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Metal Market Report May 2020 - Week 2 Edition

May 2020 - Week 2 Edition

Another Major Bank (Wells Fargo) Issued a Strong Gold Report Last Week

Last Monday, May 4, Wells Fargo Bank issued a report on Real Assets, in which John LaForge, Wells Fargo’s Head of Real Asset Strategy opened with this headline: “Gold may test its all-time highs, adding, “Gold has a host of economic and market factors working in its favor, and we are increasingly confident that gold could test its all-time high of $1,900 this year.” Wells Fargo has already upgraded its year-end 2020 gold target price three times this year and now sees this new all-time high above $1,900.

LaForge explains that “gold has a host of economic and market factors working in its favor. Of course, the increased volatility in 2020 is one. Gold’s prime macro driver, though, continues to be the direction and level of global interest rates, and their persistent flirtation with the negative. Since 2016, gold has increasingly been used by investors as a hedge against the unknown impacts of sinking, and persistently low, long-term interest rates. Recent global injections of money by central banks (quantitative easing, or QE), in reaction to the coronavirus’ economic effects, has only added fuel to this hedge.

“Gold is also being used by investors as a substitute for long-term bonds as a perceived ‘safe asset.’ With no particular ties to a government or other bond issuer, we believe gold looks attractive to long-term investors.  The bottom line is that we continue to like gold as part of a well-diversified portfolio, particularly in light of additional global QE, and persistently low and falling long-term interest rates.”

As I explained here last week, the beginning of past rare coin bull markets of 100% to 1,000% gains has usually included bullish predictions and gold recommendations from mainstream financial institutions like Wells Fargo. These bull markets are usually accompanied by more advertisements by major coin dealers for bullion coins and more customers responding, which many times lead (usually within 6-24 months) to a rare coin bull market.

I’ve seen it happen many times! But one thing customers must always be aware of is that not all coin dealers are created equal. I have just been working with a customer of another coin dealer who has spent over $20,000 in the past few months and waited patiently for shipments of coins which have not arrived. I am working with him, and various agencies, to either gain delivery or get his money back.

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 several numismatic industry boards, have won awards from industry organizations, are certified by the Better Business Bureau, know how to spot counterfeits and grade “sliders,” and have too much to lose by failing to deliver quality products on time.

By checking our credentials, I think you can see we set the standard in numismatic business leadership.

World Gold Council Reports Net Cash Inflow for Gold-Backed ETF Funds

Gold Remained Above $1,700.  The U.S. dollar has risen so far in 2020, making gold strong in other currencies, so gold remains a favorable asset among global investors. The World Gold Council reported last week that global gold-backed ETF funds had net cash inflows for the sixth straight month in a row.

Despite This National Shutdown, Americans are “Awash in Cash”

It may not seem evident if you listen to the doomsday press, but this nation is awash in cash. This is not like the Great Depression, when the Federal Reserve shut down the Treasury printing presses. The central banks of Europe, Asia and the U.S. have turned on the printing presses 24/7 – and so has Congress.

How much new cash? On “Fox News Sunday with Chris Wallace” this week, Treasury Secretary Steve Mnuchin said the federal government has created $5.5 to $8.0 trillion out of thin air in just two months.

Mnuchin said: “The House and the Senate worked together to get over $3 trillion into the economy [and] another $2.5 to $5.0 trillion working with the Federal Reserve. This has never been done before… We spent a lot of money. A lot of this money is not into the economy yet…. We want to make sure that before we jump back in and spend another few trillion of taxpayer money that we do it carefully.”

At the same time, the government has not asked for much in taxes, delaying the April 15 deadline to July, while considering abolishing payroll taxes for the next few months to put even more cash in our pockets. With most stores closed and people not driving much, that leaves a lot of money in the pockets of those who are working (about 80% of us), and those not working are also getting generous jobless benefits.

A lot of this money is going into gold. Our company and many others are seeing a great wave of business due to the new bull market in gold, but also because many people have plenty of cash on the sidelines.

Here are some of the latest figures: Liquid assets soared $1.7 trillion from the end of February through the week of April 20-24, to a record $15.5 trillion.  In addition, many businesses took out loans, fearing a cash crunch. Commercial and industrial loans rose $657 billion from the end of February through the week of April 20-24, a rapid surge that has never happened since these statistics have been kept (since 1973).

Our personal savings rate is also spiking. In March, when the lockdown began, households cut back spending sharply – by not driving or eating out, and not even paying rent or taxes in some cases. In most cases, they were still generating income, so their savings soared, rising from $1.3 trillion (annual rate) in February to $2.2 trillion in March. The savings rate rose from 8.0% in February to 13.1% in March.

When the states begin sending people back to work, many will feel safe spending some of this savings. I predict that a great amount will likely find its way into the gold and rare coin market, pushing many prices up.


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