LAWRIE WILLIAMS: Gold, silver, pgms and the coronavirus – a current assessment

The world did recover from the Spanish ‘flu pandemic of 1918 which may have killed millions of people.  Like the Covid-19 virus, the so-called Spanish ‘flu caused a respiratory infection that led to most of the deaths.  However, although cross-border infection is more prevalent today because of enormous passenger transportation link improvement since the early 20th Century, much more draconian actions taken by today’s governments, and better health care facilities should be able to keep death rates much lower.  The world will recover but it may well take more than a year to do so, much depending on whether there is a resurrection of the virus in future years, or whether it will peter out over time.

While the Chinese figures on deaths and continuing infections are perhaps suspect, they do suggest a relatively limited duration for the spread of transmission of the disease.  Whether this is due to a build-up of community immunity to the disease, or the draconian measures taken to control its spread, is rather less certain.  South Korean statistics may be more reliable, though, and these do suggest that the virus can be brought under control, but we do need to see a similar turndown in new cases in the worst affected European countries before it is possible to see real light at the end of the tunnel.

The stand-out country at the moment is the USA which is paying a terrible price for the apparent downplaying of the virus in its early stages by President Trump, who as recently as February 28th referred to information circulating about the virus incidence in the U.S. as a hoax, and saying the virus would miraculously go away.  He also repeated several times that the U.S. had the virus incidence under control, but the lack of testing availability left the information he was no doubt receiving, totally inaccurate  No doubt many Trump believers thus treated any dire warnings of the pandemic as hugely overblown.  Now we are in a situation where the U.S. is the third most affected country in the world and if the virus spread continues at its current rate could even overtake China as the world’s most affected nation within a month or so!  New York State alone reports more people testing positive to the virus than all but six countries globally.  As tests get rolled out across the country we will likely see an enormous uptick in case numbers – unless the Administration suppresses the true figures which we view as distinctly possible.

Precious metals have seen price falls along with the equities markets, but in the case of gold not nearly to the same extent.  It keeps on being taken down below the $1,500 psychological level, but so far has invariably bounced back  Year to date the yellow metal is down around 1% while U.S. equities for example are down around 35% over the same period.  But this price fall is in U.S. dollars.  In most other countries, due to dollar strength, gold is close to all-time highs in domestic currencies and is thus serving extremely well as a wealth protector in these nations – indeed in most of the world.

Today, of course, the gold price seems to have been boosted by the latest Fed easing measures and it is currently heading up to the mid $1,500s.  It could, at this rate, retake the $1,600 level shortly, although the price remains vulnerable to more margin call-related selling.

Silver has recovered a little too but with the Gold:Silver Ratio still sitting at around 118 (the higher the ratio the worse it is for silver vis-a-vis gold), enormously higher than silver investors might have been expecting.  Year to date silver is down around 30% in U.S. dollar terms.  Not the kind of performance the silver bulls had been hoping for, or indeed predicting!  With over half its demand as an industrial metal silver is far more prone to follow the state of the global economy than gold.  True its price is perhaps ridiculously low at the moment, which could eventually make for good gains when global equities markets pick up, it may yet be too soon to pile in.

The platinum group metals (pgms) have been hugely volatile.  But their biggest demand is in the industrial sector and we’d steer clear of all of them for the moment.  Platinum is down around 35%, similar to the equities falls, year to date.  Palladium is down a little under 20% on a similar basis, but its greatest falls have been in the last few weeks and with its main market as an exhaust emission control catalyst for petrol-driven internal combustion engines, and the sales of these has tanked globally, we’d probably steer clear of this for the moment.  With the motor manufacturers beginning to put much of their marketing effort, at least in European and Asian markets, into electrically powered non-polluting engines, then palladium demand is likely in decline anyway.  Steer clear.

And as for rhodium with its main usage also in motor exhaust emission control systems, a week or so ago it was sitting at close to $12,000 an ounce.  Now it is trading at around $2,000 according to kitco.com. although the reliability of kitc's coverage of the rhodium price has been called into question by one reader who is perhaps closer to the rhodium market situation.   However, this demonstrates how quickly demand, and markets, can turn down in the current economic environment.

Curiously, given the relatively small fall in the gold price over the year to date, gold stocks are around 30% down so far this year, so they seem to have fallen almost lock step with the general equities markets.  Given that most gold mining companies are profitable at a US$1,500 gold price (but it is in reality much higher in the domestic currencies of the countries in which most of them operate) these have to offer some real bargains assuming the gold price can hold its own.  Gold is currently at around $1,520 as I write, but seems to have had a tendency to be brought down quite sharply on the futures markets in the U.S. when these open.

23 Mar 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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