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November 2020 - Week 2 Edition

November 2020 - Week 2 Edition

Gold is One of the Winners of the U.S. Election” – Barron’s, November 9, 2020

In the upcoming edition of Barron’s, going to press Friday night, the outlook for gold was strong, and nothing really changed over the weekend, except that Pfizer chose to announce its big vaccine news in the “Biden era” and drive gold down briefly. However, the principles in this pro-gold column still apply.

Barron’s author Myra Saefong says to “Expect the precious metal to be a winner no matter the outcome” of the election. The first gold expert she quoted is Frank Holmes, CEO of U.S. Global Investors, who sees gold reaching $4,000 by 2023, mostly due to the Federal Reserve’s massive expansion of cash in the system, and fuel inflation by 2022.  This is especially true with Democrats controlling the House, even if the Republicans retain a slim one-vote edge in the Senate. Either way, deficit spending will increase, whether or not COVID-19 is mostly crushed early next year – or well into 2021 or even into late 2022.

Juan Carlos Artigas, head of research at The World Gold Council, adds that negative interest rates in major world markets reduce the “opportunity cost” of holding gold in Europe, Asia and America, meaning there is no “lost interest rate income” with gold. This is true no matter the balance of the U.S. Congress. Interest rates have been near zero in Europe and America since the financial crisis of 2008.

There is a great deal of cash on the sidelines now, waiting for clarity. Since the election, this cash has been rushing into stocks in a “relief” rally for those who believe Biden will bring some “normalcy” after the perceived division of the Trump years.  However, when this “honeymoon” is over and the deficits keep rising, COVID is not totally eliminated and debts increase, gold will have its day again. George Gero, Managing Director at RBC Wealth Management, said global investors are raising cash and may favor gold, which “will become an economic barometer and a currency not just for trading.” He sees gold initially moving back to $2,000.

Also, recall the earlier predictions of Goldman Sachs and Bank of America – that we could see $50 silver and $3,000 to $5,000 gold within the next 2-3 years if we saw a Biden victory in the current election.

Gold and Silver Show Volatility

Gold fell on Monday, November 9, from $1,960 To under $1,860 an ounce in under six hours, from 6am to noon (EST), based on preliminary announcements of an effective COVID-19 vaccine being available, however that conclusion is premature and there is no reason why a solution to COVID-19 should in any way be related to the price of gold. The Congress and the Fed have already over-spent $3+ trillion in 2020 and they are on track to over-spend by at least $1 trillion per year under President Joe Biden, especially if Biden succumbs to the policies of Kamala Harris, Bernie Sanders and Alexandra Ocasio-Cortez.  Either way, future deficits will only escalate, driving the price of gold and silver much higher.

On Tuesday, gold returned to $1,880 and should return above $1,900 when the market settles back into the reality of future U.S. debts and monetary creation vs. static gold supplies and rising gold demand. Although it may seem shocking to see gold fall $100 in a few hours, gold is trading about where it was 10 days ago, as of October 30. Even though gold soared in early November, it traded at $1,870 on October 28-29.

Countdown to the “Roaring 20s” of New Coin Designs

After the election, coin investors can turn their attention to 2021 in more ways than one. Then it will be only two months until the start of a series of new coin designs in the 2020s, starting in 2021.

First, we are likely to see commemorative versions of the Morgan and Peace dollars in 2021 to mark the centennial year of the final Morgan dollar and first Peace dollar in 1921. In mid-2021, we will also see a change in the reverse design of the gold and silver American Eagles. These will engender new interest in both the old and new designs and generate new interest in coin collection, resulting in numerous new ads posted in various media, which generates new customers. Experience has shown us over the years that about one out of six of these many new buyers of bullion coins later turns into buyers of numismatic coins, strengthening the market for years.

After 2021, we will see another series of circulating coins to be implemented between 2022 and 2030:

•Circulating quarter dollars honoring women to be issued from 2022 through 2025.
•Circulating coins in multiple denominations in 2026, celebrating America’s 250th birthday.
•Award medals for the 2028 Olympic Games in Los Angeles.
•Silver bullion coins with the same designs as all of the quarter dollars and half dollars authorized from 2022 through 2030, in the now standard 5-ounce size and in fractional sizes.

In addition, we will likely see new alloys used in forthcoming coin mintages. This will also create new interest in the collector and investor communities, since first-year issues are especially popular, and their mintage totals are sometimes limited. The primary reason for these new alloys is to reduce production costs and limit future shortages. Coins under consideration for change are the copper-plated zinc Lincoln cent, copper-nickel Jefferson 5-cent coin, copper-nickel clad Roosevelt dime and copper-nickel clad America the Beautiful quarters. The cost savings will be greatest for the lower-denomination coins.

The Mint has come up with potential compositional alternatives that offer cost savings for most small coins, except the cent. (None of the currently known possibilities would bring the cent’s cost below face value.) Possibilities determined by the Mint for the 5-cent, dime and quarter dollar denominations would incorporate manganese with some copper and nickel in the alloy.  Other alternative alloys include steel.

(Of course, I have long argued we should eliminate the Penny coins, but that is another story for another day.)

 

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