How to Play This New Gold Rush

Friday, 3 April 2020
Adelaide, Australia
By Bernd Struben

  • Markets
  • ‘A tsunami of fake money is coming’
  • Wonderful…if we could afford it

I believe we’re approaching a new gold mania that could well rival the “granddaddy” gold rush of the 1970s. And I want to show you how to pick the right stocks to trade it.

Hard Money Trader’s Shae Russell

We take up today where we left off yesterday.

With gold.

The yellow metal gained 1.8% overnight in Aussie dollars. It’s currently trading for $2,666 per ounce.

Have a look at the graph below. It’s the one-year price chart for gold in Australian dollars.


Port Phillip Insider

Source: Gold Price

[Click to open in a new window]

On 3 April 2019, you could have picked up an ounce of gold for $1,813. Yep. Good old, safe haven gold has rocketed 47% over the past 12 months.

Now on the far right side of the graph you can see that gold dipped on 24 March. That coincides with the day the global stock market crash began in earnest.

Gold dropped from a record high $2,748 per ounce to $2,614 by 31 March. When stocks are in freefall, investors and fund managers turn to anything liquid they can sell to meet margin calls.

April’s seen a 2% rebound so far. And our go-to Aussie gold pro, Shae Russell, believes that’s just the beginning of ‘phase three’ of gold’s new bull run. Though she cautions gold won’t rocket higher in a straight line.

(Traders and speculators, go here for all the details.)

That’s why Shae and global analyst Jim Rickards recommend you hold 10% of your investable wealth in gold. If you have another glance at the above chart, that advice seems hard to argue with. And we’re not just cherry picking the last year either.

The below chart shows you the Aussie dollar gold price going back to 1973:


Port Phillip Insider

Source: Gold Price

[Click to open in a new window]

In April 1973, an ounce of gold would only have cost you $64. Now, obviously a dollar went a lot further back then. According to the Australian Inflation Calculator, 874% further, to be precise. Meaning that ounce of gold in 1973 would have cost about $623 in 2020 dollars.

Still, that’s a real gain of 328% from an asset people around the globe tend to flock to for safety.

As our old friend Dan Denning notes, ‘Gold preserves wealth in times of crisis better than any asset in history.’

And as Billion Dollar Breakout Trader’s Ryan Dinse wrote this morning, ‘In a world of ultra-low interest rates and huge economic turmoil, gold looks more like an attractive asset to have in your portfolio than ever.

Makes you want to run out and buy a few ounces, doesn’t it?

Not that you’ll be able to get your hands on any physical gold right now, mind you. And if you could, it would cost you a premium over the official spot price you’ll find on Bloomberg’s ticker.

We’ll get back to that, right after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 469.93 points, or 2.24%.

The S&P 500 closed up 56.40 points, or 2.28%.

The Euro Stoxx 50 Index closed up 8.19 points, or 0.31%. Meanwhile, the FTSE 100 gained 0.47%, and Germany’s DAX closed up 26.07 points, or 0.27%.

In Asian markets Japan’s Nikkei 225 is down 53.16 points, or 0.30%. China’s CSI 300 is down 0.27%.

The S&P/ASX 200 is down 90.20 points, or 1.75%.

West Texas Intermediate crude oil is US$24.76 per barrel. Brent crude is US$29.94 per barrel. That’s a 16.8% jump in WTI and 21.0% rise for Brent since this time yesterday.

The reason?

Donald Trump tweeted that the Saudis and Russians are set to scale back production by 10–15 million barrels per day following his phone call to Saudi’s Crown Prince. Neither Saudi Arabia nor Russia have confirmed this. We’ll see…

Turning to gold, the yellow metal is trading for US$1,614.74 (AU$2,665.47) per troy ounce. Silver is US$14.47 (AU$23.89) per troy ounce.

One bitcoin is worth US$6,851.20.

The Aussie dollar is worth 60.58 US cents.

‘A tsunami of fake money is coming’

Getting back to why physical gold is in short supply…

When most investors buy gold today they’re buying ‘paper gold’.

Rather than physical bullion, the vast majority of gold purchases are traded in the form of futures on the Comex in New York and other global exchanges. At the moment there are about 100 ounces of ‘paper gold’ for every ounce of the physical stuff.

In ordinary times that works alright. But when the world panics all together, the ready supply of bullion falls short of the spike in demand.

From Bloomberg:

People have always been willing to shell out more for retail coins than gold sold in the spot market. But that premium has more than doubled — and at times quadrupled — over the past two weeks as investors seek a safe place to park their cash in the face of global market turmoil.

Dealers such as Gainsville Coins have never seen prices this high for this long. “Virtually every dealer in the country” has been so overwhelmed by demand that orders are backed up by at least a month, said Everett Millman, a precious-metals specialist at the Florida firm.’

Now, this doesn’t mean there’s an actual shortage of gold. Just that the ready supply isn’t enough to meet the viral demand. As Shae Russell explains, the coronavirus shutdowns are throwing an additional wrench (spanner?) into the works:

There is a shortage of gold at the moment, but not in the way you think.

Three Swiss refineries have been forced to close because of quarantine restrictions. A South African refinery can’t get gold to London because of the lack of flights. And US mints are struggling to keep up with demand.

It’s a similar story here in Australia. The Perth Mint has stopped taking orders for cast and minted gold bars. There are some gold coins floating around, but it’s only what they have in stock.

Our other LBMA refinery, ABC Bullion is taking orders for precious metals, however they’re warning customers that the wait time for delivery will take many weeks.

That’s the short-term situation anyhow.

When lockdowns end and mines and transport reopen, wait times and premiums should go back down.

Though the price of gold itself could well be far higher by then.

That’s because fiat money — the kind created out of thin air by governments with printing presses — could be in for a serious run of inflation once the virus is defeated and the global economy roars back to life.

Here’s Shae again, ‘Central banks have already gone “nuclear” with money printing and stimulus packages. This is just the beginning. A tsunami of fake money is coming.’

She’s not being hyperbolic here.

Atop the multitrillion-dollar stimulus packages already approved in the US, Trump is already seeking an additional US$2 trillion for infrastructure projects.

That’s the fiscal side of things (government spending).

On the monetary (central bank) side, the Federal Reserve’s Balance Sheet now stands at US$6 trillion. That’s up an unfathomable US$1.6 trillion in just three weeks.

And with a record smashing 6.65 million Americans filing for unemployment benefits last week, this is likely just the tip of the debt iceberg.

The same story is playing out all over the world.

Wonderful…if we could afford it

Bloomberg tells us that almost 23 million Thais — a third of the population — has registered ‘for government cash handouts designed to soften the blow of the novel coronavirus outbreak’.

I won’t rehash the RBA’s and Morrison government’s own emergency relief packages. But they’re growing by the day, and now include free childcare for all.

Wonderful, if you can afford it. But then we couldn’t even afford it when the economy was humming along with the world’s longest recession-free run. That makes it highly likely the RBA — and every major central bank across the world — will have no choice but to dilute the value of their currencies.

Inflation, in other words. Perhaps at levels we’ve never experienced in modern, developed nations before.

But while governments can conjure up more dollars, yen and euros at will, they have yet to master alchemy. Meaning the gold supply will remain fixed.

This is why we’ve long encouraged our readers to own gold.

And it’s why publisher James Woodburn briefly reopened the doors to Shae’s premium trading service, Hard Money Trader.

This is not a service for buy and hold investors. It’s intended for traders and speculators only. Folks with cast iron stomachs looking to join Shae in speculating in small-cap and micro-cap gold stocks in a time that could see the gold price explode.

These are high risk trades in a high risk environment.

But if Shae and Jim are right about the trajectory for gold…and if Shae’s right about the gold stocks best placed to benefit…the returns could be life changing.

The new membership offer ends at midnight tonight. To find out if it’s suitable for you, click here.

That’s a wrap for today. Enjoy your weekend and stay safe and healthy.

Cheers,
Bernd