LAWRIE WILLIAMS: Gold could skyrocket while crazy rise in U.S. equities has to end.
In our view the U.S. equities markets are totally delusional. Today saw the biggest rise in jobless claims ever, but the Dow, at the time of writing, was up another 1,000 points – no doubt because Q4 2019 GDP posted a 2.1% rise and delayed reaction to the passing of the $2.3 trillion rescue package. U.S. investors are, in our view, living in a never never land as Q1 and Q2 2020 figures, when they come out, will likely see the biggest quarterly U.S. GDP falls ever – certainly worse than during the 2007-2009 global financial crisis. Yes, the Administration and the Fed have unveiled totally unprecedented levels of support for the economy, coupled with helicopter money for a good proportion of the U.S. population, but that perhaps should be seen as just an indicator of how dire the situation really is.
The U.S. is paying the price for playing down the seriousness of the spread of the Coviod-19 virus in the early stages. Yes, travel into the U.S. from China was stopped early on, but other measures to stem the spread of the virus were not taken until far too late with numerous statements from the U.S. President claiming the virus was totally under control. By late tomorrow the U.S. will almost certainly have more confirmed virus cases than any other country in the world - more than China even - and deaths are rising at an enormous rate with the President seemingly totally ignoring the advice of his medical expert advisers. To suggest that the U.S. economy could be brought back on track by Easter, is living in cloud cuckoo land. By then, at the current rate of virus spread in the U.S. the nation will have well over 150,000 confirmed virus cases and probably more than 4,000 deaths. These figures could even be under-estimates. The U.S. is another Italy in the making – but potentially far worse in terms of overall numbers given the much bigger population. We sincerely hope things all turn around quickly, but as we noted earlier we fear the U.S. response has been far too little too late.
UPDATE - The U.S. has already today overtaken China as the country with the highest number of reported coronavirus infections globally. This is around two days earlier than we had earlier predicted and demonstrates how fast the virus is spreading.
Once these virus statistics are understood, and the effects on the nation’s economy assessed, financial panic will likely set in. The 3.2 million jobless claimants will probably double, and more, and equity markets will crash again. Those who still have any money left will turn to traditional safe havens of which gold may be the No.1 choice – if they can get their hands on any. Supplies are under pressure as refineries shut down and mines are forced to close. We could see the ‘mother’ of all short squeezes on gold and the price could skyrocket and banks and traders who have long been short sellers could go bankrupt very quickly. We have always been loath to look to mega gold price rises in the past, but those who have long predicted a $5,000 or $10,000 gold price could be proven correct in a very short space of time. But then the once-mighty dollar may well crash too with the U.S. mired in hitherto unprecedented levels of debt. Gold bugs be careful what you wish for!
Yes that is not a pretty picture I am painting. Perhaps a worst case scenario, but it could very easily come about as the whole world plunges into recession or even depression. Global confirmed virus cases today passed the 500,000 mark and are rising at around 50,000 a day and deaths at ca 2,500 a day. Nothing will be the same again for the foreseeable future. If it does come about as I fear, the U.S., which is more politically polarised and divided than ever, could be plunged into anarchy – particularly with a forthcoming, politically divisive, Presidential election only a few months away.
Indeed China, which already does appear to have brought the virus under control – even if the nation’s overall virus statistics are somewhat suspect – could well be the principal global beneficiary with a potentially self-supporting domestic economy getting back into growth mode quicker than the West is likely to achieve.
So, we would reiterate our previous suggestions that gold bullion, if you can get it, is almost certainly the best protection against wealth degradation. We might have suggested gold stocks as offering a better potential return, but here you run the risk of mines being shut down where they haven’t been already.
Silver may be beginning to make a move too, but it’s been performing badly vis-a-vis gold of late as the exceptionally high level of the gold:silver ratio (GSR) will confirm. However its low price may well make it worth a gamble given the GSR could well come back a few points if gold continues its upwards path. There may well have been moves in the futures markets (paper gold and silver) to control upwards price movements but these may well be overtaken by events.
26 Mar 2020 | Categories: Gold