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Metal Market Report May 2020 - Week 1 Edition

May 2020 - Week 1 Edition

Track Record for the First Four Months of 2020

Gold is still the only major investment with a positive track record for the first four months of 2020. Most other major investments have declined by 10% or more, with crude oil down by about 70%.

For the 20+ years since the birth of the new century, gold is up about five times more than the stock market. Gold is up 487% vs. 94% for the S&P 500 – or 5.2 times the gain in 20 years and four months.

Gold Remained Above $1,700

Gold remained above $1,700 while silver fell below $15. Through April 30, gold is up 12.4% this year while stocks are down double-digits by most measures. Gold is still rising despite a strengthening dollar, which is based mostly on the deepening rift between China and the U.S. over blame for the coronavirus. On Sunday, U.S. Secretary of State Mike Pompeo said that there is “enormous evidence” that the COVID-19 virus came from a lab in China and that Beijing covered it up. China has denied this and said the U.S. is “lying.”

Gold American Eagle Sales Rose 950% in April and +260% in First Four Months of 2020

At the U.S. Mint, there have been shortages of Silver American Eagles and plant shutdowns due to fear of COVID-19 contamination, but Gold American Eagle sales have soared. Sales in April reached 105,000 gold ounces, up 950% from the 10,000 ounces sold in April 2019.  For the first four months of 2020, Gold American Eagle sales total 323,500 ounces vs. 90,000 ounces in 2019, a gain of 259.4%.

Sales of Gold American Buffalo coins are nearly as brisk. April sales of Buffalo 1-ounce coins rose to 28,500, up 338% from the 6,500 sold in April 2019.  Year-to-date, Gold American Buffalo coin sales are up 180% over the same period in 2019, with 116,000 ounces sold this year vs. 41,500 ounces last year.

Silver sales are up, but not so dramatically due to temporary plant shutdowns and limited shipments to authorized dealers. The sales of Silver American Eagles in the first four months of 2020 have reached 10,728,500 one-ounce coins vs. 8,121,000 last year for a gain of 32.1%. March was the biggest month for Silver American Eagle sales with 5,842,500 coins sold (vs. 850,000 in March 2019), but there were plant shutdowns in April. American Eagle production was resumed at the West Point Mint on April 21.  If they could have produced more coins, sales would certainly have gone higher in April, but the Bureau temporarily reduced production in several facilities to reduce the risk of employee exposure to COVID-19.  If you need gold or silver eagles call us today.  We still have product available!

Bank of America Sees $3,000 Gold in 2021 – Developing New Gold Bullion Customers

History has demonstrated that when large, established mainstream financial institutions start promoting gold investments the gold market begins to take off and a large group of new gold investors is created. Then, within 6 to 24 months, a significant proportion of those new bullion customers (maybe 10% to 20%) graduate up to the tighter rare coin market, lifting many rare coin prices by 100% to even as much as 1,000% after gold bullion rises first.

Last year, a unit of Bank of America (BankAmerica Securities) recommended that investors hold a 25% position in gold. Then in late April Bank of America commodity analysts said that gold’s momentum could drive it to a new all-time high this year and then push prices to $3,000 next year – a 50% increase from B-of-A’s previous forecast of $2,000 next year. Bank of America analysts wrote: “As economic output contracts sharply, fiscal outlays surge, and central bank balance sheets double, fiat currencies could come under pressure. And investors will aim for gold.” After pointing out that the Federal Reserve boosted its balance sheet by 50% to $6.42 trillion recently, these analysts said, the Fed “can’t print gold.”

The beginning of several past rare coin bull markets has usually included bullish predictions and gold portfolio recommendations from mainstream financial institutions like Bank of America. I’ve seen it happen many times over the past 50 years!  Call us today before prices rise more!

Understanding the Recent Price Discrepancies in Silver and Gold

The U.S. Mint has raised premiums on some products, so dealers have had to pass on those premiums to their customers. That is one reason why you are seeing higher prices for U.S. Mint bullion-related products lately.  Another reason is there is more demand than there is product in the secondary market.

There have also been price discrepancies in other commodities, most notably oil. Last week, the May crude oil futures contract closed deeply below zero as no investor wanted to take possession of the oil.

Gold has not escaped these price anomalies. Fear of the coronavirus has disrupted large shipments of gold, and created price discrepancies between the futures price in New York and the London spot price.

On March 14, President Trump limited flights between Europe and the U.S., including those from Switzerland, home of the world’s four largest gold refineries. The following week, three of those four refineries were shut down as being “non-essential.” Compounding the danger, those three refineries are in the Swiss canton of Ticino, bordering Italy, where the virus is most concentrated. The end result was that gold was not being refined and flown out of Switzerland to where the big institutional gold buyers were.

Suddenly, taking delivery of gold on the futures market became a problem, so the spread between the spot and futures price expanded from nearly nothing ($1) in mid-March to $60 by mid-April. Usually, arbitrageurs would close that gap, but it was too risky with no gold flights coming to London.  So, the gap kept rising until the flights resumed in late April. This is an unintended outcome from closing commerce.

Currently, most refineries in Switzerland have reopened, but the gold price spread still lingers. On April 30, the spread was $15 per ounce, perhaps because traders fear another quarantine on flights may occur. Another reason is that demand for gold has risen during the coronavirus scare, so there could be a “run on gold” that pushes demand significantly higher, making the rapid delivery of new gold bars a challenge.


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