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Gold Stocks Take Flight SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 10:02 AM on Friday, May 8th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

  • Gold Bullion Surges above March Lows
  • Gold Mining Equities Track Gold Higher
  • Gold Mining Equities vs. S&P 500 Show Convincing Breakout

Markets Recalibrate

Capital markets and society continue to recalibrate from the enormity of the fallout of the COVID-19 pandemic. As difficult as the current situation is, gold fundamentals continue to improve. Gold, as an investment, offers a hedge against the current financial turmoil and has significant capital appreciation potential in the years ahead.

The magnitude of central banks and government actions over the past several weeks will resonate for the rest of this decade. In our March commentary (March Roars in Like a Lion), we mentioned that we are now in the “end game” where debt explodes in the face of a financial calamity (although no one predicted that it would be a pandemic). We will discuss what near-term options the U.S. Federal Reserve (“Fed”) will likely implement, and how gold is likely to respond. We will also look at the recent move higher for gold mining equities.

Gold Bullion: Increased Demand for Physical Gold

Gold bullion ended April at $1,687, adding $109/oz, or +6.9% for the month. Gold began its surge in early April as physical delivery shortages resulted in gold futures (COMEX, New York) trading wildly higher than spot gold (London). COVID-19 has caused refining capacity for gold to decline and greatly restricted the transport of physical gold from London to New York. Typically, gold futures trade fairly tight with spot gold due to arbitrage, but in early April, the spreads spiked as high as $70/oz. The unprecedented fiscal and monetary policy response to the worst economic shock since the Great Depression has put gold squarely into investors’ minds.

Gold is almost always in contango (longer-dated contracts are more expensive than the near month). In April, parts of the gold futures curve traded in a rare backwardation (the near month contract is more expensive), usually indicative of a supply shortage. With the usual gold channels disrupted, futures are pulling spot prices higher as short positions are closed by going long futures. Compounding the disruption was the growing demand for gold in physical form, fueled by soaring investor buying interest. The unprecedented fiscal and monetary policy response to the worst economic shock since the Great Depression has put gold squarely into investors’ minds.

Figure 1. Gold Bullion Surges above March Lows
Our short-term target is $1,800, and we expect to reach new all-time highs.


Source: Bloomberg. Data as of 4/30/2020.

Gold Mining Equities: Convincing Breakout in April

Gold equities broke out of a multi-year resistance level on massive buying flows. Using the NYSE Arca Gold Miners Index (GDM)5 as a reference, the 860 index resistance level was taken out convincingly. As shown in Figure 2, there is very little meaningful resistance until 1,200 (+25%). In March, gold equities, like bullion, experienced a forced liquidation event. Selling in GDX forced the ETF to trade at a significant discount to its underlying net asset value (NAV). Like many other ETFs, the selling volumes in GDX outpaced the liquidity in the underlying securities. Off the lows, the price action as measured by volume, breadth and money flow far exceeds the bullish thrust of the 2019 summer rally. This breakout, without question, is impressive on the technical measures.

Figure 2. Gold Mining Equities Track Gold Higher
The NYSE Arca Gold Miners Index (GDM) has broken out of a broad base pattern; our short-term target is 1,200.


Source: Bloomberg. Data as of 4/30/2020.

The absolute price action is impressive, but when measured relative to the S&P 500 Index6 (Figure 3), the chart pattern looks even more impressive. Typically, new market leadership is more evident when measured against the broad market index. As shown in Figure 3, the NYSE Arca Gold Miners Index (GDM) relative to the S&P 500 Index has put in a very bullish bottom base pattern. There is a double bottom pattern set up with the right bottom shaping a head and shoulder breakout pattern. This bullish pattern within a bullish pattern is a very positive sign.

Figure 3. Gold Mining Equities vs. S&P 500 Show Convincing Breakout
GDM is putting a remarkable long-term basing chart pattern and breaking out in the medium term.


Source: Bloomberg. Data as of 4/30/2020.

Increasing Revenue with Deflationary Input Costs

The gold mining industry, like many other industries, is experiencing disruptions due to pandemic shutdowns. But unlike other industries, gold producers are experiencing a steep increase in the selling price of its product. Gold bullion is up +11% year to date and up over +31% year-over-year (through April 30, 2020). From a cost perspective, energy and labor are typically the two highest cost components for miners. The dramatic fall in crude oil is a rare function of both a supply shock (the Organization of the Petroleum Exporting Countries [OPEC] price war) and a demand shock (pandemic shutdowns) co-occurring. The enormity of both events will have lasting price consequences well beyond a few quarters. Labor, the other component, has been devastated by the pandemic. A tremendous labor crisis is occurring globally. In the U.S. alone, jobless claims have now exceeded 30 million, a crushing toll. Both of these conditions are deflationary shockwaves that will ripple out to all corners of the economy. There is virtually no major cost component (reagents, consumables, equipment) that will not see lower costs. Though near-term gold company earnings may be volatile due to COVID-19 disruptions, the potential increase in long-term profit margins may be unlike anything seen in recent history, and most comparable to the 1930s when gold company revenues soared and costs plummeted.

As QE (quantitative easing) Infinity continues to expand and ZIRP (zero interest rate policy) takes hold in a likely recession (or depression), growth equities will become highly sought after. Gold mining equities will have one of, if not the highest growth in earnings of any industry. Because of the nature of its revenue product (gold bullion), and its input costs (deflation), gold equities will likely develop into a convexity trade. Relative to the broad market, gold mining equities have a more direct path to higher prices. In the absence of earnings and post liquidity lift, general market equities require QE to increase stock prices by suppressing the risk-free rate and credit spreads, thereby reducing the discount rate used to calculate the present value of cash flows. Currently, cash flows are near impossible to forecast. The broad market equity risk is if earnings do not recover for more than a year due to COVID-19 and/or if a risk event pushes up credit spreads (i.e., credit defaults). Both risks are quite high compared to the risk for gold mining equities.

The Likely Market Impact of the Fed Stimulus and Fiscal Policy Response

At the end of April, the Fed Balance Sheet had expanded to $6.66 trillion (previous high was $4.5 trillion) and will climb higher. The final number is unknown due to moving variables and the lack of visibility, but $10 trillion by summer is in the ballpark. The deficit for 2020 is estimated to be $3.7 trillion (18% to 20% of gross domestic product [GDP]), an all-time high with risk to the upside. The debt-to-GDP current expected range of 110% to 120% will probably prove to be too low despite being the highest ever. More billions of dollars, week by week, are being added to a dizzying array of Federal programs, credit facilities and swap lines to mitigate the damage of the pandemic.

The amount of debt is genuinely numbing in its size and scale and will keep growing. Long term, there is very little hope that the economy can grow out of this debt load. To manage this debt, we believe the Fed will need to implement three broad conditions: 1) negative real yields, longer and lower than previously expected; 2) yield curve control to maintain a flat and low rate structure, and 3) a weaker or capped U.S. dollar.

1) Negative Real Interest Rates

We have discussed numerous times the importance of negative real interest rates in reducing (debasing) the debt. The huge increase in debt levels and the likely lingering effects of COVID-19 on the global economy will assure that negative real interest rates will be here for years. There will be a persistent and growing erosion of wealth via negative real yields.

Figure 4. U.S. Real Yields Near Zero
The Fed Funds target rate is 0.00-0.25%, and real yields are approximately -0.43%. Gold tends to thrive in low-interest rate environments. 

Source: Bloomberg. Data as of 5/5/2020. Nominal yields are measured by the USGG10YR Index, representing U.S. generic 10-year bond yields. Real yields are measured by USGGT10Y Index, representing U.S. 10-year TIPs (Treasury Inflation Protected) yields. The FDTR Index represents the Federal Funds Target Rate, which is set by the central bank in its efforts to influence short-term interest rates as part of its monetary policy strategy.

2) Yield Curve Control

Yield curve control was last used during World War II to finance the war. As the term implies, the U.S. government exerted control on both ends of the curve. Yields were capped with the short end lower than the long end. The long end was capped at around 2% irrespective of the economic condition. Controlled low yields provided a stable and manageable interest expense. By issuing more Treasuries in the short end, the government encouraged investors to borrow at the short end and to lend in the long end. Also, by issuing more at the short end of the curve, it ensured there was constant ample liquidity searching for yield. Today’s world is vastly different, but we expect to see a similar effort to control the yield curve. The Fed will continue to use QE Infinity to monetize the majority of bond issuances with an effort to keep rates as low as possible and the curve as flat as possible. For example, the $2.2 trillion of fiscal stimulus announced in March has already been monetized; 10-year Treasury yields are around 0.60% and the Fed Fund Rate is at zero.

3) Lower or Capped U.S. Dollar

We have also discussed the importance of a weaker U.S. dollar in previous commentaries. The impact of the global pandemic and the total collapse of crude oil pricing has elevated the importance of the U.S. dollar significantly. The sudden deceleration in global economic activity has dramatically reduced the flow of U.S. dollars. The U.S. dollar is the world’s reserve currency; about 60% to 70% of the world’s economic activity is transacted in U.S. dollars. Crude oil is one of the most critical sources of U.S. dollar liquidity. At year-end, an oil market of 100 Mb/d (million barrels a day) at $50 per barrel equated to $1.8 trillion of yearly U.S. dollar flows. Today, at 75 MB/d at $20 per barrel, crude oil-based U.S. dollar flows are now at $0.55 trillion. Now apply that to every industry that transacts globally, and the magnitude of U.S. dollar funding shortage becomes apparent.

There is an estimated $12 to $13 trillion of U.S. dollar-denominated debt held by foreign holders. The U.S. dollar is now the biggest financial short and there is a massive ongoing short squeeze as the global shutdown makes funding and servicing of this debt difficult. That the U.S. has launched trillions in fiscal and monetary stimulus, and the U.S. dollar has barely budged is an alarming sight. A runaway U.S. dollar in a financial and economic crisis coupled with a deflationary shockwave would be nothing short of a disaster scenario. In March, we had a small taste of what a U.S. dollar funding shortage and dollar hoarding had on global liquidity.

If the Fed has any chance of making this version of MMT (modern monetary theory) work, it will do everything in its power to keep the U.S. dollar in check and control a flat yield curve. Fighting the Fed’s efforts is this significant mismatch between U.S. dollar assets and liabilities. Historically, this has been the justification to devalue the dollar (or the prevailing reserve currency at the time) to bail out the world. Price regime changes typically occur with currency debasements. If we reach the point where the U.S. dollar stages a significant uncontrolled breakout higher, gold will spike as the market begins to price in the possibility of a reset of asset prices. At that point, gold would become the ultimate convexity trade for U.S. dollar debasement. Dollar debasement is a key tail risk in the end game.

Figure 5. The U.S. Dollar (DXY): Highs of March 2020 will be a Crucial Level


Source: Bloomberg. Data as of 4/30/2020.

A Realignment of Asset Classes

In just a few months, a global pandemic has caused a shutdown of the economy to an estimated tune of -25% annualized GDP for Q2, over 30 million U.S. workers filing jobless claims and trillions of dollars (and growing) added to the debt. Whether the news of the virus gets better or worse in the next few quarters, we will be in a ZIRP environment for years due to the debt level. With the Fed capping rates, yields will remain low and the curve flat whether the economic recovery is V-shaped, U, L, or any other alphabet shape (yield curve control). The economy will no longer determine the level of interest rates and the yield curve. The Fed will keep real interest rates negative; the only question is how negative? Investing in Treasuries has moved from a “return on capital” to a “return OF capital” proposition. Investing in Treasuries today is an erosion of wealth in real dollar terms.

The broader U.S. stock market has now recovered a significant part of its decline entirely due to the sheer amount of stimulus thrown by the Fed. To value the equity market today would require a look past a deep valley of uncertain duration, to the other side that may be changed entirely. As companies pull guidance due to the lack of visibility, equities can only rise mainly by never-ending liquidity. Equity valuations are already back to their all-time highs. Equity markets, like the bond market, will continue to decouple from the economy further.

Gold Makes Sense as Equity Volatility Increases 

Moreover, if we are correct that the Fed’s main risk focus is containing the U.S. dollar and controlling the yield curve, equity risk (volatility) will trade higher vis-a-vis the U.S. dollar and bond prices than historical parameters (Figure 5). If this becomes the new reality, this repricing of volatility will have a dramatic effect on all asset classes. It will mean more effective equity hedges will be needed, such as gold. The one risk that the Fed cannot remove entirely is a tail risk event in which this current environment is a breeding ground.

Figure 6. Equity Risk Volatility is Trading Higher than Bond Volatility
The VIX7 (CBOE Volatility Index for equities) has likely entered into a new trading range relative to the MOVE Index8 (Implied volatility of Treasuries across the yield curve) with far-reaching consequences.


Source: Bloomberg. Data as of 4/30/2020.

SOURCE: https://sprott.com/insights/gold-stocks-take-flight/

https://sprott.com/insights/gold-stocks-take-flight/

Scotiabank’s Metals Business Closure Could Impact Daily Gold Price Discovery SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 11:03 AM on Wednesday, April 29th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

  • We were already having a tough time getting the amount of physical that we require. I think it’s going to be that much harder – Sprott Inc CEO Peter Grosskopf

(Kitco News) Turbulent times of first trying to sell, then downsizing its bullion desk, Canadian Bank of Nova Scotia (Scotiabank) (TSX: BNS.TO) now appears to be closing its metals business, according to Reuters. 

Reports came to light on Tuesday with Reuters citing two sources familiar with the matter. “Scotia had a global call with all its metals staff and said it was shutting down its metals business,” one source said. “The plan is to unwind the metals business,” said another one.

The goal is to reportedly wind down all existing metals business by the beginning of 2021, the sources added.

The move could mean more challenges for the gold market that has already seen a supply crunch and wide price spreads between spot and futures prices, analysts told Kitco News. 

“The Scotiabank shuttering of its metals business is a sign of these historic times of markets upheaval. However, such is not a shock to the metals marketplace that has in recent weeks already seen many companies and mines so severely impacted by the Covid-19 pandemic,” said Kitco’s senior technical analyst Jim Wyckoff. 

“From my perspective the Comex futures market has at least temporarily overshadowed the spot, or cash, gold market in terms of accurate daily price discovery, given the significant slowing of spot business and spot market-making. Thus, the gold market from a price perspective will take this news in stride,” Wyckoff noted.

One fear is that spot prices could become less reliable, which could be a a big hit for the gold market that has already been struggling with a wide spread between spot and futures prices due to all the logistical issues connected with all the COVID-19 shutdowns. 

“It definitely will have an effect on price discovery. The less big banks that are participating in the metals markets, the less reliable those prices coming out of London will be, which we’ve already seen has been a problem in the past couple of weeks,” Gainesville Coins precious metals expert Everett Millman told Kitco News on Tuesday. 

The problem could be made worse if more banks like this close their bullion businesses, Millman added. “A lot of people are worried that Scotiabank is just going to be the first of many banks right now to kind of exit the metals business. We have to see if there’s a domino effect that exacerbates the problem,” he said.  

Another area of concern is some disruption on the client inter-phase side, said Kitco Metals global trading director Peter Hug.

“I would imagine Scotia has financing projects/lease agreements, metals accounts for their clients, as well as inventory financing deals with dealers. Scotia, I assume will attempt to sell these deals or handle them to maturity … Clients that may need new credit facilities, with other bullion banks or mines that have financing in place may be a bit nervous and are likely already looking for new options,” Hug said. 

The news of Scotiabank winding down its bullion desk might also add pressure to the supply side, said Sprott Inc CEO Peter Grosskopf. 

“We were already having a tough time getting the amount of physical that we require. I think it’s going to be that much harder,” said Grosskopf. “It’s almost the opposite of what’s happening in the oil market right now.” 

Other analysts said they believe that the nature of the physical market is not going to change.

RBC Wealth Management managing director George Gero said that the spot price was never really reliable because “it is not liquid and it is full cash, there is no margin.”

“Lately I’ve seen a number of banks move their trading departments or close their trading departments. A lot of it has to do with other things like Brexit. The problem of the traders all having to work remote from home,” Gero added. 

The character of investments has also been changing, he noted. “The problem with the trading of the gold is that it’s just changed a lot. But it will not affect anything because you have more central bank business and traditionally the central bank business is in the spot market.”

Back in 2017, Scotiabank tried to sell ScotiaMocatta, the world’s oldest gold trader owned by Scotiabank.

Unable to finalize the sale, however, Scotiabank ended up keeping its precious metals trading business but downsizing it at the beginning of 2018.

Only around 15 people currently work in Scotia’s metals business, Reuters said. Seventy-five percent of the employees are on the precious metals side and the rest are on the industrial metals side. Just five years ago, the unit had about 140 employees with offices across the world.

ScotiaMocatta’s history goes all the way back to 1600s when Moses Mocatta partnered with the East India Co. to ship gold to India. The operations were set up in London in 1684. In 1997, Scotiabank acquired Mocatta Bullion by purchasing it from Standard Chartered.

Source:https://www.kitco.com/news/2020-04-28/Scotiabank-s-metals-business-closure-could-impact-daily-gold-price-discovery-analysts.html

By Anna Golubova

Ronald Peter Sțferle: Black Swans, Grey Rhinos and Golden Bulls РWorld Gold Forum 2020 РSPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 3:11 PM on Wednesday, April 22nd, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

Ronald Peter Stöferle’s keynote speech at this year’s virtual World Gold Forum 2020.

Unlimited quantitative easing and fiscal stimulation. Central banks and governments are on the test bench. Learn why this is the perfect breeding ground for gold, commodities and mining stocks.

A golden future lies ahead!

Topics: Black Swan or Grey Rhino?

In recent weeks, the news filled with Corona, experts and governments have been throwing around the term Black Swan. The Black Swan is a metaphor that describes an unpredictable, rare event that causes great harm. Ronald Stöferle, on the other hand, is of the opinion that the corona virus is more like a grey rhinoceros. A rare but highly probable but neglected event.

Central banks and governments under scrutiny We are in the process of making history. Never before has there been a crisis in which so many monetary and fiscal interventions by central banks and governments have been made in such a short time. Ronald postulates that the central banks, as they have already announced, will do everything possible to prevent deflation. The markets and the population should therefore be prepared for anything. From unlimited quantitative easing, to ideas like the universal basic income.

Gold on the rise again. There is a general change on the markets. Gold has reappeared on the scene. Ronald shows how gold has done exactly what it is supposed to do. Stabilize your portfolio and protect your assets from a drastic decline in stock values. He also postulates that the gold price has already reached its lowest point. Inflation or Stagflation Even if it was in fashion to declare inflation dead, it seems to be returning. Ronald explains that our in-house inflation indicator shows that inflation could be about to make a comeback. The markets are unlikely to feel this until the curfew is lifted and there is suddenly much more money in the system.

Gold stocks back in the bull market The comparison between the Great Depression and now does not seem to limp. Ronald postulates a good environment for gold mining stocks, as was the case during the Great Depression. The Golden Future Gold has returned to the public eye. We are currently in the public participation phase.

As Ronald explains that current climate, both by the massive interventions and the general crisis, are the perfect breeding ground for gold and commodities in general.

Time stamp: 2:40

Agenda 3:30

The black swan, which is none 8:54

(When) Will confidence in central banks begin to erode 15:26

Gold: What the 7th sense of the financial market has to tell us 20:55

Inflation and Stagflation – The Ultimate Craft of Pain 27:08

Gold mining shares 29:31

The golden future 36:45

Follow us on Twitter: https://twitter.com/IGWTreport

Homepage link: https://www.incrementum.li/en/

Gold’s Powerful Rally Brings US$1,800 Into View SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 2:17 PM on Thursday, April 16th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

Gold extended its rally to hit the highest in more than seven years on concern that the coronavirus pandemic will have a deep effect on the global economy, hammering corporate earnings while supercharging demand for havens.

Futures in New York moved closer to US$1,800 an ounce, a level last seen in 2011. Spreads between futures and spot prices remain wide, suggesting thinner liquidity, which is further exacerbating price dislocation.

“Liquidity conditions are challenging and market participants are understandably cautious,” Joni Teves, a strategist at UBS Group AG, said Tuesday in a note. “Gold’s journey has been quite bumpy so far, but given the macro backdrop we think the destination remains higher.”

Bullion has soared this year as the global heath crisis tipped economies toward recession and spurred central banks to launch huge stimulus measures. Since last month’s wave of forced selling, as equities sank, gold has staged a recovery.

Comex gold futures for June delivery climbed as much as 1.6 per cent to US$1,788.80 an ounce, the highest for a most-active contract since October 2012. The metal rose 0.4 per cent to settle at US$1768.90 at 1:30 p.m. in New York. Spot gold was more than US$30 cheaper at US$1,737.20, with the spread a feature of trading in recent weeks amid physical market disruptions.

Futures pared earlier gains as “there’s a little bit of a move on volatility, and equities turned around a bit, and what we might be seeing is that people are locking in what they’ve gained on gold here,” Bart Melek, head of commodity strategy at TD Securities, said by phone.

Overall, gold still has room to run, according to Hans Goetti, founder and chief executive officer of HG Research.

“What’s happening here is that the Fed is expanding its balance sheet and every other central bank in the world is doing the same,” he told Bloomberg TV. “What you’re looking at is massive currency debasement in the long term. That’s the major reason why gold is higher, and I would think that over the next few weeks or months, we’re probably going to retest the high that we saw in 2011.”

The Federal Reserve’s massive U.S. monetary program and the fiscal stimulus “could see long-end rates rise during the recovery phase, but not without rising inflation expectations, which should keep real rates suppressed,” TD Securities analysts said in an emailed note. “In this context, we suspect that investment demand for gold will continue to rise as capital seeks shelter from a long-term environment in which real rates are negative.”

Negative real rates boosts the appeal of non-interest-bearing bullion.

Gold’s latest upswing has come even as risk sentiment received a boost after China’s trade data beat estimates, while the pace of coronavirus infections has slowed in some countries, with the focus shifting toward how lockdowns can be eased. President Donald Trump said he has “total” authority to order states to relax social distancing and reopen their economies.

Worldwide holdings in bullion-backed exchange-traded funds have ballooned to a record on rising demand, with investors seeking additional portfolio protection. On Monday, volumes in SPDR Gold Shares, the largest such fund, surged above 1,000 tons to the highest since mid-2013.

In other precious metals, silver futures also advanced on the Comex, while platinum and palladium gained on the New York Mercantile Exchange.

SOURCE: https://www.bnnbloomberg.ca/gold-s-powerful-rally-brings-us-1-800-into-view-1.1421080

Gold, Silver Bulls Bask Amid Bullish Charts, Safe-Haven Buying SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 11:16 AM on Wednesday, April 15th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

Gold futures prices are trading not far from unchanged on the day Tuesday at midday, after scoring a 7.5-year high early on, at $1,788.80, basis June Comex futures. Silver prices are sharply up and at a four-week high today. Gold bulls are enjoying the strong near-term technical advantage to continue to suggest more upside for the yellow metal in the near term. Safe-haven demand continues to boost gold, and to a lesser degree silver, as the global economy is still on very shaky ground. June gold futures were last up $0.10 an ounce at $1,761.30. May Comex silver prices were last up $0.503 at $16.04 an ounce.

Global stock markets were mostly higher in overnight trading. U.S. stock indexes are solidly higher at midday. More and more it appears North America and Europe have “turned the corner” on the Covid-19 pandemic. New York Governor Cuomo said Monday his state has seen the worst of the pandemic. Other hotspots in the U.S. have also showed signs of simmering down. Leading U.S. health officials are now saying the world’s largest economy can very likely begin to reopen in stages beginning in May.

The present Covid-19 situation appears to be a sweet spot for the precious metals. There is enough confidence in the marketplace for traders to want to trade markets, but the global economies are still in very bad shape and it’s uncertain when they will be fully operational or healed.

Major corporate earnings reports are now starting to be released, which will show the early impact of the Covid-19 pandemic, and be a sobering reminder of the tough economic times at present. JP Morgan’s results today were a testament of a crippled U.S. economy.

In overnight news, China, the world’s second-largest economy, saw its March exports down 6.6%, year-on-year, which was less than expected. Imports were down 0.9% in the period, also way less than expected. China watchers deemed this data as upbeat, showing the Chinese economy is recovering from the pandemic.

The important markets today see Nymex crude oil prices trading solidly lower, around $21.00 a barrel. Oil market bulls are sorely disappointed the weekend OPEC and other major oil producers agreement to restrict oil output did not boost crude oil futures prices. However, there is no consensus on how much oil production will be reduced. Some market watchers think 10 million barrels a day and the more optimistic bulls think 20 million. There is more agreement among analysts that worldwide oil demand has dropped by at least 20 million barrels a day.

Meantime, the U.S. dollar index is lower at midday. The 10-year U.S. Treasury note yield is trading around 0.735% today.

Technically, June gold futures bulls have the strong overall near-term technical advantage. More upside is likely in the near term. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,800.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at $1,700.00. First resistance is seen at today’s high of $1,788.80 and then at $1,800.00. First support is seen at today’s low of $1,755.30 and then at $1,750.00. Wyckoff’s Market Rating: 9.0

May silver futures prices were nearer the session high and hit a four-week high at midday. The silver bulls have the overall near-term technical advantage. Prices are in a four three-week-old uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $17.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $14.50. First resistance is seen at today’s high of $16.30 and then at $16.50. Next support is seen at today’s low of $15.655 and then at this week’s low of $15.385. Wyckoff’s Market Rating: 6.5.

May N.Y. copper closed up 285 points at 233.10 cents today. Prices closed near the session high and closed at a four-week high close today. The copper bulls have the slight overall near-term technical advantage. A price uptrend is in place on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at 250.00 cents. The next downside price objective for the bears is closing prices below solid technical support at 220.00 cents. First resistance is seen at this week’s high of 235.25 cents and then at 238.00 cents. First support is seen at 230.00 cents and then at this week’s low of 226.35 cents. Wyckoff’s Market Rating: 5.5

Source: https://www.kitco.com/news/2020-04-14/Gold-silver-bulls-bask-amid-bullish-charts-safe-haven-buying.html

Gold Futures Prices at 7.5-Yr. High On Safe-Haven Demand, Bullish Charts SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 10:46 AM on Tuesday, April 14th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

Gold futures prices are trading narrowly on both sides of unchanged in early U.S. trading Tuesday after scoring another 7.5-year high, at $1,785.00 overnight, basis June Comex futures. Gold bulls are enjoying the strong near-term technical advantage to continue to suggest more upside for the yellow metal in the near term. Safe-haven demand continues to boost gold, and to a lesser degree silver, as the global economy is still on very shaky ground. June gold futures were last down $0.90 an ounce at $1,760.20. May Comex silver prices were last up $0.388 at $15.925 an ounce.

Global stock markets were mostly higher in overnight trading. U.S. stock indexes are pointed toward higher openings when the New York day session begins. More and more it appears North America and Europe have “turned the corner” on the Covid-19 pandemic. New York Governor Cuomo said Monday his state has seen the worst of the pandemic. Other hotspots in the U.S. have also showed signs of simmering down. Leading U.S. health officials are now saying the world’s largest economy can very likely begin to reopen in stages beginning in May.

Major corporate earnings reports are now starting to be released, which will show the early impact of the Covid-19 pandemic, and be a sobering reminder of the tough economic times at present.

Technically, the gold bulls have the strong overall near-term technical advantage amid a price uptrend in place on the daily, weekly and monthly charts. That strongly suggests the path of least resistance for prices will remain sideways to higher for at least the near term and probably longer. Bulls’ next upside price objective is to produce a close in June futures above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at the overnight high of $1,785.00 and then at $1,800.00. First support is seen at $1,750.00 and then at Monday’s low of $1,724.20. Wyckoff’s Market Rating: 8.5

May silver futures bulls have the overall near-term technical advantage and prices are  trending higher on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $17.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $14.50. First resistance is seen at last week’s high of $16.09 and then at $16.25. Next support is seen at Monday’s low of $15.385 and then at $15.25. Wyckoff’s Market Rating: 6.0.

SOURCE: By Jim Wyckoff

https://www.kitco.com/news/2020-04-14/Gold-futures-prices-at-7-5-yr-high-on-safe-haven-demand-bullish-charts.html

Gold in $1,700 Flight, Joining Wall Street’s Virus Rally for Different Reason SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 11:52 AM on Wednesday, April 8th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

  • The virus is triggering huge physical demand for gold

They’re both rallying on the same thing. One is gaining on a negative spin and the other on a positive narrative. Gold cracked the $1,700 ceiling on Monday as global anxiety over the Covid-19 pandemic, its impact on economies and inflation widened. Wall Street, meanwhile, jumped on signs of some U.S. relief from the coronavirus.

“It’s like two tales of the same virus,” said Tariq Zahir, a proprietary gold trader at Tyche Capital Advisors in New York. “One is perpetuating fear that’s causing an accumulation of the safe haven called gold. The other is giving hope to equity markets that the U.S. may be getting some break from the pandemic, though it’s very very early in the day to say that.”

Gold futures on New York’s COMEX settled up $48.20, or 3%, at $1,693.90 per ounce. It hit $1,709.50 at the session high. The $1,700 level has been a rather important resistance mark for the yellow metal, which broke it only twice earlier this year, the first time in January and then in March. In both cases, gold futures fell back soon after the test.

Monday’s rally marked the fourth-straight day of gains for COMEX gold, which has gained just over $100 an ounce or 6% in that period. 

Spot gold, which tracks live trades in bullion, was up $41.64, or 2.6%, at $1,659.98 by 3:00 PM ET (19:00 GMT). 

“The virus is triggering huge physical demand for gold,” said Phillip Streible at Blueline Futures in Chicago. “Currencies around the world are being devalued right now because everyone is engaging in massive stimulus programs in order for their economies to be safe. So, the supply of gold is being attacked from all angles.”

“And don’t forget the trickle effect of all that money on inflation and gold as the best known instrument to hedge that,” Streible added.

The United States has passed a $2 trillion stimulus package to fight the pandemic and is considering another package, with White House Economic Adviser Larry Kudlow acknowledging on Monday renewed calls for a multi-trillion-dollar “Coronavirus Bond”.

On Wall Street, the Dow was up more than 1,200 points, or 6%, or  as new data from New York, the epicenter of the U.S. coronavirus, suggested the state may be peaking on infections from the pandemic, though the daily death toll remains alarmingly high.

SOURCE: https://finance.yahoo.com/news/gold-1-700-flight-joining-151715366.html

Gold Dealers Report Big Shortages of Small Bars and Coins SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 11:27 AM on Friday, April 3rd, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

  • Small gold bars and coins are in high demand from consumers
  • The size of different products is a key reason for the crunch

Surging demand and disruptions from the coronavirus pandemic have created a shortage of the small gold bars most popular with consumers.

When people are worried about the future they turn to gold to protect their savings. That’s rarely been more true than today.

Surging demand and disruptions from the coronavirus pandemic have created a shortage of the small gold bars most popular with consumers. Those who do manage to get their hands on metal have to pay up –- well above the per-ounce prices being quoted on financial markets in London and New York.

Some dealers are desperately contacting clients to see if anyone is willing to sell their gold bars and coins, and offering a rare premium over spot prices. Others have given up trying to trade altogether.

“People want to buy, not to sell gold,” said Mark O’Byrne, the founder of GoldCore, a dealer based in Dublin. “We have a buyers’ waiting list and we emailed our clients seeing who wished to sell their gold. At this time there is roughly only one or two sellers for every 99 buyers.”

Size is a key reason for the crunch. While there’s plenty of gold in a big trading hub like London, banks and other institutional investors there typically use large bars of 400 ounces. That’s not practical for a regular person who may not want to cough up more than $600,000 for a single bar. Instead, retail investors prefer kilobars (about 32 ounces), 1-ounce bars and coins, or something even smaller.

Those smaller items are getting hard to find for several reasons. First, of course, demand has exploded. But there’s also been pressure on supply, as global travel shuts down and some refineries and mints have stopped operating or capped production because of local lockdowns.

Premiums in the retail market “have exploded,” said Markus Krall, chief executive of German precious-metals retailer Degussa. The average price of products in shops is somewhere between 10% and 15% over spot prices, which he’s never seen before, Krall said. Demand, too, is at the highest level he’s experienced.

Certain products also command more of a premium than others. Kilobars manufactured by Argor-Heraeus SA, one of the big Swiss refiners whose plant has been closed since last week due to the health crisis, were selling for over 6% above spot, said Ronan Manly, an analyst at Singapore dealer BullionStar.

“We are seeing an unprecedented situation where huge customer demand and the disconnect between physical prices and spot prices is driving buy premiums high,” he said. Spot prices coming from London or New York “are completely detached from the reality on the ground.”

Source: https://www.bloomberg.com/amp/news/articles/2020-04-02/want-a-gold-bar-under-your-mattress-get-in-line-and-pay-up

Blood in the Streets SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 4:21 PM on Tuesday, March 31st, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

 Dear Investors:

Are you looking for securities to buy to take advantage of the carnage in the financial markets from the coronavirus? Baron Rothschild, the 18th-century British banker advised that “The time to buy is when there’s blood in the streets, even if it is your own.” He made a fortune buying government bonds in the panic that followed the Battle of Waterloo against Napoleon. But it’s not sovereign debt of the world’s superpowers that is on sale today; it’s not the S&P 500 or Dow either.

US government bonds already had their biggest year-over-year rally ever, and at record low yields, they are no bargain. As for US stocks, it’s only the first month after what we believe was a historic market top. The problem is that the pandemic just so happened to strike at the time of the most over-valued US stock market ever based on a composite of eight valuation indicators tracked by Crescat, even higher than 1929 and 2000. It also hit after a record long bull market and economic expansion. The stock market was already ripe for a major downturn based on an onslaught of deteriorating macro and fundamental data even before the global health emergency.

As we show in the chart above, we believe there is much more downside still ahead for US stocks as a major global recession from nosebleed debt-to-GDP levels has only just begun. Corporate earnings are now poised to plunge and unemployment to surge. These things are perfectly normal. There is a business cycle after all. It must play out as always to purge the economy and markets of their sins and prepare the way for the next growth phase. From the February top for large cap stocks, it would take a 56% selloff just to get to long term mean valuations, a 74% decline to get to one standard deviation below that. In the worst bear markets, valuations get to two standard deviations below the mean. Such realities happened at the depth of the Great Depression, the 1973-4 bear market, and the 1982 double-dip recession. 1932 was an 89% drop from the peak. The initial decline in this market so far is comparable to 1929 in speed and magnitude. There will certainly be bounces, but even after an almost 30% fall in the S&P 500 through yesterday’s close, we are not even close to the “blood in the street” valuations that should mark the bottom for stocks in the current global recession that has only just begun.

But value investors do not have to despair today. There is one area of the stock market that already offers historic low valuations and an incredible buying opportunity right now. Small cap gold and silver mining companies just retested the lows of a 9-year bear market. Last Friday, they were down 84% from their last bull market peak in December 2010! This was a double-bottom retest at a likely higher low compared to the January 2016 low when they were down 87%. Now that is what we call mass murder! In the chart below, we show that precious metals juniors reached record low valuations last Friday relative to gold which is still up 18% year-over-year. Mad value. Look at that beautiful divergence and base. The baby was thrown out with the bathwater in a mass margin call. Last time the ratio was in this vicinity, junior gold and silver miners rallied 200% in 8 months. Crescat owns a portfolio of premier, hand-picked juniors as part of our precious metals SMA and in both hedge funds where clients can gain exposure today. We significantly increased our exposure in our hedge funds amidst the massacre last week.

The entire precious metals group was a casualty of a liquidity crisis, the forced margin call selling for stocks and corporate credit at large in the precipitous market decline. But it was also a victim of a meltdown in dubious levered gold and silver ETF products. These products such as JNUG and NUGT already had a horrific tracking error. Nobody should have ever been investing in them in the first place. Gold stocks are volatile enough on an unlevered basis.

The chief culprit in the ETF space last week was the $3 billion leveraged assets, Direxion Daily Jr. Gold Bull 3x ETF. It absolutely imploded, dropping 95% through last Friday from its recent high on February 21. The fiasco in JNUG was insult to injury for long-time precious metals investors, especially those invested in silver and in junior miners. It was also an incredible buying opportunity that Crescat took advantage of, especially in its hedge funds, where the profits from our short positions at large allowed us to step up. Last week’s action may have marked a major bottom for precious metals mining stocks and ideally a bottom for battered silver this week. As of Friday, miners were on track for their worst quarter ever as we show below.

The gold and silver stock selloff has exposed enormous free cash flow yields today among precious metals mining producers of 10, 20, 30, 40, even 50%. This is completely opposite the stock market at large. Meanwhile, the pure-play junior mining explorers have some of the world’s most attractive gold and silver deposits that can be bought at historic low valuations to proven reserves and resources in the ground. These companies are the beneficiaries of under-investment in exploration and development by the senior producers over the entire precious metals bear market. That rebound may have started yesterday in the mining stocks especially the juniors. It is a historic setup right now for the entire precious metals complex. Central banks are coming in, guns blazing.

Meanwhile, the fundamentals have never been better for gold and silver prices to rise making the discounted present value of these companies even better. Global central bank money printing is poised to explode which is important because the world fiat monetary base is the biggest single macro driver of gold prices. Gold itself is already undervalued relative to global central bank assets which targets gold at $2400 an ounce today.

At the same time, the price of gold is the biggest macro driver of the price of silver, which is gold on steroids. Silver today is the absolute cheapest it has ever been relative to gold and represents an incredible bargain. We think silver is poised to skyrocket along with mining stocks in what should be one of the biggest V-shaped recoveries in the entire financial markets in the near term.

As we have shown in our prior letters, when the yield curve first inverts by 70% or more, there is a high probability of a recession and bear market. At that point, historically it has paid to buy gold and sell stocks for the next 2 years. We went above 70% inversions in August 2019. At Crescat, we continue to express both sides of this trade in our hedge funds and our firm at large. The gold-to-S&P 500 ratio is up 28% since last August. The first part of the move was mostly driven by the rise in gold. Since February 19, its been driven by the decline in stocks. Now we’re at the place where historically both legs start to work in tandem, and yesterday that was evident with one of our best days ever in both Crescat hedge funds.

The Fed has not exhausted all its bullets. It has many forms of monetary stimulus. It can print more money and take interest rates into negative territory if need be. As the downturn in the business cycle becomes more pronounced, these policies will become increasingly called upon. That’s precisely what we are seeing today. Rate cuts everywhere, QE announcements, even forms of helicopter money are being implemented. It won’t save the economic cycle from its normal course, instead, it should only invigorate the reasons for owning precious metals. Central bank money printing and inflationary fiscal policy will almost certainly intensify. This is incredibly bullish for precious metals. We are in a global synchronized debasement environment. Gold has already been appreciating in all major fiat currencies in the world over the last year.

While yields continue to make historic lows worldwide, in real terms they have reached even more extreme levels. For instance, the US 10-year yield is now almost 2 percentage points below inflation. This just further strengthens our precious metals’ long thesis.

Even investment grade (IG) bonds are now blowing up. Implied volatility for IG bonds is surging! It’s now at its highest level since the Great Recession. Last week, the LQD (ETF) plunged 8% in 3 days, which is equivalent to a 10 standard deviation move. Declines as such only happened one other time in history, September 2008. We believe the corporate debt market crisis has just begun.

Stocks are acting like it’s the Great Depression again and we believe a recession has already begun. The probability for a US recession, as measure by this Bloomberg indicator, just surged above 50%. It’s currently at its highest level since the global financial crisis. This indicator leads changes in unemployment by 5 months with a 0.81 correlation. It suggests that the labor market has peaked.

We have also recently noted that the number of full-time employed people is now contracting. This was already rolling over in January. With the recent impacts from the virus outbreak, we believe this number will be plunging imminently.

Macro Trade of the Century

Crescat’s “Macro Trade of the Century” has been working phenomenally well since the market top. We believe our in-depth analysis looking at the history of economic cycles and the development of macro models is paying off tremendously. This is just the beginning of this three-legged trade. The global economy has just entered a recession and the fundamental damage of the virus outbreak on an already over-leveraged economy will be greater than anything we have ever seen. We have massive underfunded pensions with governments and corporations record indebted, while wealth inequality is at an extreme across the globe. It is not the ideal mix for asset prices that remain grossly overvalued worldwide.

When investors ask us if our macro themes to position for the downturn have already played out, the answer is absolutely not. There is so much more to go. We explain it in three ways:

1) The bursting of China’s credit bubble, the largest we’ve seen in history, has yet to materialize in its most brutal manner. As macro imbalances unfold worldwide, the Chinese current account should only continue to shrink and exacerbate its dollar shortage problem. We expect that a large devaluation in its currency versus USD is coming soon. We haven’t seen anything yet. We remain positioned for this in an asymmetric way through put options in our global macro fund in the yuan and the Hong Kong dollar.

2) Except for last year, gold, silver, and the precious metals’ miners haven’t yet performed in the way we think they will. Instead they have recoiled in a major way YTD. Meanwhile, central banks are clearly losing control of financial markets and further monetary stimulus appears unavoidable. The entire precious metals’ industry should benefit from this macro backdrop. The near- and medium-term upside opportunity in the entire precious metals complex has never looked more attractive than it does today.

3) Equity markets remain about 30% above their median valuations throughout history. The coming downturn is one that will likely not stop at the median. As we showed above, we believe there is much more downside ahead for stocks at large before we reach the trough of the current global recession.

In our hedge funds, we added significantly to our precious metals positions with gains from our short sales late last week. We have also recently been harvesting profits in some of the most beaten down of our shorts. We remain net short global equities but much less so than a month ago and with less gross exposure overall. As a value-oriented global macro asset management firm, we believe there is so much more to play out as the economic cycle has only just begun to turn down. We are not perma-bears, but we are determined to capitalize on this downturn.

Crescat Performance Update

We have been telling our hedge fund clients for the past several quarters that we have been tactically positioned for a market and economic downturn ripe to unfold. Indeed, it has finally begun. Below, we show how our hedge funds have been performing since the top in the S&P 500 on February 19:

If you are interested in learning more about Crescat or investing with us, we encourage you to contact Linda Carleu Smith at [email protected] or (303) 228-7371.

Download PDF Version

Sincerely,

Kevin C. Smith, CFA

Chief Investment Officer

 Tavi Costa

Portfolio Manager

© 2020 Crescat Capital LLC

Why You Should Buy Gold Now! SPONSOR: Labrador Gold $LAB.ca $RIO.ca $WHM.ca $SIC.ca $NXS.ca

Posted by AGORACOM-Eric at 12:54 PM on Thursday, March 12th, 2020

SPONSOR: Labrador Gold – Two successful gold explorers lead the way in the Labrador gold rush targeting the under-explored gold potential of the province. Exploration has already outlined district scale gold on two projects, including a 40km strike length of the Florence Lake greenstone belt, one of two greenstone belts covered by the Hopedale Project. Recently acquired 14km of the potential extension of the new discovery by New Found Gold’s Queensway project to the south. Click Here for More Info

This image has an empty alt attribute; its file name is LAB-square-logo-2.png
  • Gold is known as the safe-haven asset, and whenever we see a meltdown in the equity markets or prospects of loose monetary policy, its price begins to explode to the upside.
  • Currently, the gold price has a strong negative correlation with the equity markets meaning when the equity markets fall; investors pour money into gold and vice versa.  
Gold and SPX chart shows negative correlation

The fact is that the current sell-off in the global equity markets is only a start because there is a lot more to come. After all, the economic weakness isn’t fully baked into economic data, let alone in earnings. Thus, there is no better time to buy gold.

Why?

First, the equity markets are in major turmoil as a 1000 point move for the Dow Jones index has become the norm. Secondly, the Coronavirus has pushed the Federal Reserve into a corner, and it’s being forced to keep its monetary policy on the dovish side. The Fed cut the interest rate by 50 basis points only a couple of weeks ago, and yet the market expects further cuts.

Gold which is up nearly 10% year-to-date is likely to score serious gain in the coming weeks. The reason is that we have a situation where monetary policy itself isn’t enough to calm the markets; however, governments are trying to provide support on the fiscal front as well. For instance, Donald Trump has pitched the idea of no payroll tax for this year to soften the blow of Coronavirus. So far, we have not seen a green flag which is why investors are still nervous. Donald Trump may achieve some of his goals, but it won’t be enough, the economic damage is too considerable, and the Coronavirus is still nowhere close to coming under control.

Going back to the monetary policy action and why there is serious potential for the gold price to increase; at present, traders and Wall Street are expecting further interest rate cuts from the Fed during their meeting next week. An interest rate cut of 50 basis points is the minimum that investors expect, and according to bigger banks like Goldman Sachs and JP Morgan, we can expect 75 basis points and a full percentage point.

Regarding the price action, an interest rate cut isn’t priced in at all, if it had been, the price would have been trading much higher. Currently, it’s trading near $1,661.

The Play

If the Fed cuts the interest rate by 50 basis points, this could push the gold price above 1700 again. Anything more than 50 basis points, especially a whole percentage point, could pump the price to 1750 or higher.

The Flow

If we look at the total gold ETF holding data, it supports our thesis that the gold price is likely to increase because the total holding in ETFs is sitting at a record level, and the inflow continues to rise. It appears that investors are discounting this current price weakness and using this opportunity to buy more.

The chart shows all gold ETFs holding at a record high level

 The Bottom Line

 The current retracement in the gold price is an enormous opportunity for traders to get back in the game or add to their position, similar to the institutions. If for some reason, the Fed doesn’t cut the interest rates during the meeting, it will create more panic in the equity markets, which would be a positive sign for the gold price.

SOURCE: https://www.forbes.com/sites/naeemaslam/2020/03/11/why-you-should-buy-gold-now/#7d3d34446828