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Metal Market Report June 2020 - Week 1 Edition

June 2020 - Week 1 Edition

Gold Leads All Investments Through the End of May

Gold still leads all other major investment asset categories through the end of May, although stocks have made a strong comeback in April and May. Gold is up 15% year-to-date vs. double-digit declines in the Dow Jones Industrials and European stock market, while the widely quoted S&P 500 is down 8.3% and the tech-heavy NASDAQ composite has delivered a positive performance of just +5.76% through May 31.

The Wall Street Journal U.S. Dollar Index is up 3.3% through May 31, meaning gold has performed an average 3.3% better in global currencies than in dollars.  Gold is up over 20% YTD in the Canadian dollar, Indian rupee or British pound, and gold is up over 50% in a troubled currency like the Brazilian real.

2020 (Year-to-Date) Performance in Stocks vs. Leading Commodities

The biggest story in the precious metals market during the second quarter, so far, is that silver came back from $12 in mid-March to $18 in a little over two months. At one point, the gold-to-silver ratio spiked to 130-to-1, when silver dipped to $12 on March 19 while gold traded at $1,560. That was also the week of maximum panic in the stock market, when gold was the only asset that held its value. Silver has now risen 50% in a little over 10 weeks based on rising industrial demand and rising investor demand.  The current gold-to-silver ratio has now dipped to 95-to-1, the first time it has been below 100-to-1 since mid-March.

Also, since March, we have predicted that silver would catch up to gold, and now it has. The average gold-silver ratio during 2019 was about 85-to-1, and that is probably where the ratio will soon “normalize.”

Silver Tops $18

Silver topped $18 and kept rising, so that silver is now positive for the year-to-date, as it continues to catch up with gold. Gold is also strong, staying above $1,740 as the main “crisis hedge” during the escalation of global tensions on many levels and the new domestic crisis of urban riots in the wake of the tragic death of George Floyd in Minneapolis, on top of the ongoing coronavirus threat and the economic distress of business closings.

U.S. Mint Sales Were Slower in May but Are Up Strongly in 2020

Total sales of bullion coins by the U.S. Mint slowed from their torrid pace in March, but they are still up strongly above the same five months in 2019.  For the first five months of 2020, sales of American Eagle gold coins total 335,000 Troy ounces, up 222% from the 104,000 ounces sold last year. This May, the Mint sold 11,500 ounces, down from April, but 187% above the 4,000 ounces sold in May 2019.

Sales of American Eagle silver coins reached 490,000 ounces in May 2020. Although down from April and from last May, this brings the total American Silver Eagle sales for the year to 11,218,500 one-ounce coins, which is 25% more than the 8,987,000 coins sold through the same five months in 2019.

American Buffalo gold coin sales totaled 2,500 ounces in May, lifting their year-to-date total of 118,500 ounces, which is 166% above their sales level for the first five months of 2019, when they totaled 44,500 ounces.

One reason bullion coin sales were down in April and May was the Mint was often closed due to coronavirus concerns. If the Mint were open more days, sales would likely have been much higher.

Whenever gold and silver prices are rising, as they are now, coin dealers place more ads, and those ads bring in more new customers than usual. As you watch cable TV coverage of various crisis events, you will notice this proliferation of ads. After those new customers buy bullion coins. Within 6-24 months, a good percentage (say 10% to 20%) will graduate into rare coins, often pushing up the prices of rare coins.

Fundamentals for Gold Still Strong, and That’s Also Good for Rare Coins

The fundamentals for gold continue strong as it reaches new highs worldwide and near an eight-year high in the United States, and that is helping to boost increased demand for some rare gold coins.

One reason for the demand for popular rare coins is that when gold and silver prices rise, many bullion buyers eventually also begin purchasing rare gold coins. So, I’m advising clients to take advantage of the market and call us now!

We have found that many quality gold coins with a low population (known available quantity) are being snapped up at higher prices than six months ago.

The recent large-quantity melting of vintage U.S. $10 and $20 denomination gold coins struck in the late 19th and early 20th centuries created a shortage in supply and premiums are rising due to higher demand. The United States Mint also is producing a larger quantity of gold and silver American Eagle bullion coins than last year because of greatly increased customer demand.

Major hedge fund luminaries and large asset managers are bullish on gold bullion as one of the most undervalued investable assets today, and for good reason. Day after day, we are continuing to see moves in Washington for unprecedented federal debt and deficits. The Congressional Budget Office now foresees a $3.7 trillion budget annual deficit for the fiscal year 2020. Remember this advice from Bank of America: the Fed can’t print gold.

Another reason to buy now is gold’s inverse relationship with real interest rates. When interest rates are low, adjusted for inflation, the opportunity cost of holding gold is low and real rates are negative now.

But before you respond to slick print, online or television ads selling gold or silver, I caution that you must know your dealer.

Check their credentials. Just because a coin dealer advertises widely on TV, in magazines or newspapers does not mean they are financially stable or have products in hand. Make sure they have been established for many years, are part of numismatic industry boards, have won awards from industry organizations, and are accredited by the Better Business Bureau.


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