Opinion: ‘There is no gold.’ Bullion dealers sell out in panic buying

Bullion could help your 401(k) or IRA in this crisis

If you think gold GC00, +4.07% has jumped about 10% in a couple of days to $1,638 an ounce, the official price quoted on Wall Street, think again.

The real price? Nearer $1,800. If you can get it.

“There’s no gold,” says Josh Strauss, partner at money manager Pekin Hardy Strauss in Chicago (and a bullion fan). “There’s no gold. There’s roughly a 10% premium to purchase physical gold for delivery. Usually it’s like 2%. I can buy a one ounce American Eagle for $1,800,” said Josh Strauss. “$1,800!”

Major gold dealers have sold out of coins and gold bars amid panic buying as the U.S. economy plunges and the government agreed to a record $2 trillion emergency lifeline.

Kitco, the Canadian gold dealing giant, reported Wednesday that it was out of almost all standard one ounce gold coins. American Eagles and Buffaloes, issued by the U.S. Mint, were out of stock, it reported. Ditto Canadian “Maple Leafs,” issued by the Royal Canadian Mint, “Britannias” issued by the Royal Mint of Great Britain, and “Kangaroos” issued by Australia.

It was out of Krugerrands, issued by the South African government. Those are by far the most widely traded gold coins in the world.

Kitco did not immediately return an email for comment.

Read: Gold faces unique pricing, supply and delivery challenges amid COVID-19 shutdowns

“Due to extreme order volumes, please expect shipping delays of 15+ business days,” warned gold dealer JM Bullion.

Giant U.S. dealer Apmex admits Krugerrands are also out of stock. Deliveries of other coins, including Maple Leafs and Eagles, are delayed “due to extreme demand.” And it is charging a hefty premium for physical gold.

For a one ounce American Eagle: $1,788.

Meanwhile, over at the U.S. Mint, customer service reports they have Eagles available but to buy them direct will cost you $2,175. The media relations team could not immediately be reached.

Almost nobody on Wall Street has noticed the full price surge for actual gold bars and coins. That’s because financial traders mostly just deal in paper “contracts” for gold. Those are basically gold IOUs—a mere promise to deliver gold if the buyer ever wants.

Gold is among the most contentious financial topics around. It pits passionate true believers against total skeptics. People get heated and angry on both sides. Some say it is “the only true money.” Others call it little better than an unproductive superstition. The late British economist John Maynard Keynes called the gold standard, which pegged paper currency to the value of gold, a “barbarous relic” of a bygone age.

What should the average investor make of it? More critically, right now: Is there a case for putting holding some of your retirement account in gold? If so, how and how much?

“We’ve sold most of our gold as interest rates are rising and gold hasn’t liked that for a long time,” says Dennis Nolte, a financial adviser at Seacoast Bank. He adds: “As an asset class gold does best in certain environments, like declining interest rates. We like to own it tactically but not “all weather” as a core ETF (exchange-traded fund) or mutual fund holding.”

“We don’t view gold as a building block when constructing portfolios,” says Rob Greenman, a financial planner at Vista Capital Partners. “The hopes of appreciation are rooted in speculation—perhaps somebody is willing to pay more per ounce in the future versus the price per ounce today. Gold doesn’t produce any interest or earnings. We believe in building portfolios with mix of productive asset classes like stocks, real estate, and bonds around the globe.”

On the other hand, Thomas McCarthy, a financial planner at McCarthy & Cox, a firm that specializes in retirement planning and estates, says putting some of your retirement portfolio into gold isn’t crazy. “Gold can be a hedge against fear and holding a small 5% position of gold in an IRA or 401(k) (very few offer it) is not a bad hedge,” he says. “For clients looking to do so, we use a gold [exchange-traded fund] as opposed to actually buying the physical gold because its significantly less costly and easier to trade.”

But, he warns, “Investors in gold need to remember that gold doesn’t pay interest, doesn’t earn dividends and you make money only if the demand pushes the price higher. Many gold bugs who invested heavily in gold at its peak are still waiting many years later just to break even.”

There is no perfect answer because investing in gold ultimately requires someone else to want to buy it from you. It goes not generate income, like a stock or bond. And it’s not useful either—like food or, as people recently discovered, toilet paper.

Gold requires faith.

The good news? In this crisis you don’t have to choose one side definitely. You can be agnostic and keep your options open.

The events of the past month have upended the financial system. The Federal Reserve—and central banks overseas—have promised to print as much money as is needed to keep economies alive. The U.S. government has agreed to spend $2 trillion propping up the economy, and unless the crisis dissipates quickly that may not be the end of it.

Ordinarily, investors who wanted to protect their accounts from the twin perils of depression and inflation would look to appropriate Treasury bonds. But they are already extremely expensive by any historic measure, so they may offer limited protection. So-called “nominal” or regular Treasury bonds, the type most people own, now sport minuscule interest rates. Even the longest dated, 30 year Treasurys, yield just 1.4%. That is below most expected rates of inflation. Meanwhile Treasury inflation-protected securities or TIPS, a type of Treasury bond that is designed specifically to protect your money against any rise in consumer prices, now offer inflation-adjusted yields that are actually slightly negative. In other words, you’re almost guaranteed to lose a small amount of purchasing power over the life of the bond.

In these circumstances, gold ceases to look quite so crazy as portfolio insurance. There is genuine debate about whether gold offers a “long term hedge” against inflation. And no one actually knows what gold is “really” worth, if it is “really” worth anything. Intelligent, sane financial experts can make plausible cases for a range of values from a few hundred dollars an ounce to many thousands.

But gold makes more sense when viewed, not as an investment, but as a type of currency. It doesn’t produce anything, but it can be used as a medium of exchange. And history strongly suggests that it has a low correlation with other assets. In other words, it tends to “zig” when everything else zags.

It’s certainly done that under the current administration. Gold has risen by 38% since Donald Trump’s inauguration. Meanwhile the S&P 500 SPX, +2.10% index of large U.S. companies is up 13%, and the Russell 2000 RUT, +4.68% index of small U.S. companies is down 8%.

“The case for gold is simple,” says Strauss. “You want to own gold in times of financial dislocation and or inflation. And that’s been the case since time immemorial. And gold behaves well in those cases. In those cases stocks behave poorly. It’s a great portfolio hedge. Gold does poorly when you’ve got strong economic growth and low inflation. Tell me when that’s going to happen. Gold held its value during 2008 and after all that money printing it tripled over the next three years.”

Strauss recommends Sprott Physical Gold, PHYS, +2.94% an exchange-traded fund where shares are matched to actual bullion in a vault. He says he holds 25% of his personal wealth in gold. For those who are agnostics? “I think it’s criminal to go below 10%,” he joked, “but start with 5%.”


ORIGINAL SOURCE: https://www.marketwatch.com/story/there-is-no-gold-bullion-dealers-sell-out-in-panic-buying-2020-03-25

Don’t buy the dip: Why some investors think more big market falls are coming

‘There’s no such thing as a bear market without a bear market rally,’ says one fund manager.


When markets were in freefall under the pressure of coronavirus last month, Gregory Perdon was tempted to fall back on a tried-and-tested maxim that has assured investors a healthy profit for the past decade.

“Every portfolio manager is mindful of the mantra to ‘buy the dip’,” said the co-chief investment officer at London-based private bank Arbuthnot Latham. At first, that included him.

“Initially, I thought this would be a V-shaped recovery,” he said — a speedy return to health for the global economy and the capital markets after a short spell of distress triggered at the end of February by virus outbreaks and lockdowns in Europe. “What changed my view was when the Fed came in all guns blazing, and the markets still went red.”

The U.S. central bank slashed interest rates by a full percentage point, among a series of other supportive measures, before markets opened on March 16. The grand intervention was followed by the deepest stock market declines since 1987, triggering Perdon’s change of heart.

Now he focuses his efforts on what he describes as “curbing the enthusiasm” of some colleagues. “There’s no such thing as a bear market without a bear market rally,” he said.

Since their mid-March low, U.S. stocks have gained about 25 per cent, technically lifting them back into a new bull market, albeit one tinged with extreme uncertainty over the outlook for companies and the global economy.


This presents a dilemma for investors. Is it wise to piggyback on the government and central bank support pouring into financial markets and snap up assets while their prices are still beaten up? This could, in years to come, end up being seen as the buying opportunity of a lifetime. Or is the epic shake-out in markets in March just the start of a long, slow decline in riskier assets?

Deep pullbacks are, after all, a common feature of markets in the immediate aftermath of abrupt crises, as was evident in 2001, 2008, and even back to the great U.S. stock market crash of 1929 and the subsequent Great Depression. U.S. stocks did not reclaim their 1929 highs until 1958. Some analysts therefore reckon that the rally since late March is what is often dubbed a “bear market trap”.

Robert Buckland, chief global equity strategist at Citi, points out that a decent rule of thumb is that stock markets fall roughly as much as corporate earnings do. The depth and extent of the global recession indicates that profits should halve this year — but the FTSE All-World index is now back within 20 per cent of its peak.


Some analysts reckon that the rally since late March is what is often dubbed a ‘bear market trap’

Fund managers must try to balance the huge scale of central banks’ support — underlined again on Thursday when the Fed announced yet another big support package to the tune of US$2.3 trillion — against economies in deep distress, as seen in a record-breaking acceleration in U.S. job losses.

Not everyone is convinced the stimulus is enough. Bank of America analysts note that U.S. equities have never taken less than six months to find their bottom, once they have tumbled 30 per cent and the economy is in a recession. They therefore predict that markets have further to fall.

“While those banking on a rapid equity market recovery are (expecting) unprecedented stimulus to erase the pain, history would also suggest they may be banking on a miracle,” they wrote in a recent report.

Signs that the coronavirus spread is slowing is not necessarily enough, either. Some analysts point out that while some countries — such as Norway, Denmark, the Czech Republic and Austria — have recently announced plans to gradually end their lockdowns, the economic damage is likely to linger.

Howard Marks, the 73-year-old billionaire founder of Oaktree Capital Management famed for his knack for scooping up bargains at times of economic distress, said in a note this week that with the course of the virus so difficult to predict, and its effects so sprawling, investors should be willing to admit that they simply do not know what happens next.

That is a tough task for a profession that prides itself on making predictions and anticipating their market impact, but “no one can tell you this is the time to buy”, he wrote. “Nobody knows.”

Nonetheless, Marks said that extreme caution was now no longer warranted, given drops in asset prices and the wave of central bank support that has neutralised some systemic risks. He recalled how he and his partner Bruce Karsh snapped up US$450 million worth of corporate debt each week for 15 straight weeks after Lehman Brothers went bust in 2008.

“What I would do is figure out how much you’ll want to have invested by the time the bottom is reached, and spend part of it today,” he wrote. “Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left to buy more. That’s life for people who accept that they don’t know what the future holds.”


ORIGINAL SOURCE: https://business.financialpost.com/investing/dont-buy-the-dip-why-some-investors-think-more-big-market-falls-are-coming

Canada, U.S. in talks to extend border closures amid pandemic, sources say

U.S. and Canadian officials are holding talks that will almost certainly lead to an agreement to keep the land border closed to non-essential travel for at least another few weeks, sources say.

The border between Canada and the United States was restricted to all non-essential travel on March 21, for a 30-day period that ends April 19, in an effort to stem the spread of COVID-19.

The partial closing of the border did not affect essential travel, including truck and rail traffic carrying food and goods, key to supply chains, as well as travel to work. Flights between both countries continue but have been restricted. The border closing also applied to migrants crossing the border by foot at informal crossings, but not to temporary foreign workers who are needed by Canadian farmers and other food production.

Sources, who have knowledge of the talks, say U.S and Canadian officials are discussing whether to reopen the border to non-essential travel, although they say it’s very unlikely that those restrictions would be lifted. The sources say the discussions are more focused on whether to extend the border restrictions for two weeks or another 30-day period. The Globe and Mail is not revealing the names of the sources because they were not allowed to publicly discuss the bilateral negotiations.

Perrin Beatty, president of the Canadian Chamber of Commerce, said an extension of the restrictions make sense as long as the novel coronavirus remains a threat on both sides of the border.

Mr. Beatty said the border measures were put into effect for valid medical reasons, but the U.S. and Canada took into account the need to ensure the flow of goods across the Canadian, U.S. and Mexican borders.

“Our sense is that for business purposes, the border is quite fluid,” he said. “Obviously for Canadian businesses, we need to be able to get supplies from other countries, and it is particularly important for North America, now that there are problems with supply chains in other parts of the world.”

Mr. Beatty said Canadian supermarket executives, for example, have told him that they are able to get farm produce from Mexico by land without any problems at the U.S.-Canada border.

“Even within Canada, we have restrictions on movement so it certainly makes sense to have restrictions at the border of your country as long as the medical threat remains high,” he said.

Mr. Beatty said the challenge ahead is to ensure that there is a national plan to restart the economy, which will likely happen on a sector-by-sector or region-by region approach.


“Our supply chains that run across provincial boundaries are more important than ever before, because many of our supply chains have been disrupted. So having co-ordination and being able to source supplies from provinces, where restrictions may be more strict, is going to be critical for businesses that reopen in other areas,” he said.

Reopening the border for non-essential travel would not make sense at this time, especially along the Ontario and Quebec borders. New York and Michigan have been hit hard by the COVID-19 outbreak.

Elliot Tepper, senior fellow at the Norman Paterson School of International Affairs, said health authorities on both sides of the border would support extension but he expressed concern about reports in The New York Times and other U.S. media that the Trump administration, led by White House trade adviser Peter Navarro, are pushing for partial reopening of broad sections of the U.S. economy on May 1.

“If the U.S. reopens its economy in any significant ways, and we do not, that will create a health security situation of an entirely new magnitude,” Prof. Tepper said.

“If Canada remains locked down and cautious about reopening, based on the best health expertise we have available, and right on the other side of the border, our main partner in so many ways, reopens in ways that can lead to a second wave of infection, that will fundamentally transform the border situation.”

Prof. Tepper said this would pose a problem for Prime Minister Justin Trudeau because President Donald Trump himself has indicated that he is keen to reopen the U.S. economy as he heads into an election year.

Christopher Sands, director of the Canada Institute at the Washington-based Woodrow Wilson Center, said the border measures have not been perfect, citing initial U.S. plans to post troops along the northern U.S. border and the order to stop 3M from supplying medical equipment to Canada.

But despite this, Mr. Sands said both countries have overcome the difficulties and demonstrated that they can co-operate in shared economic interests.

“The first 30 days of joint border restriction have not ended, but I think the governments should renew this arrangement. It hasn’t gone smoothly from a messaging standpoint, for which Ottawa as well as Washington bears some responsibility,” Mr. Sands said. “But actions on the ground have been positive and justify an extension of the arrangement as one important tool in the box for stalling the spread of COVID-19.”


ORIGINAL SOURCE: https://www.theglobeandmail.com/politics/article-canada-us-in-talks-to-reopen-border-amid-pandemic-sources-say/