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Metal Market Report May 2020 - Week 4 Edition

May 2020 - Week 4 Edition

Silver Outpaces Gold During May on Hopes for Economic Recovery

“Soaring Silver Prices Lure Haven-Seeking Investors” --Wall Street Journal, May 19, 2020

Last Tuesday, the Wall Street Journal reported, the nearest-month silver futures price reached $17.892 per Troy ounce, rising 14% in the past four sessions and +52% from its March low. This is in immediate response to news of a promising coronavirus vaccine development the previous day but more in response to the 50 states announcing a variety of plans for opening up their states to business in June and beyond.

The progression of the gold-to-silver ratio this year marks the influence of the coronavirus on business:

Gold soared during the coronavirus scare while the industrial commodities retreated. Now, silver is returning to favor, with the gold/silver ratio finally retreating back to 100-to-1. Silver has an additional attraction, as the Journal article shows, as a “safe haven” during crisis times. Silver has a double role as an industrial metal (about 60% of demand), with jewelry (20%) and bullion coins and bars (20%) giving silver added glitter as a precious metal. As part of the bullion demand, silver exchange-traded funds (ETFs), like the iShares Silver Trust, have posted big inflows, and they must buy an equivalent amount of physical bullion to match the paper demand from ETF investors. London-based research firm Capital Economics said, “We think safe-haven demand for silver will continue to be a key driver of prices.”

Whenever gold and silver prices are rising, as they are now, and major newspapers and magazines back them up with positive articles, coin dealers place more ads, and those ads bring in more new customers than usual. Then, a larger percentage of those callers will buy bullion coins. Within 6-24 months, a good percentage (say 10% to 20%) will graduate into rare coins, pushing up the prices of select rare coins.  Demand for popular rare coins is increasing.  Call us today to find out about our latest purchases.

Commodities are Recovering, but Gold is Still a Better Bet than Oil

Commodities are beginning to recover, along with the global economic restart. Last week, the S&P GSCI Commodity Index rose 4.5% for its fourth straight weekly gain. Despite that, it’s still down 33% from its recent high on January 6, 2020 and -40.7% below its cyclical peak on October 3, 2018. Of the 24 major commodities, only one is still in positive territory for the year-to-date through last Friday, May 22:

The two best are precious metals and the four worst are all energy related. Last week, the biggest gains came from the energy field. Crude oil was the best performer last week (+11.7%), followed by Brent Crude, a sweet light crude extracted from Europe’s North Sea (+8.7%), then heating oil (+6.8%), but many analysts feel oil’s rapid recovery has gotten ahead of itself, since (1) the world is still awash with excess oil, (2) demand is still way below normal; (3) producers refuse to cut production; (4) renewable energy sources are in greater demand; (5) pension funds are refusing to invest in energy stocks and (6) the Energy Information Agency (EIA) has lowered its forecasts for global oil demand this year and next.

By contrast, gold’s fundamentals are strong. The Commodities column in Forbes this week is titled “Gold May Hit Record, but The Climb Won’t Be Easy.” The record-high settlement of a gold futures contract, according to the article, was $1,891.90 on August 22, 2011, using Dow Jones Market Data. Last Friday’s gold futures close was $1,735.50, so it would take a 9% increase to reach a new high of $1,892+.

Peter Grosskopf, CEO of gold mining analyst Sprott Inc., said that gold does equally well in inflation or deflation but the main factor favoring gold now is “the amount of debt being created,” which has fueled buying by “participants ranging from state funds to pensions to [high-net-worth] clients to hedge funds.” He added that, “more investors need to add gold as a protection asset in their portfolios.” That will “create more demand than the market can handle,” pushing gold to “$1,900 or $2,000 by the end of 2020.”  I implore you to call us today to buy gold!

Gold Rose as China Devalues Yuan

Gold reached $1,757 last week, its highest levels since October 2012, based on rising tensions between China and the U.S., including a new plan from Beijing for increased security enforcement in Hong Kong. Over the weekend, China devalued its yuan to a 12-year low, artificially boosting its trade advantage, further alienating the U.S. and other trading partners. On Monday, gold fell $17 while silver stayed level.


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