U.S. regulatory authorities are cracking down on firms who unfairly manipulate or “spoof” the precious metals market. The $1 billion fine would be far larger than previous penalties. Last year the Commodity Futures and Trading Commission (CFTC) fined Merrill Lynch Commodities, Inc. (MLCI) $25 million.
Gold and silver prices’ upwards trajectory looks promising as long as central banks around the world continue to provide accommodative monetary policy; gold is headed to new all-time highs while silver has 30% more room to grow within a year, according to Todd Horwitz of BubbaTrading.com.
“Silver also looks great. I would expect silver to make a run at $25 before it’s all over,” he said. “$25 silver is certainly in play in the next six, seven months if we continue at this pace, because remember, there’s always going to be pullbacks…but as long as we see this manipulation of currency, people are going to be looking for metals.”
Central banks around the world are engaged in a war to the bottom, with monetary easing measures pushing down interest rates and devaluing currencies, Horwitz noted.
“The central banks continue to try to manipulate the currency, so people are afraid of the basic unstableness of currencies,” he said. “The central banks around the world are trying to push the value of their own currencies lower, which should, in theory, create a better export environment.”
Horwitz said that instead of letting the free markets trade, governments are forcing currencies lower, thus driving investors away from fiat money and into metals.
On the economy, we are still not yet fully recovered, but the overall sentiment has improved, Horwitz said.
“I’d say six to nine months down the road, we’ll be back and fully operational, but we’ve now recognized that the overall panic going into it is over,” he said, adding that a “political battle” has been created by this pandemic.
Gold prices have seen a positive correlation to the expansion of the Federal Reserve’s assets, and as the Fed embarks on the largest stimulus program in its history, the yellow metal is set rally in the same fashion as in the aftermath of the last recession, said Frank Holmes, CEO of U.S. Global Investors.
“In the next three years, if we look back, if [history] repeats itself, from 2008, 2009 to 2011, that three year run saw gold go from a $750 – $800 range up to $1,900. If we forecast that because we have the same expansion of the balance sheet of the Fed then it would project, if cycles are exactly the same, gold could go to $4,000,” Holmes said.
Holmes noted that although trillions of dollars have already been injected into the monetary system this year through the Fed’s quantitative easing program, more stimulus is still on its way.
“This is going to cost the U.S. government approximately $10 trillion in fiscal and monetary policy to get the economy back, so I think that number you’re seeing after 2008, 2009 after Lehman Bros. went bankrupt, you saw the balance sheet expand from $1 trillion to $3 trillion. I think it’s got to hit the overall $10 trillion,” he said.
What’s different this time is the policies toward trade from global leaders.
“Prior to 2008, 2009, we went on an incredible run from 2001 up to that date, and that date was when the G20 finance ministers and government agencies around the world were all pro-trade, pro-growth. Ever since the crisis of 2009, it’s all about synchronized taxation and regulation, and now it’s synchronized money printing, monetary, fiscal stimulus that we’ve never seen,” he said.
When Alan Greenspan was Chair of the Federal Reserve, the balance sheet of the central bank was about 6% of gross domestic product (GDP). Today, that number stands near 33% of GDP, Holmes noted.
“And this is how much money that [Fed Chair Jerome] Powell has to to throw at this because of the coronavirus and the synchronized shutdown of the world. This is unprecedented. So, I think hard assets trade higher,” he said.
The Federal Reserve’s balance sheet is at risk of devaluation, and should the underlying assets fail, gold will respond by “rising to a price that balances the Fed’s balance sheet,” said Dan Oliver, founder of Myrmikan Capital.
“The Fed, as you know, has been on a massive purchasing spree because of the virus situation, and so therefore the equilibrium price of gold is going up commensurately, and so the numbers now to balance that balance sheet are enormously high,” he said. “My [forecast for gold prices] has changed. I’m at $10,000 now.”
The move to higher gold prices stems not only from an inflating Fed balance sheet, but also from the health of the balance sheet itself, which Oliver noted could be in jeopardy.
“When you project a crash in the value of the other asserts of the Fed, i.e. the mortgage bonds that they own, the Treasury bonds that the own, all these new funky commercial debt that they’re buying, some of it sub-investment grade, when those things crash the Fed will find its assets completely stripped of value…and that will have a big impact on the dollar.”
The Federal Reserve is on track to continue quantitative easing, with interest rates eventually headed to negative levels in the U.S., said E.B. Tucker, director of Metalla Royalty.
In his new book, book, “Why Gold? Why Now?: The War Against Your Wealth and How to Win It,” Tucker references the Modern Monetary Theory (MMT), which is an economic theory that states that central banks can increase the money supply to achieve full employment without the risks of inflation.
Tucker said that this is in the process of happening now, in steps.
“These things happen in sequence. Right now, you’re hearing this because in the future there will be MMT, but it’s not going to happen right away, it’s going to happen when the government really struggles to finance itself,” Tucker told Kitco News.
The consequence of MMT will be negative interest rates, and higher gold prices, Tucker said.
Tucker said that gold prices are headed to break the all-time high level of $1,900 an ounce by the end of the year.
“People typically don’t prepare. Nobody wants to buy hurricane insurance until after the storm, and after the storm, then everyone wants to buy hurricane insurance and it’s quite expensive after the storm,” he said, alluding to safe haven assets.
On risk assets, optimism continues to run high on stocks, but is getting to the point of being excessive, Tucker said.
“You ask the average person…ask your friends, they think you’re going to get right back on an airplane and go somewhere and life will be back to normal and it’s going to be fine. It’s not going to be fine. There’s going to be an adjustment period,” he said. “Assets are priced as if what we’ve lived through is going to continue. That’s how markets work, they price what just happened. We have to look forward and see what’s going to happen. So this is your chance to re-arrange your position, prior to the next phase of this.”
He noted that traders are still buying Hertz, which has already filed for bankruptcy, in a signal of market irrationality.
Tuckers’ comments as Goldman Sachs recently revised their projections upward for stocks, predicting that the S&P 500 will close the year at 3,000 points in their base case scenario.
Launched in 1997, the Mint claims that American Eagles are the U.S.’s only official platinum bullion coins.
The platinum bullion coins have 99.95% purity and are guaranteed by the U.S. government.
“The U.S. Mint issues 1 oz American Eagle platinum bullion coins in response to ongoing investor demand. This year’s mintage, however, has been extended due to exceptional demand from investors seeking to own physical platinum in the wake of the COVID-19 pandemic,” said the Mint in a news release.
The Mint said a variety of factors determine price, such as prevailing spot price, distribution and marketing costs and investor demand.
“The soaring demand for precious metal coins in March and April this year, together with constrained distribution, has lifted this premium to four times its typical level for gold and platinum, and nearly three times for silver.”
Despite a weakened economy, stocks continue to rise on the back of monetary stimulus, which is bound to push gold prices even higher, this, according to Frank Holmes, CEO of U.S. Global Investors.
Stocks are going up “because of the trillions and trillions of dollars of money printing from the helicopters of central bankers. The G20 central bankers, the G20 finance ministers, that’s a cartel, like OPEC,” Holmes told Kitco News.
Fundamentally, gold’s supply deficit should also provide tailwinds, Holmes said.
“Last year, as I’ve mentioned, everyone was surprised that palladium could go from $1,000 to $2,700, and I said short-term, why can’t gold do that?” he said. “We’re going to see gold pop. $2,700 is easy for me to see that.”
Holmes added that the gold miners should also perform exceptionally well during periods of upward bullion price movements.
“A lot of the gold mining companies are going to show free cash flow, like the Barricks and Newmonts that have been on a tear, and the generalists buy free cash flow stocks, whereas the S&P 500, because of the coronavirus, these companies are getting beaten up so bad, some are seeing 70%, 80% drop in revenues,” he said.
Investors who want to buy individual gold mining stocks should focus on the royalty streaming companies and companies with strong free cash flow, Holmes added.
“There are stocks that have free cash flow. Focus on those. Focus on the royalty companies. They have a superior business model,” he said.
Gold has seen some strong gains so far this year with prices holding above $1,700 an ounce, but it’s not too late to get into the market, which currently has unlimited potential, said Mike McGlone, senior commodity strategist at Bloomberg Intelligence.
“As far as how high [gold] can go, it’s supposed to get to a period where it gets stupid expensive like the stock market did for a little while last few years,” he said. “Stock market’s been boosted by this massive amount of liquidity, but the question is how much longer that can last. I think gold has the upper hand.”
McGlone said that gold is just embarking on its bull run and expects the ratio between the yellow metal and equities to hit parity. He added that gold prices could push to $2,800 an ounce, to be in line with a 1:1 ratio with equities markets.
Price action in the oil market highlights major problems in the global economy, McGlone said. He added that the world is seeing massive demand destruction which will lead to an economic depression and ultimately, higher gold prices.
“From a gold standpoint, [low oil prices are] fuel for higher gold because it gives fuel for central banks to ease more,” he said.
Unlimited amounts of cash from central banks used to combat the impending depression will ultimately lead to currency debasement, McGlone said. Unlike U.S. dollars, he noted that gold has a limited supply.
(Kitco News) – We are fighting a third world war against the pandemic, an unprecedented event, and monetary policy response is set to drive gold prices to levels never seen before, this according to Frank Holmes, CEO of U.S. Global Investors.
“We still have negative real interest rates and that bodes extremely well for gold, so I think gold can be easily $2,700 like palladium was last year. It can be $5,000. I don’t know when the money printing stops, but it could be $10,000 to get the global economy back and functioning,” Holmes said.
Holmes’ comments come as the Federal Reserve recently announced $2.3 trillion in stimulus programs aimed at businesses and households, but the money printing won’t stop there, he said.
“What I do see is that the U.S. will spend over $10 trillion. Both the Senate, and Trump and Congress will spend $5 trillion when this is finished. We’ve seen the Federal Reserve also commit $5 trillion of expanding their balance sheet, so this is going to be unprecedented,” he said.
Gold prices’ response to this stimulus could mirror its pattern following the financial crisis of 2008, Holmes noted.
“This is going to create unprecedented growth in paper money, and what you’re going to see is like 2008 and 2009, gold ran up, sold off, got a base and all of a sudden it started to march up, as this money printing took place,” he said.
Holmes added that the pandemic has caused a global supply chain disruption that will also affect the gold industry.
“I think there’s huge supply disruptions around the world and I think that demand for gold is going to pick up much faster than the supply of gold is going to be coming out,” he said.
Gold prices should skyrocket to much higher levels, even $20,000 in two to five years’ time, as gold reaches a price level close to the level of the Dow Jones Industrial Index, this according to Pierre Lassonde, chairman of Franco Nevada.
“When I look at where we are today, the money creation will take time to [money] into people’s hands. I look at supply chain disruption, I think we’re looking at a two to five year period and I do believe that we will see, if not one to one [in the Dow/gold ratio], then very close to one to one,” Lassonde told Kitco News.
Gold prices have historically seen periods when the levels are close to, if not equal to, the Dow index.
“I just don’t know if the Dow will still be 23,000 or if it will still be $16,000, and even if [the ratio] is two to one, all I’m trying to point out is that the gold price will be materially higher than what it is today,” he said.
Lassonde noted that gold is still in the relatively early stages of a bull market that, especially gold mining stocks.
“The equities have such a long, long way to go to catch up, they’re going to be multiples of where they are today,” he said.