Overconfidence, complacency, recklessness and intoxication appear to characterize today's financial market zeitgeist. An unraveling of the market's speculative euphoria would constitute a near perfect environment for gold bullion and gold mining shares given that the fundamentals have rarely appeared more solid.
As COVID spread in 2020, investors embraced gold and silver as portfolio protection. But the role of these metals extends far beyond this. We explore how precious metals are helping to medically combat the virus and identify several innovative disease-fighting applications that depend on gold, silver, platinum and palladium.
Gold prices have climbed sharply in 2020...The moves cap a year rocked by a pandemic that led to economic restrictions and fiscal stimulus measures, feeding the precious metal’s appeal as a haven investment. Sprott CEO Peter Grosskopf sees the recent pullback in gold as “a healthy correction and a buying opportunity” for investors.
With building anxiety over the U.S. presidential election, investors stepped away from markets in October, including gold bullion and mining equities. The uncertainties of the election and COVID-19's surging second wave have created a "risk mitigation" type market. The gold bull market remains intact and both gold bullion and mining equities are well-positioned under most plausible election scenarios.
With gratitude for a career on Wall Street that has spanned more than 40 years, I have experienced plenty of history. Looking back for an analog to this past year, in many ways, 1968 was a year on par with 2020. As a society, we survived and were able to move forward and grow from the experience, and we benefitted from positive investment lessons learned in the aftermath of 1968. This too shall pass.
Jim Grant in his May 15 Interest Rate Observer discusses gold mining equities with Senior Portfolio Manager John Hathaway, who opines: “Gold shares, in relation to bullion, are the cheapest they’ve been in his 20 years. What astonishes me—I’m an old value investor—is that so many companies are generating free cash flow, and it is not hard to find companies with free cash flow yields of 10% or better.”
Whitney George reflects on markets and the COVID-19 crisis: "We are in a paradigm shift right now, one that may have taken us all a bit by surprise. I expect that central banks will shortly provide the liquidity required to settle the markets, an accomplishment that will be very favorable to gold."
We believe that gold provided what it should during times of crisis, a form of insurance to cash in when liquidity is required. We are comforted that throughout this "policy payout," gold has mimicked its performance in the GFC, during which it was first sold down by holders requiring funds for other purposes and then skyrocketed once liquidity was rebalanced and QE began in earnest. We believe that long-term investors, not subject to margin pressures, will be similarly rewarded by owning gold at this time.
Donald Luskin writes that a consensus for a June interest rate cut is forming: "In the present expansion, the funds-10 curve inverted in late March. So far, at least Powell has not made the mistake of hiking rates. But he hasn’t cut them. We think he should, and we think he will."
If Alan Greenspan and Stanley Fischer can talk about gold as a policy tool, why can't Trump's nominees?....There is nothing wrong with talking about gold. We should follow it more closely not less.
President Trump and White House advisor Larry Kudlow are baiting Chairman Powell to cut interest rates — but Powell himself said last year that he would listen to an inverted yield curve. Don Luskin breaks down the recent changes to the 10-year yield curve and suggests a way for Powell to independently react.
This past week witnessed an unusually rich sequence of gold supportive events. Indeed, four successive developments came so fast and furious that we expect strong performance in the gold complex in coming weeks as investors have a bit more time to process the significance of recent news flow.
TrendMacro's proprietary quantitative presidential election model predicts that Trump will be re-elected by a margin of 294 electoral college votes, assuming economic conditions are the same in November 2020 as they are today. (TrendMacro is apolitical and non-partisan.)
Trend Macro’s Don Luskin anticipates no Fed rate increase on Wednesday, 1/30/19, and explains that a WSJ report, suspected of being "planted," sets up Fed Chair Powell to sound both dovish and smart about the Fed's balance sheet — a way to redeem himself from the humiliating the December FOMC.
Luskin: "The media is falsely characterizing the Trump/Xi trade negotiation breakthrough as a mere 'truce' or 'ceasefire,' indeed claiming that there isn't even any actual agreement arising from the Buenos Aires summit. This is no 'ceasefire,' as no existing U.S. tariffs are being withdrawn. And there is an agreement — both sides officially say so."
Luskin opines that we may be nearing “deal” on the U.S./China trade war. “We’ve been telling clients to look for the word ‘framework’ to emerge in Trump administration rhetoric ahead of the month-end meeting between US President Donald J. Trump and China President Xi Jinping."
Luskin provides a timely analysis of the recent market sell-off. Mid-term elections, the Fed, FANG stocks and a potential trade war with China are all playing a part in October’s market correction. Several of these – especially China – are real and persistent issues. He writes, “Altogether, we’re regarding this as only a correction, not the onset of a new bear market.”
Insights from Sprott
- WGC - Gold: The Most Effective Commodity Investment
- WGC - The Relevance of Gold as a Strategic Asset
- WGC - Gold Outlook 2021
- WGC - Gold Mining’s Contribution to the UN Sustainable Development Goals 2020
- World Silver Survey 2021
- Silver's Growing Role in the Automotive Industry - Jan. 2021
- Silver's Important Role in Solar Power - June 2020
- Silver's Role in a 5G Connected World - March 2020