Stocks fell in volatile trading on Tuesday after the Federal Reserve slashed interest rates by half a percentage point in an emergency effort to stem slower economic growth from the coronavirus outbreak.
The Dow Jones Industrials stumbled 352.4 points, or 1.3% to break for noon at 26,350.92. The 30-stock average gyrated between sharp gains and solid losses after the decision was announced.
The broader S&P 500 dropped 37.03 points, or 1.2%, to 3,053.20.
The tech-heavy NASDAQ let go of 98.41 points, to 8,853.75.
Bank shares fell broadly, led by a 3% drop in Bank of America shares. JPMorgan Chase skidded 2.5% and Citigroup slid 0.4%.
The decision came two weeks before the Fed’s scheduled meeting as the central bank felt it was necessary to act quickly to combat the effect of the virus spreading worldwide. It’s the first such emergency action coming in between scheduled meetings since the financial crisis.
Investors have been fretting over a potential economic slowdown as the coronavirus spreads around the world. More than 89,000 coronavirus cases have been confirmed globally along with more than 3,000 deaths related to the virus.
Prices for the 10-Year U.S. Treasury gained sharply, dropping yields to 1.03% from Monday’s 1.15%. Treasury prices and yields move in opposite directions.
Oil prices gained 63 cents to $47.38 U.S. a barrel.
Gold prices $43.00 to $1,637.80 U.S. an ounce.
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Insider: Gold Price Could Hit $2200 By Year End
Gold price could hit $2200 by the end of the year says one insider, indicating a move of 10% or more in the coming months.
Adam Button, chief currency strategist at Forexlive.com, was recently interviewed on Kitco News and shared his thoughts on gold and the US dollar.
Button said there’s so much enthusiasm in the markets, that gold’s recent move above $2000 before settling back down to $1900 almost feels like a loss compared to the action in equity markets.
“I think gold bulls and all market participants look around and see some of the things happening in equities, it almost feels like gold at $1900 is like a loss because it stalled out here.”
But he adds that in order for a healthy, sustainable rally in gold prices to occur, you can’t have prices rise in a straight line.
“If you think about a long-term bull market, you don’t want to see a non-stop parabolic move. You want to see these back and fill, consolidation, a few tests to the downside, and we’re getting that right now so I don’t think this is even the beginning of the end of the gold bull market. There’s so much to go here and I like the price action that we’re getting most recently.”
The host asked if this move higher in gold means a steady move lower in the US dollar, which Button agreed and said the long-term trend is a lower US dollar.
“There are so many factors if we are going to go into that in the near-term and the long-term. The main one is runaway fiscal US spending, and the second one will be easing monetary policy, and I think we are setting up for a decade of both of those things,” he adds, “Right now the driver of flows in the currency market are relative valuations. With bond yields basically bottomed out everywhere, that means the market looks more at equities, it looks more at investment, and you just see much better values outside of the US. I think there’s a lot of that money flowing out, slowly at times and quickly at times, but ultimately that’s the direction and that means lower for the US dollar in the long-term.”
Button was asked how the outcome of the election will affect gold prices, and he believes if Trump wins re-election and the Republicans hold on to the Senate, fiscal conservatism will return in gold won’t do as well.
“I think if you wake up after the election and see that Republicans have held the Senate, you would consider selling gold on that and consider heading to the sidelines for a little bit because that fiscal conservatism will come back and that limits both the economic growth in the United States but more so that runaway fiscal spending that I think is the main tailwind for gold everywhere.”
Finally, Button was asked his outlook for where gold prices will be at year-end.
“I think you get a very late tailwind in gold, now there’s that season push right into December so I think we might kind of hover around these levels on election uncertainty until then, but I think after that there’s a good chance we run up through $2000, maybe up to $2200 at year end.”
Gold Becoming ‘Unavailable’ Due to Overwhelming Demand
If you can find gold coins or gold bars available for purchase, it might be a good idea to get your hands on them.
Major gold dealers are reporting that gold bars and coins are virtually unavailable right now as investors flood into the precious metal as a safe haven.
Yesterday, Kitco announced that it is almost completely sold out of the most common one-ounce gold coins. American Eagles and Buffaloes from the U.S. Mint are out of stock. The same goes for Canadian “Maple Leaf” coins, Great Britain’s “Britannias,” Australia’s “Kangaroos” and South African Krugerrands.
Josh Strauss, a partner at Pekin Hardy Strauss in Chicago says “There’s no gold. There’s roughly a 10% premium to purchase physical gold for delivery. Usually it’s like 2%. I can buy a one ounce American Eagle for $1,800… $1,800!”
The U.S. Mint does have American Eagles for sale, but they are listed at $2,175 for a one ounce coin, a massive 33% premium over yesterday’s spot price of $1,630 per ounce.
Ludwig Karl, a board member of Swiss Gold Safe Ltd., said “It’s absolutely crazy what’s going on. Right now, if somebody wants to buy gold, I wish them all the best in finding it. Most of the bullion dealers are closed.”
Debra Thomson, sales director at IBV International Vaults, added “The last time I saw this amount of chaos in the market was with 9/11.” IBV offers safe-deposit boxes and the purchase of precious metals worldwide.
And Seamus Fahy, co-founder of Merrion Vaults, says “A buyer would have been fussy about the coins they want two months ago. Now they will buy anything they can get their hands on. They are desperate to get physical gold.”
If Goldman Sachs strategist Jeffrey Currie is right, gold coins will continue to be scarce as demand skyrockets over the coming months with every newly-announced government stimulus plan.
During this month’s massive selloff, gold initially dropped as well. It did the same thing at the beginning of the 2008 financial crisis, dropping around 20%. But in November 2008 when the government announced the first of many quantitative easing plans, gold stabilized and climbed higher.
Currie believes that with the announcement last week that the Federal Reserve would start buying $700 billion worth of Treasurys and mortgage-backed securities, once again we are mirroring what happened in 2008, and that means gold’s massive rally is likely underway.
Not only could the Fed’s quantitative easing measures send gold prices soaring, the supply imbalance will likely get worse, adding more fuel to the fire.
Switzerland’s refining industry, which is a major international hub and has three of the world’s largest refiners, is shut down in an effort to slow the advance of the coronavirus and mines across the globe are seeing production slow or come to a complete halt as governments close anything deemed non-vital in the wake of the outbreak.
“There’s no gold” is likely to become a common refrain in the coming months.
Gold Climbs Again As Fed Turns On “Unlimited” Printing Press
Gold just had its single largest one-day gain going back to at least 1984, climbing $31.10 an ounce to close at $1582.30, all thanks to the Federal Reserve cranking up the printing press for the latest round of quantitative easing (QE).
Yesterday, the Fed announced that it would start buying mortgage-backed securities and Treasurys in an unlimited amount in an attempt to add liquidity to the financial markets.
What makes this round of QE unique is that the Fed hasn’t put a monetary limit on how much it is willing to spend to keep the markets afloat.
With an ‘unlimited’ amount of money being printed, it shouldn’t come as a surprise that investors have flocked to gold recently as a store of value during these turbulent times.
“The endless QE to trillions in global liquidity programs are all in gold’s favor among the general turmoil,” Peter Spina, president and chief executive officer at GoldSeek.com told MarketWatch. “Gold is returning back to its function as a global currency.”
Spina also said he wouldn’t be surprised to see gold climb to $1,700 an ounce by “Friday of this week or next,” and that prices could climb to $2,000/ounce and higher in the second quarter.
Yesterday Goldman Sachs said in a note that gold bullion is “probably at an inflection point and it is a time to buy” due to the concerns over the dollar being debased with all the money being printed.
“Accordingly, we are likely at an inﬂection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008” the note added.
An interesting twist to the increased demand for gold right now is the very real possibility of a shortage in the near future, which could absolutely cause prices to scream higher.
The coronavirus is taxing supply chains, and could make it very difficult to get new gold supply to the market.
Spina from GoldSeek.com added “So with a true gold rush underway, there is a perfect storm brewing for the gold and gold miners.”
Three of the largest gold refineries (Valcambi, Argor-Heraeus and PAMP) announced yesterday that they will be closing down their production facilities in Switzerland for at least a week as part of an effort to control the spread of the coronavirus.
The three produce nearly one-third of the annual global supply of gold.
GoldCore, a bullion provider based in Dublin, said Monday that it has “experienced record demand in recent days and the global supply of gold and silver bullion coins and gold bars has quickly evaporated.”
“Most of the largest gold refineries and mints in the world have closed their refining and minting operations for the next two weeks, and this suspension in production may become longer which …will badly impact supply,” GoldCore said.
Mark Mobius, a veteran investor told Bloomberg TV in an interview “(Gold’s) recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread.”
“I think it’s a mistake,” he added. “People should have gold and this may be a good time to increase holdings in gold — in fact I’m thinking that myself.”
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