• An unprecedented time in life and markets
  • Crude oil continues to plunge and natural gas falls to the lowest price in twenty-five years
  • Silver and platinum tank, a marginal loss in gold, and palladium holds
  • Copper posts a double-digit percentage loss
  • Risk-off conditions create lots of dislocation in markets- Be careful and stay healthy

 

The story of this week:

Health First- Avoid Panic- Then A Plan For Gold

I lived through 9/11 in New York City and was at the site on that fateful day. I lost plenty of friends, and the uncertainty that followed that day was the most uncomfortable time of my life. Meanwhile, I learned something during that difficult period. The human spirit is robust, and people find the wherewithal to rise to any challenge. In the past, wars, natural disasters, and other events have impacted areas of the world. Not since the Spanish flu in 1918 has the world faced a microscopic enemy with no cure or treatment that has spread around the globe like wildfire.

It is easy to become consumed with fear and panic in the current environment. Worrying about family, friends, ourselves, and humanity all at the same time is a heavy load. In the current climate, fear is a wasted emotion that only exacerbates the situations. And, there have been studies that fear and anxiety can lower immune systems at the same time. Take a deep breath, try to find something positive, and take as many precautions as possible to stay healthy.

The news from markets is not good; the data that comes out for the foreseeable future will be worse. Savings and nest eggs are shrinking, and that is likely to continue. Central banks and governments around the world are doing everything possible and have pulled out all the stops. However, the answer to Coronavirus is in the hands of scientists that will eventually develop a vaccine and treatments and health professionals that are scrambling to treat those infected.

When it comes to the future for markets, the fallout will be more than substantial. Monetary and fiscal policies that are pouring trillions into the global financial system will come at a price tag. We will all need to pay for the trillions of band-aides that have, so far, not stopped bleeding in markets. Bazookas full of cash sprayed into markets by the US Fed, ECB, and other central banks all will have a lasting impact. The dollar, the world’s reserve currency, has rallied sharply. A flight to quality has made the greenback the currency of choice. When it comes to means of exchange in the world, gold has the longest history. Central banks can print currencies via monetary policy to increase the money supply to their heart’s content. Almost all governments hold gold as an integral part of their foreign currency reserves. The only way to increase the gold stock is to extract more of the yellow metal from the crust of the earth.

While the 2008 financial crisis was far different than the crash of 2020, there is one lesson that could provide a window into the future action in the gold market. During risk-off periods, the prices of all assets decline.

Source: CQG

As the quarterly chart highlights, gold fell from $1033.90 in 2008 to a low of $681 or 34.1%. The price then rallied to a high that was over 2.8 times the low in 2011. Central bank policies that slashed interest rates and flooded the markets with liquidity caused the price of gold to rise. In 2020, the amount of liquidity will dwarf the actions during the 2008 crisis.

If gold follows the same pattern, the price will drop for the recent high of $1704.30 to a low of $1132.13. The impact of unprecedented amounts of liquidity would then take the price over $3000. The price tag for Coronavirus will be enormous and will cause significant changes to our lives. The central bank and government actions will dilute the value of currencies that derive their values from the full faith and credit of the countries that print the legal tender. In the long run, the dollar may continue to rally against other foreign exchange instruments, but gold is likely to reach record levels in the coming years.

I will be a buyer of gold on a wide scale of $50 to $100 per ounce if the price drops, adding to a core long position. It is impossible to pick a bottom. Bars and coins are the most direct and purest way to accumulate the yellow metal. The GLD, IAU, and BAR products all hold physical gold bullion for those who do not wish to own the metal directly.

Be careful, stay safe, don’t panic, and stay healthy. Have faith in scientists and health professionals who are the heroes that will find a way out of the current challenge.

Highlights in commodities:

  • April gold falls 2.12% on the week and settles at $1484.60 per ounce as the yellow metal outperforms silver and platinum
  • May silver falls 14.59% after a 16.01% plunge last week as the precious metal settled at $12.385 per ounce on March 20- The silver-gold ratio at a new record high
  • Platinum remains a falling knife as it declined 16.32% after last week’s 17.01%. April platinum was at an $862.10 per ounce discount to April gold futures, which widened to a record level since last week
  • June palladium up only 0.06% after last week’s crash of 36.90% and settled at $1,540.20 per ounce. Rhodium tanks to a midpoint at $3500 per ounce after recently trading at the $13,000 level.
  • May copper was 11.87% lower to the $2.1715 level since March 13 and probed below the $2 level during the week
  • April iron ore futures moved 5.52% lower over the past week
  • The BDI fell 0.47% since March 13 to the 630 level
  • April Rotterdam coal rose 3.72% since last week on a sign of Chinese demand
  • May lumber fell 6.03% lower since March 13 after last week’s over 10% decline as the price was at the $322.30 per 1,000 board feet level
  • April NYMEX crude oil was 29.31% lower on the week after trading to a low of $19.46 and closed the week at $22.43 per barrel. Carnage continued to grip the energy commodity that powers a now idle world
  • May Brent crude oil fell 20.46% after falling to a low of $24.51 per barrel. Brent outperformed NYMEX crude oil
  • The premium for Brent over WTI in May closed Friday at the $3.92 level as the spread moved $2.65 higher since last week
  • April gasoline tanked 32.67% after a loss of 35.26% last week while April heating oil futures posted an 11.53% loss over the past week after dropping almost 18% last week
  • The gasoline crack spread in April was 47.55% lower after falling 66.53% last week. April heating oil crack moved 27.28% higher since March 13 on the back of strains on the supply chain
  • Natural gas fell 14.18% on April futures closing the week at $1.6040 per MMBtu after trading to a twenty-five-year low at $1.555. The EIA reported a withdrawal of 9 bcf from storage on Thursday for the week ending on March 13
  • April ethanol dropped 17.48% on the week
  • May soybeans rose 1.62% since last week on fears of bottlenecks at South American ports
  • May corn moved 6.02% lower on the week on the back of energy prices
  • CBOT May wheat was 6.57% higher since last week. May KCBT wheat trading at a 70.25 cents discount under May CBOT wheat as the discount moved 4.25 cents towards the historical norm since last week
  • May sugar fell 6.75% since March 13 and closed at 10.91 cents per pound
  • May coffee posted a 12.13% gain since last week on supply concerns from South America
  • May cocoa fell 8.04% since March 13
  • May cotton plunged 11.26% since last week as the fiber futures were at the 53.68 cents per pound level, the lowest price since 2009
  • May FCOJ futures rose 6.94% since the previous report to $1.0555 per pound
  • April live cattle rose 3.22% since last week
  • April feeder cattle were 5.53% higher since March 13
  • April lean hog futures moved 9.22% higher over the past week
  • The March dollar index futures contract exploded 4.65% on the week to 103.502. The dollar rose marginally above the early 2017 high in a flight to quality buying
  • June Long-Bond futures were trading at 178-03 up 2-13 for the week
  • The Dow Jones Industrial Average closes at 19,174 on Friday, March 20, down 4,012 points from March 13 as stocks continued to plunge. The S&P 500 fell 14.98% since last week. The VIX was trading at around 66.04 on Friday up 8.21 on the week after trading to a new high of 85.47, the highest level since its record in October 2008
  • Bitcoin was trading at $5,902.29 on Friday up $540.47 or 10.08% since March 13
  • Ethereum was trading at $123.54 on Friday, down 3.24% since the last report

 

Price Changes for the week:

DBC closes at $10.94 per share, down $1.17 since March 13

Source: Barchart 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.09 billion and trades an average daily volume of 1,821,762 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume rose over the past week and net assets remained steady as the price of the ETF posted a loss.

Please stay safe and healthy during these unprecedented times.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.