding, they all concern counterfeit money developed by the touch of a switch.
For the ones who don’t recognize what this implies, let me describe it. Allow us to begin with the bubble’s possession. When the worldwide stock, property, and also various other bubble asset markets stand out, all these properties will certainly lose a minimum of 95% of their value in actual terms. The best way to calculate real terms is certainly gold because that is the only cash that has actually survived and also preserved its purchasing power for hundreds of years.
And also, if we take a look at the financial obligation bubble, global financial debt goes to the very least $270 trillion. Yet when the financial obligation bubble stands out, so will other liabilities like the $1.5 quadrillion of derivatives. So when the financial obligation bubble pops, basically all that fiat money ends up being entirely useless. No person can repay it as well as no one wants to acquire it.
Global Debt Chart
I recognize that the above two paragraphs are an extremely streamlined description of what will certainly take place over the coming years. However, this is the ugly truth.
These occasions will undoubtedly not take place in one go. They will certainly most probably begin with the securities market very first collapsing, which will certainly put pressure on credit score markets. A lot more QE will certainly adhere to yet that will just have a short-term impact. Even more collisions, even more, cash printing, the rising cost of living, devaluation, credit report defaults, company closures, and also bank defaults.
We had the first clear signals from numerous significant reserve banks, that something was rotten in the worldwide monetary system already in August, when the Fed, ECB, and BOJ all proclaimed that they would do what it required to sustain the system.
Quantitative Easing and Money Printing the Same
In September the Fed launched overnight Repos of $75 billion boosts to $100 billion. They additionally took on two-week Repos of $ 30 billion rising to $60 billion. Adhering to that the Fed has now announced that they will certainly start QE of $60 billion each month. We should not call it QE according to the Fed. So allow us to just call it money printing since that is what it is.
The President of the Minneapolis Fed stated: “This is not about changing the stance of monetary policy. This is about making sure markets are functioning. This is kind of just a plumbing issue.” He is right, it is a plumbing concern. However, the issue is that the economic system is leaking like a filter without the possibility of connecting all the openings.
Between the end of 2017 and also 2019 the Fed reduced its balance sheet by $700 billion from $4.5 trillion to $3.8 trillion. As always, the Fed has no idea whatsoever. The issue is that the system will not make it through with even more cash printing either.
Central Banks Introduced Unprecedented Economic Stimulus
The FED
The world’s largest central banks had no other option to fight the COVID-19-caused crisis than to introduce further economic stimulus amounting to trillions of dollars. It was the Fed and the US government first with the ECB-European commission next, and all the other major western economies and central banks to follow.
Yes, the system is rotten and is currently starting to smell. The activities by the central banks specifically in the last couple of weeks smell of panic. The problem with JP Morgan or the Financial Institution of America, the ECB, or possibly the Fed is supporting the bankrupt Deutsche Financial institution? We will most likely quickly learn where the greatest stress is.
On top of the bank issues, the company’s financial debt is obtaining riskier day by day. The financing of firms like We Work and Merlin, are clear indications of just how hazardous this market has ended up being.
Central banks are already trying to deal with the fires, but most people are not aware these fires exist. There is a concern whether the central banks will be able to contain these fires or whether they will spread like wildfires.
The Decadence Started in 1971
US financial debt back in 1971 was $400 billion versus $26 trillion today, a “plain” 55x boost. US GDP was $1.2 trillion in 1971 versus $26 trillion today. A 55x boost in US financial debt in the last 48 years has just generated a 17x boost in GDP.
The US economy is in trouble which is not surprising because the never-ending money printing of pointless paper money, can not create real growth and wealth whatsoever. Its only effect on the economy is to create a stock market bubble.
It is not just the US that is in this setting. Since taking away the gold support of the dollar in 1971, offered all countries an incentive to print money and increase credit.
The UK Example
I do keep in mind the beginning of the damage of money. Moving later on to the UK, I saw the pound collapse against the Swiss Franc from CHF 10 in 1972 to Swiss Franc or CHF 1.20 today, an 88% loss of the extra pound.
A period of economic mismanagement and political turmoil in the UK in the 1970s started it all. The annual rising cost of living was 15-17% for 7 years and interest rates got to over 20%.
The economic system was moments from breaking down in 2008 throughout the Great Financial Dilemma. Eleven years later on, worldwide financial debt has doubled and danger has increased greatly.
Central lenders are conscious that the global economic situation is currently standing at a crossroads. The course was laid by them many decades back and now there is no way back.
The US and the Gold Standard
August 2020 remains in many ways comparable to August 1971. America was at that time behind-the-scenes. The country was under pressure after the costly Vietnam battle, as well as the gold standard, which stopped the United States from cheating the system by printing cash. The remainder of the world saw the US’s precarious situation as well as began marketing bucks. To recover their position, Nixon saw no other way than to take the buck off the gold standard, and this was the start of 50 years of global cash printing, and also credit score growth on a humongous scale.
Nixon-Elvis
Nixon’s August 1971 choice has brought about a dilemma of extraordinary proportions. Still, most people can see that we are currently at the point of “a final and also total catastrophe of the currency system included” as von Mises stated.
This August is not one solitary event like in 1971 yet a variety of very clear indicators that all reserve banks are worrying about. Every major reserve bank is currently revealing a level of concern that is extraordinary. They are all telling us that there will certainly be unrestricted money publishing incorporated with no or negative interest rates. This will certainly not clear up half a century of reckless monetary mismanagement.
What Nixon started will now be finished off by current governments as well as main lenders in the most magnificent money printing bonanza, leading to hyperinflation as well as a collapse of the economic system.
Until now, over 40% of worldwide bonds currently generate less than 1% and over $16 trillion well worth of bonds have an unfavorable interest or negative interest.
Negative Interest Policy is Insane
A negative rate of interest prices is of course complete insanity. It will certainly come to be much more intriguing when home loan rates go to minus 25% so after a few years the financial obligation has been paid by the financial institution!
Us Rates to Decline Unless
95% of international bonds are now listed below the Federal Finances price. Since that rate is 2.5%, this is a short-lived scenario. US rates are likely to decline dramatically throughout the autumn to absolutely nothing unless the devastating results of the neverending money printing start to take place. That will cause a lower dollar and greater gold. US stocks will certainly decrease despite lower prices.
Lower rates are no longer seen by securities market financiers as helpful for markets as a sign of financial difficulty in advance.
Powel Trump and the US-China trade war
Fed Chief Powell simply stated that the “Economy is in a beneficial area”. You ask yourself where that area is, considering that there is nothing good regarding the United States economic climate currently. As well as it appears that Powell doesn’t think in his very own words given that in the same breath, he claims that there are “substantial threats”.
So the Tit for Tat video game between the US and also China proceeds and what is specific is that everybody is a loser in a trade battle. Trump won’t give in and neither will China. As they play their video games, the global economy will certainly suffer and so will a breakable global economic situation. Global trade is currently down and I am afraid things could get worse in the autumn.
Trump is most likely to win this video game over Powell. Trump has stated that rates need to drop by 1% now. Hence, we are assured to see a lot lower US rates and a rapidly falling buck throughout the fall.
Investors set to Suffer Big Losses
Regretfully 99% of investors will not understand that they need to be out of stocks and move into gold, till their wealth has been wiped out. All stock investors will believe that central banks will certainly support them once more. But as I have described, this time support will certainly fall short as we begin a secular bear market in stocks, and the global economic crisis will last a very long time as well as lead to massive wide-range destruction.
The End of Money Printing and Neverending Credit
That the global economic situation for the last 100 years was reliant on credit scores as well as printed cash, is not a new miracle paradigm but a sign of a diseased system. The never-ending credit and the constant printing of worthless money are about to end. In a corrupt way, it is virtually paradoxical that the trigger for finishing this sick financial system would certainly be a pandemic disease.
Social Discontent and Anger to Come
Currently, the world remains in a situation where all of those aspects will possibly come to pass. We already have the recession and also we have a condition. There is no significant famine yet however, this is most likely to come. Social discontent and conflict are possible repercussions of these troubles. Starving and angry people will stand against their leaders as well as against the elite. The differences in income, as well as the huge gap that separates the wealthy and the poor, have created an illogical scenario. This is basically without exception just how every change starts.
There is a lot of anger in the community. People aren’t happy at all. They are wondering what on earth is going on with their taxes, they are wondering why the money they earn is never enough, they are wondering why social inequalities have increased, they are wondering where all this abundance of (fake) money is going, and so on.
The Money that does not Exist
Central banks and governments are currently printing limitless amounts of cash to help small and also big organizations as well as individuals. It is a program terrific in that every person gets aid, but no one asks where is the money coming from.
No one stresses that THERE IS NO CASH. The $ 100s of billions as well as trillions that are being provided to the needy do not exist. They are just produced out of thin air. Because the situation started in the very early autumn of 2019 with the Repos, the Fed’s balance sheet has increased by practically $3 trillion to $6.5 T. Yet this is just the start. The forecast is that it will get to $9T in June as well as possibly $12T a couple of months later on.
What we have to keep in mind is that this situation did not start now, however, in 2006 the Fed’s annual report was $800K. By 2012 it had gone to $3T. In the following few months, the equilibrium sheet will certainly blow up by 3-4x to $12T.
In the present year, the US can quickly get to a shortage in unwanted of $4T, taking the financial debt to $ 28 T. If we just go back 3 months, who would certainly have thought a Fed equilibrium sheet reaching $12T as well as a US financial obligation of $28T? They don’t even do that because if they had, they would have known that the United States financial debt has doubled every 8 years because of 1981.
The United States is likely to have a debt of $40T in 2025 however, that number is most likely a low number. Then we are going to see failings not simply in the economy but also in the financial system. That is the danger the economic system is currently facing as well, as we are currently in a stage when the surprises will be much even worse than anybody can think of.
Regal Assets is a company that specializes in alternative investment opportunities. To read my Regal Assets reviewpress here.
Back to the Future
It all began with private lenders taking control of the financial system in 1913 when they established the Fed for their very own benefit. For practically 60 years their power grew slowly however, in 1971 when Nixon closed the gold window, all hell broke shed.
The United States currently begun what is currently 60 years of shortage investing. Every solitary year given that 1960, the United States is running at a loss. (deficit)
Because the main purpose of political leaders is to purchase votes, Nixon had no choice back in 1971. The United States had currently at that point been running a shortage for ten years. With a gold standard, it is necessary to run a sincere economic system without deficits. Or else you lose all your gold as well as the currency breaks down. Given that Nixon had no intent to run excess, he might not have been connected by a gold requirement and consequently abolished the gold backing of the dollar. The consequences were of course tragic as well as the dollar has actually fallen since.
Back then $33 could buy you an ounce of gold nowadays you need well over $1900. This is how much the dollar has depreciated.
Considering that the US began running deficits 60 years ago, total United States debt has actually gone from $800 billion to $26 trillion today. What we are seeing is a fantasy world all built on financial debt, federal, state, customer, home mortgage, car, trainee, and so on. The checklist is limitless just how to produce phony wealth simply based on the financial obligation.
US Debt Chart
The US is currently coming back to reality which will certainly be the biggest shock. The trillions of fake cash and fake assets will now implode and so will certainly the US economy.
What the world has experienced in the last 100 years is fake capitalism. It more looks like Voodoo capitalism. Central bankers, led by the Fed, have successfully taken on Mayer Amschel Rothschild’s philosophy: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
By doing this, they have placed a spell on the international economic system as well as lumbering it with debt that might never be paid back. They are instrumental in developing a debt-plagued world economic situation as well and then they are the only ones who can come to the rescue and “save” it.
A debt-burdened world can never be saved by even more financial debt. Next, we will certainly see limitless cash printing that squashes money as well as leads to depressionary run-away inflation.
Inflation is on the Way
The reckless money printing by the Fed is expected to bring about an inflation crisis. Analysts are convinced that unprecedented money printing could increase inflation substantially. That means your cash will lose value. For example, if you are planning to take a holiday to an exotic location with your retirement savings, chances are that you will not be able to afford it. You could probably end up at a cheap resort nearby.
Business Collapse and Unemployment.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States Airlines from the US, Compass Airlines also from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shut down its Barcelona plant in Spain with 3000 redundancies, and another 25000 jobs indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Stocks and Bonds Set to Collapse
In genuine terms, all bubble possessions will now collapse. Actual terms indicate secure acquiring power and evaluate against gold. We will see supplies, bonds, and residential or commercial property decline by 90-100% against gold. In nominal terms, stocks may go up at first with hyperinflation. That will just be imaginary gains.
Supplies worldwide dropped initially by around 40% and have currently recouped half of that loss as stock capitalists have been buying the dips in the hope that central banks will certainly save them afterward. Yet they will certainly quickly have their next shock. Markets might begin their next leg down already in the coming week. Or it could take 2-3 weeks. What is clear is that a profane bearish market has begun which has a very long way to go.
Gold is Still Undervalued
For twenty years I have discussed the value of riches conservation in the form of physical gold. Throughout that time gold is up 6-7 times depending on which currency you rate it with. Still, much less than 0.5% of world economic possessions are in gold.
Gold is still exceptionally undervalued regarding the growth of the international cash supply. It is still possible to obtain gold, yet the physical market is under real pressure.
This is an outrageous circumstance that will not last long. Both the Comex and the LBMA are under huge pressure which quickly will lead to substantial distribution problems and also a significant cost squeeze. The home window of opportunity to acquire physical gold at current costs will soon close.
Keep in mind that gold is actual physical wealth in addition to an insurance policy against a monetary system that is unlikely to make it through. Gold can still be bought with miscalculated fiat cash at prices significantly below its genuine value, however, not for too long.
Within a month, gold’s price has reached all-time highs breaking all resistance. The yellow metal managed to break through the 2011 historical highs of $1.920. Everything is set for gold to continue its run and market analysts wonder if this is going to be the end of it, or if gold’s epic rally will continue.
According to the World Gold Council, in the first six months of the year, there was $39,5 billion invested in gold ETFs another all-time record high for gold. Investors only added 104 tonnes of gold in June and their total investments to a record high of 3.261 tonnes. The appetite for gold increased in July. As stated by the Bank of America, there was $3,8 billion invested in gold ETFs in the week between 15 and 22 of June. It was the highest amount of money ever invested in gold within a week.
If we integrate the latest data with the old historical data, we will come to an interesting conclusion regarding gold’s future price.
Gold’s best year for inflows was 2009 when there was a 646 tons increase. This record is already overthrown and that was done during the first six months of the year.
The amount of gold bought by the ETFs is colossal. It is larger than the amount of gold bought by the central banks for the years 2018 and 2019 together. It amounts to 45% of total world production for the first six months of 2020.
In 2009 when there was a record 646 tons of gold sold, the yellow metal went from $880 per troy ounce to $1.226. Two years later, gold surged to $1.920. Are we on the same path again, or not?
Every time there is a gold surge I always get asked the same question. Is now the right time to liquidate? My answer is: Do the reasons responsible for gold’s performance so far still apply?
Need for an Investment Refuge
The main reasons for gold’s price rally are:
1-The never-ending covid-19 nightmare. We have seen the second wave of the virus spreading like wildfire all over the world. In the States, the first wave isn’t over yet and things do not look good. There is not a single day without bad news. Record company losses, unemployment, companies shut down, zero consumer confidence, and so on.
2-The worsening trade relations between the two superpowers US and China are also bad news.
3-It will take almost a year before a vaccine or proper vaccine dealing with the virus is produced. The news from many research centers is not encouraging. For example, a study from the Frankfurt Hospital in Germany shows that a number of people who recovered from the virus have developed certain changes in their heart muscle, which make them susceptible to a heart attack. That means, there will be added strain on health centers for a long time after the end of the pandemic.
During the last few years, many central banks acquired vast amounts of gold. In addition, the trend to “bring gold back home” has also been an indication of the coming changes to globalization and international cooperation.
When central banks buy vast amounts of gold, there is always a reason. They usually do it when they expect inflation to rise. Another reason is that they expect high monetary losses.
Gold will help a Western economy deal with tougher economic conditions and a possible currency crisis due to money printing and a repeated quantitative easing policy. For the rest of the world, gold buying is a way to keep some control over their own currencies.
We have seen countries such as Russia, Turkey, China, India, Iran, and so on acquire gold and secure it at “home” in their own facilities. Gold to them offers independence from the dollar, in case of a numismatic and a trade war. Gold gives their central banks the same opportunities as the Western banks.
Low Yields and Negative Interest Rates
The bond market now is trading at very low yields and in many cases at negative yields. Negative yields and low-interest rates result in low spending power. As a result, gold becomes attractive to investors because it is considered to be a store of value, and rightly so.
Final Words
The fundamentals for the gold rally are there. There is no reason for the rally to stop. I expect some consolidation to take place soon but I do not see gold slowing down. Gold feeds from uncertain and troublesome times and we are seeing that right now. Nevertheless, acting with caution and always being prudent without placing all eggs into one basket, is the best way to invest in today’s uncertain times.
The low yields, the negative interest rates, and the stock market downturn are threatening many retirement funds with extinction. Thus, the savings of a lifetime for good honest Americans are already slashed. To avoid further losses it is advisable to change your IRA fund into a self-directed gold IRA fund.
Last week’s gold rally has been outstanding. This goes to show that gold is on fire. Its run started on Monday from $1,810 and ended on Friday at $1,901 per troy ounce. Gold needs only 19 dollars to get over its record high of $1,920. Judging from last week’s performance this outcome is highly probable to take place in the oncoming week.
Reasons for Gold Rally
The oncoming US and China trade war
The falling yields
The growing economic uncertainty due to the Covid-19 nightmare
The weak dollar
The US and EU economic stimulus
The Oncoming US and China Trade War
The trade issues between the US and China did not start with the covid-19 virus. Prior to the pandemic, the two superpowers were fully immersed in a trade war.
In fact, the trade war started in July 2018 with the US imposing 34 billion in tariffs on certain Chinese products and as a result, China followed suit. The trade war did not stop there and by the end of 2019, the Americans had imposed a total of 450 billion dollars in sanctions. The Chinese responded with a total of 170 billion dollars in sanctions.
This year the Chinese have been accused of the way they handled the coronavirus crisis and rightly so. President Trump is one of their critics.
The US-China relations saw another escalation last Friday, when China retaliated for Houston’s consulate closure, by ordering the US to close its consulate in the city of Chengdu.
No doubt this action added more fuel to gold’s engine.
The Falling Yields
Empty pockets
High-grade fixed income plays an important role in a modern investment environment. It tends to be safe, more liquid, and a less volatile asset.
Nevertheless, right now bonds are trading at very low yields even negative yields. In fact, there are trillions of dollars trading at negative yields. This is due to the quantitative easing policy adopted by the European central bank and by the Fed.
This has pushed many investors away from the bond market and forced them to place their capital in profitable assets. Gold is one of them. If we take a closer look at gold, we will see that gold was trading at around $1400 per ounce before the end of 2019. Last Friday gold jumped over the $1,900 mark. In addition, analysts expect gold to continue its rally before consolidating.
The Growing Economic Uncertainty Due to Covid-19 Nightmare
There is no country in the world the global pandemic hasn’t touched. In the beginning, we all thought we could deal with it easily by shutting down and staying at home. It didn’t work. Unfortunately, over 14 million people have been infected worldwide, and over 636,000 have lost their lives.
In the US the nightmare doesn’t seem to come to an end. The number of those infected is on the rise. In Europe, the second wave is on the way. Spain yesterday reported 8,000 new infections, while there is also concern In Italy, France, Germany, and many other countries.
The damage to the global economy is enormous. Trillions of dollars have been lost, large corporations have gone bankrupt, and many more are facing an uncertain future. There is no end to bad news as LinkedIn announced job losses. The Microsoft-owned firm will be letting go of around 960 jobs across the globe, as the pandemic has reduced demand for its recruitment products.
The Weak Dollar
The US dollar is down on its knees. At the moment it trades at 0,86 and it looks like it will stay there for a while. The dollar’s downturn came as a natural consequence of the government’s and Fed’s massive money printing program.
The weak dollar makes it easier for international investors to buy gold and silver because the cost is significantly lower. Increased international demand boosts gold’s value.
The US and EU Economic Stimulus
The Americans and the Europeans have announced massive economic stimulus programs to deal with the covid-19 devastating effects. The US government has already carried out a 2.3 trillion stimulus program and is just about to introduce an additional 1 billion program. This will actually raise the national debt to $26.5 trillion dollars, or 132% of the national domestic product. (GDP)
On the other side, the EU has agreed to spend a $2.1 trillion stimulus package. The Europeans will raise money by selling bonds collectively rather than individually, which then will be given to member states. Most of it will be grants given to countries without them having to pay it back.
Those enormous economic stimulus programs are a way for the US and Europe to deal with the coronavirus’s massive economic blow.
All additional fiscal stimuli introduced around the world will give gold a further boost.
Final Words
The never-ending US and China trade conflict will continue for a while and as the election date is getting closer, President Trump could actually step it up if he thinks he could get more votes out of it.
The quantitative easing policy will continue for at least the next couple of years, which will push more investors out of the bond market and into precious metals.
The coronavirus nightmare will be dealt with only after a vaccine is introduced and that will be no earlier than 2021.
I do not see the dollar recovering before the end of 2020.
The US and EU economic stimulus are here to stay and that will push gold’s price further.
My opinion is gold and silver will continue to rally, but not for long. There will be some consolidating in the following weeks and then I expect the rally to start again, as the fundamentals are right therefore, now is the right time to invest in gold.
End of June 2020 the Western world is trying to recover from the COVID-19 lockdown. How much is the damage caused by the coronavirus and how this economic shutdown will affect the markets remains to be seen. Is there going to be a quick recovery, or there will be a recession? Where should I invest my savings now? Investing in gold now in July 2020 could be a good move.
The Stock Market is Inflated
When the market crashes you get a W move. Very rarely you will get a V move and yet, if we look at the economic numbers, they are catastrophic, but we are back to all-time highs. There has to be a reason for that and there is.
The central banks, Fed, ECB, and Asian banks have been pumping vast amounts of credit into the economy. That is what is pushing up equities. The market is telling us these market highs are due to a large amount of inflation, caused by liquidity the central banks have created. It is not the market rising, it is the value of money forming.
50% Inflation for the Next 5 Years
The only reason stocks are so high is because inflation is coming. If inflation is on the way, where do you put your money? Many investors and financial experts say gold and rightly so. Most investors are small, they do not own large amounts of credit. However, billionaires, fund managers, and so on only have one place to put their money to get away from inflation and that place is equities.
We have seen equities so high because the central banks have baked in a 50% or maybe 100% rise in inflation over the next four to five years. In other words, the big money is trying to protect themselves from that inflation by going into equities which by definition will rise from inflation.
If you believe there will be deflation, all you have to do is to hold on to your cash. If you think inflation is on the way, cash is not useful because it will lose value. The Fed believes there is a strong possibility for a 50% to 100% increase in inflation over the next three to four years. That is a huge number and it will affect everyone. For example, if you are planning to take a holiday to an exotic location with your retirement fund, you will not be able to afford it. You will probably take a holiday to a cheap resort nearby. In a few words, your purchasing power will drop substantially.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are totally wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States Airlines from the US, Compass Airlines from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shut down its Barcelona plant in Spain with 3000 redundancies, and another 25000 jobs were indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Everyone is Printing Massive Amounts of Money
The Fed and its proxies are doing it one way or the other. They are squeezing people out of the bond market indirectly, by enabling certain parties to buy equities, support the market, and support liquidity.
It is important to support equity prices because that supports employment, supports the middle class and it also supports the rich. In addition, it is also important to support the property market because it supports the middle class.
If you let stocks, bonds, and property go down you will have an economic collapse. Anyhow, we already have an economic collapse and this is called unemployment. The Fed and the government are propping up the rest of the economy by printing money, which is exactly what governments did for hundreds of years, to deal with similar issues. Pumping money into the economy and in the end creating inflation. In fact, inflation has always been the end result.
Inflation isn’t going to be a US economic issue. It will be a world economic issue as the rest of the world is also printing and pumping money into their economies. For example, the Europeans have decided to pump almost 3 trillion euros to aid their economies.
Covid-19 is Coming Back
I am afraid our COVID-19 struggle isn’t over yet. There is already the second wave in the US and the markets are already distressed. From 18,000 infections a day a week ago, we are now to a record 40,000 infections a day. That will add more strain to the weak economy, as there will be an extension to lock down in many states across America.
Nonetheless, there is not going to be a second lockdown, not in the States and not in the rest of the world. The reason for that is that nobody can afford it. A second lockdown will take us back to the stone age. Western democracy cannot operate with lockdowns, as lockdowns diminish tax revenue. The state cannot support its social policies. (welfare, education, public housing, health, and so on.)
Support the Real Economy
Every time countries cannot raise tax money, they print it and that leads to inflation. The Fed will argue that a 50% inflation over 5 years is nothing to the economic meltdown that was coming and that is partially correct.
I would argue that the Fed shouldn’t be throwing billions of dollars into stocks. Last week the Fed injected over $60 billion into the markets. That is a massive amount of money to spend in a week’s time. There will be a time when easy money for equities will not be around and then equities will take a dramatic downturn. Supporting the stocks is vital, but only up to a point. What is more important is to support the real economy out there. The real economy is real jobs, real growth, and prosperity for everyone.
The Fed will continue to print money throughout the year and this will continue for 2021. The Fed also will not raise interest rates for the next couple of years as their quantitative easing policy is well on track.
Gold Offers Stability and Growth
Volatility is the new reality for the market. At this time gold and silver can offer, stability, protection, and growth. Gold has always had a strong second half of the year. We’ve seen it over and over again for gold, to finish the year with a good rise. The yellow metal is expected to move higher. It is already building nicely at the moment but I do not expect gold to get over the $2000 mark this year. Gold is expected to do well in 2021 as well. Beware though, gold is weak before any elections, we might see gold slowing down in Autumn.
Geopolitical tensions always give gold a boost. The Chinese Indian border clashes, the North Koreans are back and Turkish ambitions in the Mediterranean Sea could drive gold’s price further. I would also like to mention silver. At the moment I consider silver a good investment.
Moreover, I would like to mention bitcoin. For me, bitcoin is digital gold. You can buy it fast and sell it fast and you can have it in cold storage virtually in your basement.
Final Words
Credit expansion and monetary stimulus are driving the market into new highs even though, we are in the middle of a covid -19 caused recession. We are seeing the stock market not follow the economic downturn. The market is now addicted to never-ending credit, is asking for more and getting it. Inflation is coming, we expect at least 50% inflation for the next 4 to 5 years. But, there will be a time when easy money runs out, and then, things could get ugly.
A prudent down-to-earth investor always has a percentage of his portfolio invested in gold to protect his savings from inflation, economic crisis geopolitical tensions, and so on. In these uncertain times, gold is a good bet to safeguard your life savings from the economic recession.
Gold is in short supply because metal producers are reducing gold production due to government restrictions in response to COVID-19 concerns. The coronavirus also caused all European precious metal refineries to shut down and disrupted transportation. 1/3 of NYSE-listed gold mines have withdrawn 2020 production guidance. The South African government imposed a 3-week shutdown of the country, which means temporary mine closures.
Gold in Short Supply
Metal Mines Shutdown
In particular, South African prime minister Cyril Ramaphosa has imposed a 21-day lockdown on all mining activities, after a surge in coronavirus cases. South Africa is a leading producer of metals and minerals such as silver, platinum palladium, coal, gold, and iron core. To be precise, 70% of global platinum comes from South Africa along with 40% of palladium.
Gold mining a labor-intensive mining industry is a potential hotbed of infection among the thousands of miners, who often work in confined spaces, with some living nearby in cramped accommodation. Meanwhile, furnaces and underground mines will undergo a maintenance program, to make sure mines will be in a condition to reopen in the future.
In addition, many more mines around the world paused production. For instance, the Mponeng mine in Argentina, the Cero Corona mine in Peru, the Salares Norte in Chile, and many more others. Furthermore, global mining giants Anglo-American and Rio Tinto have reported production slowdowns, all due to coronavirus-related restrictions.
More Supply Concerns
The miners’ lockdown isn’t the only reason for the precious metals supply shortage. Coronavirus has caused all European gold refineries to shut down due to government orders. With online shops out of stock and many of the passenger planes that move bullion grounded, physical gold is becoming harder to track down.
Right now, anyone looking to buy physical gold has an issue. The supply problem due to transport and processing capacity has been worsened by a surge in demand, as investors seek the safe haven asset amid the global oncoming economic crisis.
Fewer people are selling gold back to dealers despite the excellent gold prices. Those who want to sell are finding it difficult because of restrictions on travel and stocks. The gold in short supply problem is here.
Print More Money
The response by politicians and central banks to print huge amounts of currency, (money) in order to keep their economies out of trouble, will cause the intrinsic value of money to fall. That means consumer purchasing potential will be reduced. In other words, you will be buying less with your dollar, euro, pound, etc.
Conclusion
The shortage in gold supply triggered by miners’ shutdown, the European refineries closures, transportation problems, and the never-ending appetite for gold, will result in a price surge. All other precious metals, silver, platinum, and palladium will follow too. In addition, the out-of-control money printing policy adopted by central banks ensures the precious metal price boost, is here to stay. If you are thinking of buying physical gold, now is the time, as there are reports of shortages in some coins, Krugerrands from South Africa, and Maple Leaf from Canada.
If you found my gold in short supply article useful do not hesitate to let me know in the comment section.
Last week, the stock market suffered its largest weekly loss, it looks like the Coronavirus The Long Overdue Triggers Global Recession, since the 2008 financial crisis amid worries that one of the largest economic expansions in history may be coming to an end. Many analysts blame the coronavirus for the market downturn.
Why The Coronavirus Triggers The Long Overdue Global Recession
In particular, the Dow Jones suffered the largest fall in history in a week, a loss of $12,36%. The US stock market lost $3,58 trillion dollars and the European markets lost $1,5 trillion, all that in a week’s time. Oil dropped 14,35%, from $58,5% to $50,01.
The Federal Reserve is ready to act, as it issued a statement affirming that the central bank would use all its tools and “act as appropriate to support the economy”.
The signs are there, the economic fallout is starting to take hold as retailers importers and home builders are facing delays in shipments from China. It looks like there will be disruptions to the global supply chain. And if this is not enough, people do not go to restaurants, people do not go to the movies, people do not go out, people do not travel, all this, to avoid contracting the virus.
There is no doubt there will be an economic downturn but, we still do not know to what extent. Unfortunately, the favorable scenario, that predicts the virus remains largely confined in China and thus affects Chinese factory production, collapses.
The coronavirus is now present in more than sixty-five countries and almost out of control in China, South Korea, IRAN, and Italy. It is not a Chinese issue, it is a world issue now and its effect on global growth will be devastating. It looks like the coronavirus triggers the long overdue global recession.
Evidence of the Economic Fallout
Toll Brothers, the luxury home builder, said home sales to Chinese buyers had been postponed and shipments of fixtures from China delayed. The shoemaker Steve Madden said some shipments would be delayed for three weeks, as its Chinese factories struggle to operate with fewer workers.
Already there is a drop in tourism, as people are afraid to travel. Singapore, Malaysia, Thailand, and many Asian countries are suffering from a huge drop in tourists from China. With tourism, airlines are suffering heavy losses with many flights running at a loss.
Technology is expected to take a large blow along with car manufacturing. There are many car manufacturers complaining about car part delays from Chinese factories.
Moreover, there are signs that American consumers, they are those who drive the economy, were becoming increasingly uneasy.
A modern economy needs optimism and willingness to spend. But in the last week, investors came to terms with the new economic outlook where corporate profits will stop growing and in many cases will be replaced by losses.
Low-Interest Rates
Many investors expect the Fed to step in and act quickly on interest rates in the face of coronavirus news and market downturns. Even President Trump intervened on Friday and actually said that he hoped the Fed would step in. Soon the Fed issued a statement reassuring investors that is ready to act.
The 2008 Demand Shock
The 2008 Great Recession was largely a “demand shock” as a number of banks collapsed, home prices plunged and trillions of dollars in household wealth were wiped out. People and businesses suddenly had less money to spend, causing the economy to fall into a deep recession.
The 2020 Supply Shock
I am afraid lowering interest rates will not be enough. It is not a coronavirus threat anymore, it is a supply threat.
China the world’s factory struggles to get back to work. Imagine, if every factory and office produced 10% less than it did last year. This is very difficult to fix, even if you put more money into people’s pockets, it will not make up for closed stores and factories that aren’t operating.
All the signs are here, the coronavirus triggers the long overdue global recession.
Nouriel Roubini’s Prediction
Nouriel Roubini, the well-known economist, who predicted the 2008 recession, and head of the Roubini Macro Associates, predicts that the coronavirus will have severe economic repercussions for the global economy. That was a couple of days ago when he was interviewed for a German magazine called “Der Spiegel”.
In particular, he says that the markets have not come to terms with the extent of the effect the coronavirus is going to have on the global economy. According to Roubini, the markets are making three mistakes.
1-This is not an epidemic contained in China, but a pandemic.
2-It will take a long time to contain and the politicians haven’t come to terms with the huge impact it will have.
3-The markets will take a steep dive and it is not certain after that dive a strong recovery will follow.
The Chinese recovery will not be enough to cover the expected 6% growth for this year. Nouriel Roubini expects the Chinese economic growth to be between 2,5% and 4%.
We are Entering the Long Overdue Recession
As I said before people won’t go to the movies, people won’t go to restaurants, people won’t go to live events, people won’t go on holidays, and in the worst case, people won’t go to work. It is already happening in the 10million city of Wuhan in China. In France, the famous Louvre museum is closed and in football-crazy Italy, the derby between Juventus and Inter will take place with no spectators.
During the SARS epidemic, China was only 4% of the world economy. Today, China is 20% of the world economy. In addition, globalization back then was not as deep as it is right now. Furthermore, China’s contribution to world growth back then was 20%. Nowadays, China’s contribution to world growth is 50%.
China has become a key for global supply chains. Firms from around the world are shutting down, they cannot do business because key supplies do not come from China.
It will take time for the coronavirus to ease off. By then, global firms will be out of stock and supplies. China will face a huge task, to resupply the whole world. Some argue It will only take a few weeks for China to resupply the whole world. I do not buy this. According to my calculations, this will take several months.
All made in China or made in PRC product importers will see their warehouses empty and it will take a long time for them to see them full again. At the same time, American and European manufacturers will stop operating because they too will run out of Chinese components necessary for the completion of their products.
Some factories would have to close temporarily and some would have to close permanently. If that happens, then many people would be forced out of work.
It is a common secret that the coronavirus triggered the long-awaited recession. Financial analysts are worried about the overpriced stock market, the low yields, the quantitative easing, the negative interest rates,the global debt bubble, the geopolitical uncertainty.
A few days ago, Citigroup one of the US’s largest banks predicted that gold will hit $1700 per ounce, in the next six and twelve months and $2000in the next 2 to 24 months. Moreover, after last week’s carnage for the stocks, the Fed is expected to intervene and cut interest rates by 50 basis points at the next meeting.
This move will hopefully help boost consumer sentiment weakened by the spreading coronavirus. That means lower yields and negative interest rates. It will also add extra steam to bullish gold.
Following is a chart that shows how gold outperformed stocks during calamities.
Black Monday1987
Iraq-Kuwait War1990
Dot Com Crash2001
Financial Crisis2008
Stock Market Decline
-38.9
-22.5
-27%
-34%
Gold Price Results
+5%
+7.5%
+1%
+5%
Gold Outperformed Stocks By Ratio
45:1
31:1
29:1
40:1
Conclusion
The coronavirus is already causing headaches. As the public comes to terms with the effects of the virus on the global economy, the stock market is tumbling down, with stocks last week taking a beating. The Fed is about to step in and lower interest rates. Will that be enough to stop the coronavirus triggers the long overdue global recession?
No, this is not going to be enough. There is going to be a supply shortage, as China, the world’s factory, won’t be able to keep up with demand after its factories reopen. The world economy is slowing down and the recession is looming. In times of turbulence, investing in precious metals is a must. And the king of precious metals is gold. Yes, The Coronavirus Triggers The Long Overdue Global Recession.
Over the last few days, we’ve all witnessed gold breaking over the $1600 mark as stocks suffer significant losses. There is a lot of nervousness in the market which is one of the reasons why gold breaks over the 1600 mark, and people are putting gold and silver into their portfolios.
Why Gold Breaks Over the 1600 Mark
In the meantime, the US dollar is actually strengthening against both the Euro and the Japanese Yen. Investors see the dollar as a safe haven trade, as people move into the dollar and into the US equity market. In this market condition, there is a headwind for precious metals, especially gold.
The Coronavirus Threatens the Global Economy
The coronavirus has caused an unprecedented economic slowdown with investors rushing into gold to safeguard their investments. The market did not take seriously the effects of the coronavirus early and only recently came to terms with the massive threat it poses to the global economy.
A few days ago the Chinese finally admitted that their GDP is going to get hammered in the first quarter. The market now is taking this seriously. If this continues for very much longer it will have a devastating impact on global growth which will put all the central banks including the FED on full monetary easing policy and that reality is starting potentially to sink in.
More Reasons for the Gold Rally
In addition, the coronavirus is just the tip of the iceberg. There are many reasons for the price of gold to hit the roof apart from the Wuhan virus.
The overvalued stock market will have to correct itself sooner or later
The upcoming recession that is been held up by the FED
The war on cash with the Europeans continuing their negative interest rates policy
The metals, gold, and silver, continue to charge higher with parabolic moves and heavy volume. In my opinion, it will be healthy for gold to see a pullback, to allow some profit-taking if this is going to be a bull market. All the signs are there for the rally to continue, we are bullish on gold and silver.
