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LAWRIE WILLIAMS: America in potential meltdown. Buy gold!

The U.S. could be on the brink of something approaching a civil war if some of the anti-lockdown demonstrations springing up across the country are anything to go by!  President Trump’s inappropriate, and ill-timed, tweets could be fuelling the flames and helping set in motion events over which he may ultimately have little, or no, control.  Hopefully it won't come about, but the potential for it to do so remains.

The U.S. President is naturally keen to get the country working again, but is up against Democrat Governors of many major industrial states who are extremely wary about easing lockdown restrictions for fear of a return to high virus incidence and ever-higher death rates.  All this is coming at a time when many of these Governors feel they are just about getting the virus spread, and the death tolls, under control with their stringent lockdown measures. 

In truth this potentially unfolding scenario, if the back-to-work lobby gains ground, would represent a trade-off between an only-partial economic recovery thereby getting some of the recently-unemployed people back to work, and a resurgence of the pandemic outbreak and more deaths.  Conflict could very easily rear up in some cities between heavily-armed, and sometimes hot-headed, right wing, mostly Trump-supporting, militias and the National Guard, and the loyalties of the latter cannot necessarily be taken for granted in all instances.  The situation, to an outsider with family in one of the country’s largest cities, is somewhat frightening.  It may all come to nothing and perhaps the rule of law will prevail, but with the country’s gun purchasing propensity, the potential for escalating lethal violence looks to be considerable.

True, there are indeed good signs that the virus incidence may have peaked in the U.S., with daily new cases coming down, although deaths remain at an enormous level.  Even so the U.S. will likely get close to 1 million coronavirus cases, and 50,000 deaths by the end of the current month without any easing of the current lockdown restrictions.  Even if there is a relaxation of these, perhaps coupled with advances in virus patient treatment, and the hope that the warmer summer months will lead to a weakening of the virus spread – neither of which are a foregone conclusion – maybe, just maybe, we could see some economic improvement by the fall.  But even if this happens much of the economic fallout from the pandemic will likely continue for many months yet.

There is, indeed, anecdotal evidence of gold dealers being forced to add huge premiums to gold coin and small bar purchases suggesting a huge disconnect between the spot gold price as recorded officially and the reality facing the small investor looking to protect his/her wealth through the purchase of gold bullion in small quantities – and in the purchase of silver too which is suffering similar mark-ups from traders due to scarcity of product.  The bullion shortages have been put down to logistical difficulties in moving quantities of gold and silver around the world to where they are needed, but these could well persist driving purchase prices well above spot. 

Because of the high premiums for owning bullion there may well be an argument for the prospective gold investor to buy gold related ETFs instead, despite warnings against holding any kind of paper gold.  The biggest gold ETF – SPDR Gold Shares (GLD) – which is effectively a U.S. gold ETF, but with most of its gold vaulted in London, has added 138 tonnes of gold already this year, of which around 65 tonnes has been added since the beginning of April, despite the Easter holiday period.  Indeed GLD’s total gold holdings at 1,033.39 tonnes would put it in 9th place among global gold holders, just behind Switzerland, which it will probably surpass in the next couple of days.

We still see equities as highly vulnerable to further substantial falls, particularly if the U.S. anti-lockdown protests escalate into violence, both within the U.S. and also potentially in Europe – although any protestors in the latter are unlikely to be armed with assault weaponry!  Our advice, such as it is, would be to sell general equities on any of the occasional upticks to which the markets seem to be curiously prone, and to buy gold, gold ETFs or carefully selected gold mining stocks in their place.  Gold-related investments should not suffer the downside vulnerabilities of equities and look to us to be the best bet for wealth preservation and a protection against potential inflation engendered by the huge amounts of monetary stimulus that are currently floating around.

22 Apr 2020 | Categories: Gold

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