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LAWRIE WILLIAMS: 1 million virus cases in U.S. – buy gold, gold ETFs and gold stocks

By the time you read this the U.S. will have passed the 1 million mark in COVID-19 confirmed infections and will be approaching 60,000 deaths.  U.S. unemployment is at a totally unprecedented, and unpredicted, 16.5 % of the workforce and may yet rise further, although moves to re-open a very limited section of the economy could mean this could soon be plateauing.  But hitherto more optimistic ‘experts’ are now predicting U.S. unemployment may persist in double figures until well into next year.  This makes the optimistically predicted V pattern economic recovery highly unlikely with more financial grief ahead for corporate America.

I’ve been concentrating here on U.S. figures as the U.S. economy tends to be the driver for the rest of the world but world virus data is at least equally alarming.  Globally total COVID-19 known infections have already hit 3 million today with more than 210,000 deaths.  True, Asian and European figures – and even those in the U.S. - could already have peaked and be beginning on a downwards path, but the virus incidence in Africa and parts of Central and South America, where health systems are supposedly less able to cope with the virus spread, may only just be beginning.  There’s also a chance of a second wave of infections if, and when, lockdown measures are eased, or if there is a resurgence in the northern winter months.  COVID-19 is likely to be with us for some time yet and poses an enormous continuing threat to the global economy and to what we consider to be our normal way of life.

And yet major equities markets still seem to be infused with occasional spurts in optimism, and rise accordingly, while traditional safe havens like gold and silver are seeing volatile price movements, both up and down, despite apparent shortages of available bullion, and consequent high premiums, for small investors.  The markets for these precious metals still seem to be under the control of the big money futures markets where investment and pricing agendas may differ from those of the individual mainstream investor.  The latter, along with some of the big money too, seems to be moving more and more into the precious metals ETF sectors (to avoid bullion premiums) which appear to have seen an ever-increasing surge of investment into the gold-backed ETFs in particular.  Silver ETF investment appears to be more mixed and volatile as befits the ‘devil’s metal’.

Our own longer term view is that equities markets are still overpriced – perhaps massively – and once the economic reality of the virus effects on the global economy are really understood, further steep price falls will materialise.  We have been warning about this since the beginning of February before the virus had got a grip on Europe and North America, and we still see no real let-up in the dangers facing most markets and investors.

We thus note that equities markets investors seem to be imbued with a totally unjustified sense of optimism regarding a rapid recovery in economies and corporate earnings kicking in during the second half of the year.  We would be delighted to see this happen but fear that, apart from a handful of companies which are benefiting from the impact of the lockdown, for the majority of companies things are going to get far worse before they even begin to get better.

Another exception to the equities downturn, of course, is some of the precious metals equities – particularly gold stocks.  Even if the gold price doesn’t move much from where it is at the moment, the yellow metal’s double digit rise in price so far this year will filter through in terms of substantially enhanced profitability.  Most operating gold mines have already been seeing very positive benefits as gold has been rising in price overall for most of the past couple of years.  The recent rises have been the icing on the cake.  If you are going to dip your toe into this particular investment pond, we’d recommend sticking to the blue chip gold mining stocks.  They may not offer the leverage potential of some of the smaller players, but do offer much safer investing and, in most cases, reasonably decent dividend payouts.

My reading today has been a very sobering viewing of Grant Williams’ latest ‘Things that make you go hmm...’ newsletter entitled ‘The end of the innocence’.  This draws attention with illustrative charts and text just how dire some of the downturns in U.S. economic data in particular have been.  And so far they show few signs of turning positive again.  I rate Grant’s analyses highly as readers of my columns will be aware, not least because he sees things in much the same way I do, but with the backing of far more detailed research. 

Grant always introduces his letters with a series of quotes and this one is no exception.  It includes on this occasion the famous, or perhaps infamous, Donald Rumsfeld quote as follows: "...there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know..."  Looking back in time only a few months, the COVID-19 coronavirus incidence perhaps neatly falls into the ‘unknown unknowns’ category – or does it?  Former Presidents Obama and George W. Bush both predicted the likelihood of such a pandemic hitting us during their respective Presidential terms, some years back.  We had thus been warned, but obviously did little to prepare ourselves for it and we are now paying the price.   And that price is indeed a hugely expensive one to pay – and we may continue to pay it for months, if not years, to come.

The so-called ‘experts’ of this world have continuously under-estimated the global and domestic economic effects of the pandemic incidence and may still be doing so today.  Always prepare for the worst and hope it doesn’t turn out that way.  And re. investment advice I quote again the prescient words of Michael Lewitt of The Credit Strategist newsletter fame – ‘Buy gold and protect yourselves’.  Gold is insurance against wealth collapse.  One hopes one doesn’t need it but, as always, it is wise to be prepared for the worst and the COVID-19 economic effects have almost certainly not played themselves out yet.

27 Apr 2020 | Categories: Gold

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