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.”
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.
Dow Plummets Despite Rate Cut
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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FDA’s Plan to Regulate Nicotine Levels a Major Blow for Big Tobacco
Tobacco has an interesting history in the U.S. The country was basically founded on the stuff, giving Americans (and the world) a high opinion of the plant for centuries. But in the modern world, tobacco has lost much of its luster as the harmful side effects of smoking have been revealed. Yet Big Tobacco has survived and thrived in spite of the growing public opinion against smoking. Now, however, the FDA has just thrown a massive punch against the industry by announcing plans to cut nicotine levels to non-addictive levels.
Is this a Death Blow for Big Tobacco?
According to the CDC, every year there are more than 480,000 cigarette smoking related deaths in the U.S. And that includes more than 41,000 deaths from secondhand smoke. So it’s no surprise that the FDA and CDC would love to combat tobacco, or at least increase regulations on smoking. And now they’re doing exactly that as the FDA proposed on Friday a plan to cut nicotine levels in cigarettes to “non-addictive” levels.
That’s huge news for the tobacco industry — and not in a good way.
Big Tobacco has already been struggling after coming under fire in the UK after regulators issued stricter packaging rules. Those regulations stated that all cigarettes must be sold in standardised green packaging with graphic warnings of the dangers of smoking included on all labels.
That move shifted Big Tobacco’s focus more towards the U.S., where marketing could still be a major differentiator for a company. But that’s not such a sure thing anymore. With the FDA’s Friday announcement, tobacco companies should be worried.
The tobacco industry is a lot like the casino industry. People line up to give the company money, then come back and do it over and over again. With casinos, people leave once they run out of money. With tobacco, though, people don’t leave. Nicotine is extremely addictive, which is why cigarette companies are always willing to spend so much to acquire a customer. The lifetime value of a smoker can be measured in the millions.
By lowering the amount of nicotine allowed in cigarettes, the FDA is making it easier for smokers to quit smoking And that means tobacco companies are about to lose a big chunk of their loyal client base. The regulations are meant to drive smokers to vaping and ecigs, widely regarded as healthier alternatives for smokers.
Watch the video from The National regarding FDA’s new nicotine level plan:
After the proposal was announced, tobacco companies such as Altria Group (MO), British American Tobacco (BTI), and Philip Morris International (PM) all tumbled down, with only PM closing positive. Expect shares of all tobacco companies to drop from the news, and plunge once the regulations go into effect.
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