Americans Just Can't Get Enough Gold & Silver / Commodities / Gold & Silver 2020
Precious metals markets enter the month of May with somemixed signals near term. But thelong-term picture continues to look constructive. All the metals appear to have put in majorbottoms during the panic selling of mid to late March.
Barring another wave of virus outbreaks and economiclockdowns, the gradual reopening of state, local, and national economies shouldstart to unleash more industrial and jewelry demand in the not too distantfuture.
And the extraordinary fiscal and monetary stimulus beingpumped into the financial system will, if nothing else, work toward thedebasement of the U.S. dollar.
Earlier this week, the Federal Open Market Committee metand pledged to keep interest rates near zero for as long as necessary. Inprepared remarks, Federal Reserve chairman Jerome Powell admitted the economyis contracting at an unprecedented rate but vowed that the Fed would come tothe rescue with a “full range of tools.”
Jerome Powell: The forceful measuresthat we as a country are taking to control the spread of the virus have broughtmuch of the economy to an abrupt halt. Many businesses have closed, people havebeen asked to stay home and basic social interactions are greatly curtailed.People are putting their lives and livelihoods on hold at significant economicand personal cost.
Overall, economic activity will likelydrop at an unprecedented rate in the second quarter. Inflation is also beingheld down, reflecting weaker demand as well as significantly lower energyprices. Both the depth and the duration of the economic downturn areextraordinarily uncertain. The Federal Reserve's response is guided by ourmandate to promote maximum employment and stable prices for the Americanpeople, along with our responsibilities to promote the stability of thefinancial system. We're also committed to using our full range of tools tosupport the economy in this challenging time.
The Fed’s tools have built a gargantuan balance sheetthat currently comes in today at a record $6.6 trillion. The ultimate consequences of itsunprecedented actions are still unknown. But the huge rallies in the stockmarket and precious metals markets last month suggest strongly that the centralbank has successfully held deflation at bay.
But all the king’s men have not been able to put HumptyDumpty back together again, at least not yet. In fact, the situation in the real economy continues to worsen at adramatic rate.
This week, the federal government announced thatAmericans filed another 4.5 million new unemployment claims across the U.S.,taking the total to over 30 million jobs lost in the past 6 weeks. This number is set to grow further -- andwill be slow to recover, even when the lockdowns are loosened.
In fact, as spending behaviors continue to change in ourconsumption-based economy, it’s unlikely that certain jobs and businesses willever return. And once the full extent ofthe carnage sinks in with the American people and policymakers, new financialpanics and government interventions could ensue.
Nevertheless, we could see the velocity of the greatlyexpanded currency supply pick up in the months ahead as some people return towork and spend back into the economy. That would have major inflationary implications.
We can look to precious metals markets for clues aboutinflation expectations among investors. Last month gold hit an 8-year high just shy of $1,800 an ounce beforepulling back. That move was notconfirmed by silver or other metals.
However, the more speculative goldmining stocks did record new multi-year highs. The miners led the stockmarket out of its March crash, becoming the strongest sector of all.
That bodes well for gold and silver prices. Mining stockinvestors are anticipating a healthier market for metals producers. And key to their ability to grow theirprofits is being able to sell mined products at higher spot prices.
On Thursday, the World Gold Council reported that totalinvestment demand for the gold surged 80% year-on-year in the first quarter to540 metric tons. Strong bullion buyingand ultra-stimulative monetary policy led Bank of America recently to raise itsupside target for gold to $3,000 per ounce while pointing out “the Fed can’tprint gold.”
Meanwhile, both platinum and silver have traded athistorically large discounts to gold this year. Silver wasn’t able to gain much ground on gold in April. It remainsextremely depressed in the paper market – although somewhat less so in thephysical bullion market where silver coins continue to command large premiumsabove spot.
To be sure, Americans seem to be waking up to a need tobuy financial insurance in the form of physical gold and silver, and a slowingin retail demand is nowhere in sight.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
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