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Bullion shortage panic – what to do

Posted on April 9, 2020April 9, 2020 by sunny

An unsurprising consequence of the COVID-19 outbreak and the resulting flood of easy money (dwarfing even that of 2008) is a surge in demand for physical gold and silver. The spike in demand for bullion coins is so strong, some mints sold their entire inventories in record time. This has happened before, but this time, mines around the world are shutting down as whole countries go on lockdown.

Suddenly, there’s a shortage—and it may last much longer than the current relatively low prices—especially for silver. Some buyers are panicking.

And not without reason. I tried to buy some physical silver when prices dipped below $12 two weeks ago. I found that even high-volume dealers like Kitco were out of stock. (I don’t work for Kitco, and they don’t pay me to mention them; I simply cite them as a well-known dealer familiar to readers.)

Today, I can buy a tube of 20 1-oz US Silver Eagles for $480. That’s a 66.7% premium over the current spot silver price as I type. It’s $500 if I use a credit card.

What Does This Mean?

The US Mint sold 152,000 ounces of Gold Eagles in 2019. The World Gold Council estimates that global gold trade over the last 10 years was been between 130 million and 160 million ounces of gold per year. There are other coins and other mints, of course, but the fact remains that the entire bullion coin market is a tiny fraction of the global gold and silver markets.

The big ETFs and central banks aren’t popping down to their local coin shop for Eagles and Krugerrands—they buy gold bars by the truckload.

This means that gold and silver enthusiasts should not expect the shortages and high premiums they’re facing to have any significant impact on the spot price of gold or silver.

All the bullion coins in the world are little more than trinkets to the paper-gold traders in New York. They’re still distracted by things like the apparent strength of the USD in foreign exchange markets. They couldn’t care less if the US, Canadian, and Australian mints were all out of stock at once.

That doesn’t mean gold and silver prices won’t go up—just that they won’t do it because of the shortages retail investors are experiencing.

Fortunately, the fundamentals are on our side. That’s assuming you’re as keen to buy monetary metals—gold and silver—and related stocks as I am.

What to Do?

I think silver is going to $25 per ounce or more this year—and much higher over the next couple years. So should I just go with the current reality and pay $20 per ounce now, even though silver is still under $15 as I type?

To each his or her own… but I have not done so.

For one thing, just because mints were caught flat-footed and sold out doesn’t mean there won’t be any more bullion coins until after the COVID-19 outbreak passes. The mints have inventory of metals for fabrication that they are surely digging into now. They’ll also have contracts for delivery, not all of which will be subject to shutdowns. What if the mints themselves shut down? That could happen, but such shutdowns wouldn’t last as long as the pandemic itself.

For another, just because I think gold and silver will head higher this year doesn’t mean they’ll go straight up from here. That’s especially so for silver, which is also an industrial metal, subject to selling on bad economic news. That’s what took prices under $12 last month. And it could easily happen again.

I might pay a high premium if I have to, but I won’t do it until gold and silver are on a strong upward trend, making the odds very much against me getting in at lower prices.

One more thing…

Some readers have asked if they should sell some of their bullion in order to load up on gold and silver stocks in what looks to be shaping up to be the buying opportunity of the decade.

Personally, I see my bullion as savings. Savings have many uses. We tend to think of them as rainy day funds—which they are—but that’s only one use. Dipping into savings to buy a new home or to invest in a new business is a perfectly normal and potentially profitable thing to do.

The same could be said of liquidating savings in order to buy into what could be a life-changing speculative investment opportunity.

I confess I’ve been tempted to do this myself… but I have not done so.

One reason is specific to me: I poured most of my savings into starting my own company in 2018. It’s still a high priority for me to rebuild my savings, so I’m very reluctant to dip into them.

The general reason is that selling bullion to buy stocks is exchanging safe-haven holdings for risk assets.

Honestly, this weighs more heavily in my mind than my own specific reason. Gold and gold stocks are completely different things. I own one for prudence and the other for profit. These purposes are not interchangeable.

So again, to each her or his own. But anyone who dips into their savings to speculate—even if it’s the speculation of a lifetime—must be fully aware that they’re trading the security of physical wealth for possibilities that include much greater and much reduced wealth.

That’s my take,

By Lobo Tiggre

Contributing to kitco.com

ORIGINAL SOURCE: https://www.kitco.com/commentaries/2020-04-02/Bullion-shortage-panic-what-to-do.html

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

Posted on April 14, 2020April 14, 2020 by sunny

‘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

Posted on April 14, 2020April 14, 2020 by sunny

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/

Unprecedented fluctuations in silver and gold demand and premiums have precious metal distributors trying to navigate a new environment.

Posted on June 15, 2020 by sunny

BURNSVILLE, Minn., May 20, 2020 /PRNewswire/ — In recent months, millions have watched as COVID-19 made its way around the world. With it, has come economic instability and unchartered waters for many businesses. The bullion and collectible coin industry has seen extraordinary fluctuations in premiums and demand as buyers and sellers try to navigate a very difficult environment. With supply chains disrupted, shortages have been created on products that were previously plentiful. Industry veterans at Asset Marketing Services have been keeping a close eye on the market during these unprecedented times.

“In the 40 years that I’ve been working in the precious metals and collectible coin industry, I have never seen a market quite like this one. It’s very difficult to compare this time to any other; even the economic crisis of 2008 didn’t compare to the surge in demand, premiums, or supply chain disruptions we’ve seen,” said Bill Gale, President and CEO.

In early March, the stock market took a swift downward turn with the onset of COVID-19 in the United States. Many large financial houses such as banks, financial institutions, and individual investors sold their precious metal contracts to cover margin calls. It was this rapid selling that caused the price of metals to plummet with silver falling over 35% in one week alone.

The spot price of silver remained low throughout April, however, increased investor demand paired with disruptions in supply chains due to Mint closures caused a substantial shortage in the availability of collectible coins and bullion. This sudden shortage resulted in many large distributors paying significantly higher premiums for inventory.

“As I sourced bullion products to accommodate the increased demand we experienced from our customers, I found that the shortage was systemic. I couldn’t easily source the most common of products, like American Silver and Gold Eagles and Canadian Silver and Gold Maple Leaf coins. When I was able to locate them, they were at much higher premiums,” said Barry McCarthy, Precious Metals Buyer.

Industry giants, including the United States Mint, are also feeling the effects of COVID-19. In an effort to increase health and safety measures for Mint employees, the production of American Silver Eagles was temporarily shifted to the Philadelphia branch from April 8 to April 20.

In the last few weeks, silver and gold have seen a dramatic turnaround since the COVID-19 impacts began back in mid-March. As seen in the charts, silver and gold both hit their lowest spot prices on March 19 and have since been experiencing a steady increase.

As many investors continue to flock to physical precious metals, the question remains whether the supply will be able to keep up with the demand.

“Although the market is changing every day, our team is closely monitoring spot prices, stock levels, and premiums so that we can continue to provide our customers with the best prices in the industry. Our goal is to ensure our customers are taken care of during this unprecedented time,” said Andrew Salzberg, Vice President of Product Development.

ORIGINAL SOURCE: https://finance.yahoo.com/news/covid-19-causes-major-disruption-164500219.html

Inflation is coming: Signs that everything is about to get much more expensive

Posted on August 13, 2020March 18, 2021 by sunny

A rundown of all the reasons that your loonies could soon be losing up to 5 cents of value every year.

We have bad news for you, reader: Real estate is crazy expensive, your money isn’t going to do anything for you in a bank account, and now that $20 in your pocket may start hemorrhaging value just by virtue of existing. Below, a rundown of all the reasons that your loonies could soon be losing up to 5 cents of value every year.

If you haven’t noticed, the price of virtually everything is skyrocketing.

Lumber prices are out of control: A 2×4 that cost $4 a year ago is now north of $15. Canada’s Food Price Report is seeing grocery prices rise faster than at any point since they started tracking them. Oh, and there’s that little issue of an absolutely untamed housing bubble reaching every corner of the Canadian map. Gasoline is also spiking up in value, but petroleum is always a bit of a wildcard, so it’s best not to lump it in with other consumer spending.

In its purest form, inflation means that everything gets more expensive. The value of a dollar goes down, so you need more of them to buy a Big Mac (which is why a Big Mac cost $0.88 in 1978 and $5.69 in 2021). So it’s very reasonable to assume that if your dollar suddenly can’t buy you nearly as much as it used to, then it might have begun to devalue.

To be sure, the Consumer Price Index, Canada’s usual metric for inflation, isn’t showing that anything too weird is happening. The index, which regularly tracks the prices of a fixed list of goods and services, has always had its inaccuracies. Most notably, the index can’t account for changes in consumer behaviour, such as whether rising beef prices have driven Canadians to eat chicken – the index would just conclude they’re spending more on beef.

COVID-19 dropped a bomb on our usual understanding of consumer behaviour, spurring endless weird anomalies like a steep rise in alcohol sales, a boom in home baking and a run on sex toys, among others. If there was ever a time to be skeptical of the CPI’s forecasting powers, it’s probably now.

Governments have been utterly blowing out their spending

In the current financial year, Canada is running up a deficit that could have singularly paid for the country’s entire contribution to the Second World War. Running up a $55 billion deficit at the height of the Great Recession was considered extreme, and we just septupled that without blinking.

Worse still, there are compelling signs that the government spent much of this cash without needing to. Throughout the pandemic Canadians have been hoarding cash at utterly unprecedented rates. In November, a CIBC analysis found that Canadians were sitting on more than $90 billion in excess cash – which is not behaviour typical of a population in dire economic straits.

While COVID-19 was devastating to those in the tourism and hospitality sectors, it left other areas of the economy relatively unscathed. Regardless, a series of blunt relief measures showered cash on everyone, including millions who didn’t need it. The numbers show that a surprising number of CERB cheques weren’t used to pay rent or buy groceries – they were simply put in the bank.

Money is ultimately no different than plenty of other things in our economy: If there’s a lot of it around, it becomes less valuable. If the federal government sent every single Canadian a parrot they didn’t need, you can expect that the price of parrots (which currently stands at about $2,000 per bird) would plummet overnight. Similarly, when Ottawa is spraying its citizens with a firehose of unneeded cash, don’t be surprised if that cash starts to lose some of its purchasing power.

A mountain of stashed-away money is about to be unleashed on the economy

Economist Ian Lee, an associate professor at Carleton University, has been warning about a coming tide of inflation since well before COVID-19 sent the Canadian economy into conniptions. The reason? There is an unprecedented store of savings in this country that is just about to be set free.

For the last 30 years, millions of humans have been stashing away money faster than any other point in history. This is why interest rates have been so unbelievably low for so long: If people are falling over themselves to stuff your bank vaults with money, you don’t have to pay them all that much for the privilege.

“Now what’s happening is that the boomers are moving into their senior years and they’re starting to dissave,” Lee told the National Post. Nest eggs that have been lovingly cultivated since the 1980s are increasingly getting plunked down on e-bikes and Rolling Stones box sets – and it’s all adding up to a tidal wave of new spending. Just as with all the government money blowing around, this glut of Boomer cash is similarly poised to bring down the value of the dollar generally.

With widespread business closures, a lot of that money is going to have nowhere to go

In a January survey, the Canadian Federation of Independent Businesses found that nearly 200,000 of their members did not anticipate surviving COVID-19. In Toronto, photographer Ryan Bolton recently published a photo gallery documenting 64 businesses along a single street that were wiped out during COVID-19.

This is bad news at the best of times, but particularly bad when your populace has a whole pile of hoarded money they’re looking to spend. As outlined above, there are billions upon billions of dollars burning a hole in our collective pockets, and 12 months of COVID lockdowns just wiped out all our favourite places to spend it. And whenever you have a whole bunch of money and a scarce number of places to put it, things start getting more expensive.

Canada is essentially poised to undergo a macro version of what happens in remote boom towns. In Dawson City during the Klondike Gold Rush, for instance, you had a disproportionate number of new millionaires stuck in the middle of nowhere with limited means to spend their new fortunes. The result was an utterly ridiculous bidding-up of relatively pedestrian commodities, such as fresh eggs selling for the modern equivalent of $100 a piece.

Bond prices are going (way) up

A quick primer on bonds: A bond is basically a way to buy debt. In the case of government debt, you shell out $10,000 for a Guaranteed Investment Certificate (or a Treasury Bond in the U.S.), and Ottawa agrees to pay you back after a fixed period of time with interest. Unlike regular interest rates (which are currently sitting at an unbelievably rock-bottom 0.25 percent), bond interest rates will freely go up or down depending on what investors are willing to accept.

In recent months, something interesting has started to happen: Bond interest rates have gone way up, rising even faster in Canada than in the U.S.. This means that investors aren’t as willing to buy bonds as they once were, so the government is needing to sweeten the deal with a higher return.

There are a couple reasons this could be happening. One is that investors are spooked about Canada’s ability to honour its debts, so they demand a premium for the extra risk they’re assuming. Or, investors think that the Canadian dollar is about to lose a whole bunch of value, and they want to make sure their profits don’t get wiped out in the process.

If you buy a $10,000 bond and inflation hits five per cent, you’re going to automatically lose $500 per year just by virtue of having parked your money instead of spending it. In this scenario, it’s natural that investors would demand a higher price for parking that cash.

SOURCE: https://nationalpost.com/news/canada/inflation-is-coming-signs-that-everything-is-about-to-get-much-more-expensive