Dollar strength continues to plague precious metals

Gold continues to fall in the presence of extreme dollar strength which is dictating most of the net change within the precious metals complex. As of 6:15 PM EST the dollar is currently up almost 2%, with the index currently fixed at 103.56.

The last time we saw the U.S. dollar have this kind of strength was in January 2017 when it hit a high precisely where the dollar index is trading currently just above 103.

During this last week alone the dollar index traded from a low of 97.70, and is currently at its highest value this week at 103.56. That is a net change of almost 6% (+5.86%) in a single week. Today’s strong rally in gold accounted for roughly one third of the gains realized this week.

U.S. equities had a mild recovery today but it is not convincing enough to say with any conviction that the selling pressure and carnage is over. This could simply be a. Where equities are consolidating and moving up slightly, or a dead cat bounce. In either case the key is caution and patience as we wait to see how the current coronavirus crisis and pandemic play out.

Still many analysts question why we have seen the stock market lose such a vast amount of market capital, along with gold down dramatically at the same time. The common belief is that market participants are simply liquidating all assets including the safe haven group. However, many believe including myself that at some point if equities continue to drop it will not be just the U.S. dollar gaining strength as a safe place to park your investment capital, and gold will once again return to a safe haven asset.

As reported in MarketWatch analysts at Zaner metals wrote, “We do think that gold has seen consistent cushioning from those unwilling to give up on the idea of gold and silver ‘eventually’ getting safe haven buying. However, for the time being, the primary safe haven instrument (at times the only safe haven instrument) has been the dollar and, therefore, we are highly suspicious of further gains in precious metals particularly and silver.”

Although many analysts expect the U.S. equities to remain under pressure over the next months, which should result in more dollar strength and gold prices remaining week.

It is also hard to explain why with all of the proposed extra stimulus from the government and central banks and emergency rate cuts that the dollar continues to be the favored place to put investment capital as a safe haven.

While we acknowledge that the typical reaction to recent Fed decision to infuse capital and liquidity into the markets, and cut rates to near zero in two emergency moves that gold should have reacted in a bullish manner. The facts remain investment dollars are on the move from equities into bonds, the U.S. dollar and the Yen.

On a technical basis we see major support for gold at $1440 to $1446. This is based on a previous support level in gold that occurred between November and December of last year. This was also the price point that we saw gold spring up to higher prices as it challenged $1700 per ounce for the first time in seven years.

The gold – silver ratio hit an all-time record high yesterday just above 124. Today it backed off a little bit moving down to 121.96. Since this ratio is in uncharted territory it is difficult to predict whether this price point will act as ultimate resistance or a level of consolidation before moving to yet a new record high.

Wishing you as always good trading,

 

By Gary Wagner
Contributing to kitco.com

David

The only silver lining is the gold-silver ratio

When we look at the precious metals complex the only thing we see moving higher is not a specific precious metal, rather it is a ratio between two precious metals. This ratio is the only investment that is competing with recent dollar strength which hit a new high today of 101.26, after factoring in today’s gain of approximately 1 ½%.

The only silver lining to this cloud of coronavirus confusion and fear is the gold-silver ratio. The historical I use only goes back to 1998. That being said, the current gold -silver ratio is the highest on record.

Historically speaking from 1687 up until 1885 the gold-silver ratio was fixed at just under 20 to 1, meaning it took 20 ounces of silver to equal the value of 1 ounce of gold. Between 1885 and 1934 the ratio remained range bound between 20 to 1, and 40 to 1.

Figure 1 is a long- term chart of the gold- silver ratio, it goes back to 1687. The arrow just under 1934 shows the dramatic change in the ratio following legislation by President Roosevelt.

President Franklin Roosevelt enacted legislation and passed the Gold Reserve Act of 1934. This act made it illegal for American citizens AND the Federal Reserve to own gold. This act required that all Americans and the Federal Reserve to surrender all of their gold coins as well as gold certificates to the United States Department of the Treasury and exchange them for new American dollars which no longer were redeemable in gold. This in essence converted the gold standard-based dollar to a partially backed currency.

Citizens as well as the Federal Reserve Bank transferred all of their gold reserves to the U.S. treasury at a discount. The net result was that the United States had established an exchange stabilization fund under the control of the treasury which would control the value of the dollar.

After World War II many major countries all met in Bretton Woods and created a monetary management system to maintain the external exchange rate which effectively allowed countries to convert their U.S. dollars to gold.

From 1934 to 1947 the gold-silver ratio rose to 100 for a brief period before settling back to its former level of 20 to 1 in 1971. The red arrow on figure 1 represents the year, 1971 that President Nixon passed legislation that in essence abolished the gold standard as we know it. This became known as the Nixon shock which effectively ended the Bretton Woods agreement and abolished the ability for countries to convert their U.S. dollars into gold.

This caused the gold silver ratio to rise once again to approximately 80 to 1.

Figure 2 is the gold silver ratio from 1975 to 2015. It shows that between 1990 and 2015 the gold silver ratio traded from 90 to 1, to as low as 35 to 1.

 

However, that all changed at the beginning of 2020, when the ratio had been trading at roughly 85 to 1. Figure 3 is the gold silver ratio including the most current data up until March 18, 2020. During the first 18 days of March the gold silver ratio jumped from approximately 95 to the current value today of 124, the highest level on record.

What is clear is that the precious metals as a group have been under pressure and trading dramatically lower ever since the coronavirus crisis began. However never in history has it taken 124 ounces of silver to equal the value of a single ounce of gold, until today.

 

Wishing you as always good trading,

 

By Gary Wagner

Contributing to kitco.com

David

Silver price beaten down but investors can‘t find any, so what’s going on? Peter Hug Responds

Silver’s future is bleak as a recession could wipe out any industrial demand left for the metal, this according to Peter Hug, global trading director of Kitco Metals.

Monetary policy was not enough to calm investors, Hug noted, as markets reacted negatively to the last Federal Reserve rate cut made last Sunday.

“That episode really scared the market. It indicated that the Fed pushing on a string here is not going to solve the issue. It’s going to require some significant fiscal policy,” he said.

Hug said that a recession may now be underway.

“Ignoring the economics of a significant recession – it may be short lived, if we’re not already in it – if we ignore the economics of it, silver [is] an industrial metal and there would be virtually no demand for it,” he said.

Hug said that the recent price decline in metals is due to traders and investors liquidating their metals to meet margin calls, putting even more pressure on the physical market.

“Because there is no physical metal in the market right now, both the U.S. Mint and the Canadian Mint are on allocation with some products anywhere from four to six weeks out, at a minimu, we’re looking at a situation where there isn’t enough physical offtake to offset the selling of the ETFs and the futures, because there’s no physical product left to buy,” he said.

Spot silver traded 20 cents higher on the day Tuesday.

David

Silver prices plummet as mints can’t keep up with demand

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Precious metals have plunged in the markets, but there is still demand for physical coins in the midst of the coronavirus outbreak, this according to Phil Streible, chief market strategist of Blue Line Futures.

“I can tell you one thing, I called around the last couple of days trying to buy physical metals, specifically physical silver, and silver was a $1.50 to $2.00 over spot, so there is an underlying demand that is out there right now, just more on the physical side,” Streible told Kitco News.

His comments come as spot silver retreated $1.70 an ounce on Monday.

Streible noted that while bonds have done well, there may not be much upside left given the run-up we have already seen.

“It seems like the only place that anyone found any safe haven in was the bond market, but with yields dipping back down below 0.64%, I think that there’s not much room there on the upside,” he said.

On metals, Streible said that it is better now to be positioned in the physical space, rather than the miners or leveraged products.

Gold should be bouncing back from this selloff later in the year, he said.

“The key level you have to look at in gold is $1,508. That’s the 200-day moving average, if we don’t close below there, I think we’d still be in a pretty healthy market,” he said.

 

By Kitco News
For Kitco News

David

Gold futures log largest weekly loss in more than 8 years

Gold futures ended sharply lower for a fourth straight session on Friday, with a loss of more than 9% for the week—the largest since September 2011.

Volatility-shocked investors looked for news on fiscal stimulus packages from governments around the world to help ease the economic pain of the COVID-19 epidemic that has ground some of the world’s business activity to a halt and rocked financial markets.

“It seems that investors have been selling gold in order to cover losses elsewhere,” said Caroline Bain, chief commodities economist at Capital Economics, in a Friday research note. “Ample liquidity in the gold market means that the sale of gold holdings is a relatively quick and seamless way to raise cash in times of need.”

Gold for April delivery GCJ20, +0.80% on Comex fell $73.60, or 4.6%, to settle at $1,516.70 an ounce. Prices for the metal, based on the most-active contract, ended at their lowest level year to date, according to FactSet data. Gold futures saw a weekly loss of 9.3%, the biggest percentage decline since the period ended Sept. 23, 2011.

May silver SIK20, +1.27% dropped $1.505, or 9.4%, to end at $14.50 an ounce, after the metal tumbled 4.6% in the previous session. A settlement around this level would be the lowest most-active contract finish since May of last year. For the week, silver lost 16%.

The United States Mint said Thursday that it has temporarily sold out of American Silver Eagle bullion coins. “Our rate of sale in just the first part of March exceeds 300% of what was sold last month,” the Mint said. Sales of the one-ounce American Silver Eagle coins were at 2.32 million so far this month, as of Thursday, compared with sales of 650,000 in the month of February, according to data from the Mint.

“It’s a double whammy of low production…and a sudden spike in demand,” said Dana Samuelson, president of precious-metals dealer American Gold Exchange Inc. “I’m not convinced that buyers are rushing in because the price dropped. This is a fear driven surge in demand.”

House Speaker Nancy Pelosi said she and President Donald Trump were near an agreement on a an aid package to help address the health emergency that is created by the infectious disease that was first identified in Wuhan, China in December and has infected about 128,000 people world-wide. Pelosi said the House will pass a coronavirus bill aimed at helping families.

U.S. benchmark stock indexes climbed Friday, a day after the Dow DJIA, +9.36% and the S&P 500 SPX, +9.28% suffered their biggest one-day plunge since the October 1987 crash. The U.S. dollar also strengthened, with the ICE U.S. Dollar Index DXY, +1.25% up 1.3% as gold futures settled, looking at a gain for the week.

Gold has declined this week even though markets remain volatile as the metal’s “natural opposition to the U.S. dollar has been restored and for the short term,” said Colin Cieszynski, chief market strategist at SIA Wealth Management Inc.

“The plunge in Treasury yields a few weeks ago, depressed the US dollar and boosted gold, but now that the panic rush into bonds has eased a bit, the US dollar has rebounded against gold and other currencies like the Yen USDJPY, -0.03% and the Euro EURUSD, +0.36%, and gold has dropped back,” he told MarketWatch.

Taking a look at the bigger picture for gold, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said “some investors who were reluctant to part with their equities at depressed prices were able to sell gold in order to meet the margin calls,” prompting the recent declines in the price.

“This is exactly the same as what happened a week and a half ago before the emergency rate cut from the Federal Reserve, and when equities dropped dramatically in 2008, 2001, 1987, etc.” he told MarketWatch. “In all those previous cases, investors were able to take advantage of gold’s liquidity to meet margin calls, and the gold price quickly recovered within days [or] weeks. That is what I am expecting to recur this time around.”

 

Published: March 13, 2020 at 2:42 p.m. ET
By Myra P. Saefong and Mark DeCambre

David

'Confused' Wall Street split on near-term gold-price direction

Some might argue that gold prices have been unpredictable lately, thus maybe it seems fitting that Wall Street analysts are split on price direction for next week, based on the weekly Kitco Gold price survey.

Main Street, however, remains bullish.

Since coronavirus became a household word in 2020 as the illness spread around the world, equities have been mostly on the defensive on worries about the impact on the global economy. At times, gold has benefited from stock-market weakness, getting a safe-haven bid. But at other times when stocks were getting hammered, analysts said some traders were having to sell profitable positions in gold to help meet margin calls and offset losses in other markets.

"Gold traders are presently confused by the volatile, up-and-down price action in gold the past week," said Jim Wyckoff, senior technical analyst with Kitco, who looks for choppy, sideways trading in a "non-trending" market.

Fifteen market professionals took part in the Wall Street survey. There were six votes, or 40%, for both higher and lower prices next week. Three participants, or 20%, were neutral or called for sideways prices.

Meanwhile, 1,434 votes were cast in an online Main Street poll. A total of 873 voters, or 61%, looked for gold to rise in the next week. Another 363, or 25%, said lower, while 198, or 14%, were neutral.

In last week's survey for the trading week now winding down, Wall Street and Main Street were both heavily bullish. Needless to say, their collective prognostication missed the mark, with Comex April gold down by 5.9% for the week so far to $1,573 an ounce just before 11 a.m. EST. Still, both Main Street and Wall Street have been right more often than not so far this year. Assuming gold remains lower for the week, both will finish Friday with 6-3 records so far in 2020 for a winning percentage of 67%, based on settlements in the April futures.

Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, looks for gold to bounce.

"Gold is being hit again with liquidation as the markets melt down," he said of the weaker price action this week. "In these market panics, it is a source of liquidity. But once the panic liquidation subsides, even if the broad markets do not recover, gold will resume its role as a hedge and move up."

Richard Baker, editor of the Eureka Miner's Report, looks for gold to return to the $1,620 area next week as the recent selling abates.

"The best news for gold this week was its performance relative to the embattled S&P 500," Baker said. "Gold has recovered all the value lost to this equity benchmark since the 2018 presidential election…and more. Even while dropping below $1,600, the gold-to-S&P 500 ratio (AUSP) spiked to levels not seen since late 2016. From October 2018, the AUSP has been on an uptrend of higher lows; gold has doggedly gained value on equities. This is a bullish sign going forward, leaving the path clear for the $1,800 level in 2019."

Further, Baker added, negative real rates continue to mean a "very bullish environment for a non-interest-earning asset like gold."

Peter Hug, global director of metals trading with Kitco, said he looks for gold to end higher after next week's meeting the Federal Open Market Committee. Policymakers are expected to deliver another rate cut on top of the 50-basis-point emergency cut early this month.

Meanwhile, Daniel Pavilonis, senior commodities broker with RJO Futures, looks for further near-term weakness in gold before the metal bounces.

"With the dollar popping [higher] and stocks popping, we may come off a little bit lower in gold," he said.

Equities may bounce next week as the Federal Reserve acts to try to control the economic impact of the coronavirus, with gold slipping, Pavilonis said. But then, he continued, equities may turn lower again, with gold moving higher.

"I think we may stay down nest week," said Phil Flynn, citing the potential for more liquidation, "as well as the rising possibility of gold sales from global central banks to raise liquidity to attack the coronavirus. Russia, a big holder of gold, may use that as a backstop to ride out its oil price war with Saudi Arabia."

Chimed in Mark Leibovit, publisher of VR Metals/Resource Letter: "I warned of a cyclical peak, which is typically common this time of year. Gold is overvalued over $1,445. Can it go there? Depends if the financial crisis underway forces more liquidation in the gold market."

Andrew Hecht, a precious metals contributor to Seeking Alpha, said he expects "wild conditions" with gold "up and down."

"Risk-off in 2008 gold dropped from over $1,030 to $681, and then [gold] rose to a record high in 2011," he pointed out. "Central-bank policy is ultimately bullish."

 

By Allen Sykora
For Kitco News

 

David

Bloodbath = golden opportunity

I have a simple but critical point to make today. The best time to buy gold stocks in my entire career so far was after the crash of 2008.

This historic opportunity is repeating itself.

Consider today’s mid-day decline in gold prices.

We've seen this before…

Gold gapped down on October 13, 2008, from $900.50 to $831.50.

In that case, this happened just a few weeks before the bottom. For reasons I’ve written about before, I failed to invest at that time and missed out on some life-changing opportunities. I'm not going to miss that chance this time.

When will that be?

I won’t pretend to know how closely history will repeat itself, but I’m skeptical that monetary and fiscal policy can prevent a global economic recession that could take markets much lower.

Why?

Because—whether it should or it shouldn’t—the proximal cause it still getting worse.

The COVID-19 outbreak is changing consumer behavior. It’s causing businesses to slam the brakes. It’s prompting governments to take extreme actions. And both the number of cases and the fatalities are going vertical.

Now, I’m not a doctor, and I’m not looking to make an argument about the medical realities of the situation.

In terms of public perception, it may matter more that beloved actor Tom Hanks has COVID-19 than that almost 5,000 people have died from it. The NBA cancelling its entire season, Trump banning travel from Europe for 30 days, universities sending students home… the pile-on here just keeps growing.

As a speculator, I see these trends accelerating, and I can’t ignore them. I can only conclude that the consequences will get worse until the lines above have peaked and the public believes things are improving.

So how will we know when the bottom is in?

We won’t for certain, except in hindsight. But as I’ve already written this week, we don’t need to be able to buy at the exact bottom in order to be able to make a lot of money. Near is good enough.

What a different a bit of experience makes…

I remember how I felt in 2008. It was like an elevator car dropping out of under me—repeatedly. This time, I saw it coming, took some profits, and prepared myself mentally to hunker down and get ready to buy when I’m sure the bottom is in. I don’t feel bad or disoriented at all. I feel eager.

I'm so looking forward to bottom-fishing that my greatest struggle now is to hold myself back when I see already great bargains. I know exactly what I want to buy.

This is why I like to say that times like this are like having a stock-market time machine. We can’t travel to the past, but we can buy at prices we missed in the past, before the future revealed which stocks would be winners.

I’m excited.

I’m as happy to have a chance to buy these stocks on the cheap as I would be to be able to buy a brand-new Ferrari for the price of a used Yugo.

I hope you are as well.

And I’d love to help you make the most of the opportunities before us as well.

If you’d like to know where I’m planning to deploy my own hard-earned cash, please check out my flagship newsletter, The Independent Speculator. You can try it for a month at relatively little expense and cancel if you decide it’s not for you.

If you already know what you want to buy and have questions about what to hold or sell, please try out my Consumer Reports-style newsletter, My Take. Again, you can try it for a month at relatively little expense and cancel if you decide it’s not for you. Note: due to heavy demand, we are doubling the price of My Take on April 5, 2020. Existing subscribers will be grandfathered.

And if you’d rather do all this on your own but just want my analysis of general market trends like the above, please make sure you’re signed up for our free weekly email, the Speculator’s Digest. I promise we won’t spam you with daily sales pitches. I will, however, do my best to deliver valuable, original analysis not published anywhere else, every week.

Whatever happens next, it will be chaotic—which means it will be full of opportunity.

Caveat emptor,
 

By Lobo Tiggre

David

NBA suspends season after Jazz player tests positive for coronavirus

The National Basketball Association (NBA) said on Wednesday it was suspending the season until further notice after a Utah Jazz player tested positive for the coronavirus.

The test result was reported shortly before the Jazz were due to play the Oklahoma City Thunder at Chesapeake Energy Arena. The game was then scrapped.

The league said the affected player, reportedly Jazz center Rudy Gobert, was not in the arena.

“The NBA is suspending game play following the conclusion of tonight’s schedule of games until further notice,” the league said.

“The NBA will use this hiatus to determine next steps for moving forward in regard to the coronavirus pandemic.”

More than 119,100 people have been infected globally by the flu-like virus and nearly 4,300 have died, according to a Reuters tally of government announcements. The pandemic rocked the North American sports calendar on Wednesday, leading to the cancellation of the figure skating world championships and the announcement that college basketball’s annual ‘March Madness’ tournament would take place without fans in attendance.

Miami Heat head coach Erik Spoelstra said his team were “stunned.”

“This is a very serious time right now. I think the league moved appropriately and prudently,” he said.

Dallas Mavericks owner Mark Cuban said the situation was “crazy”.

“This can’t be true,” he told ESPN as his team played the Denver Nuggets.

“This is not in the realm of possibilities. This seems more like out of a movie than reality.”

David

M&A is inevitable: Orefinder's Steve Stewart

While the uptick in gold has benefited most of the producers, juniors still haven't seen their share of the gains, but Stephen Stewart, CEO and director of Orefinders, believes deal-making is inevitable.

"The producers started seeing the cash flow to their bottom lines in Q3, and they've been performing well ever since. I think there will be incredible pressure to deploy that capital carefully," said Stewart. "The current narrative coming from the funds is to do dividends or re-invest the capital in their own projects."

Stewart lauds the miners for listening to their investors, but he said that there is a systematic issue that people aren't realizing: miners have been depleting their resources for five to six years.

"My thesis is that M&A is inevitable, whether it is today or tomorrow. I don't know when. It is just inevitable."

 

By Michael McCrae
For Kitco News

David