Gold prices closed above $2,000 per ounce for the first time in history. This is the latest signal that a bull market in precious metals is well underway. Since bottoming in late March at $1,498 per ounce, gold has rallied 33%. It did so as governments around the world have turned on their printing presses in an effort to boost their economies.

Investors are betting that the trend will continue in both. They say so because of gold climbing higher as the government print more and more money.

Analysts with Bank of America Global Research have predicted that gold prices will surge another 50%. They say it will happen over the next 18 months. This may push the price of an ounce of gold to $3,000. And it’s not just gold, but all precious metals that stand to benefit according to the analysts.

They add that because of falling bond yields and near-zero interest rates, there are multiple ways that gold could quickly climb to $2,500 per ounce.

Michael Widmer, metals strategist at Bank of America said in a recent research note, “When you’re looking at what levels we would need to see gold at $2500 per ounce, it is combinations like the DXY (the ICE U.S. Dollar Index) at 90 and real rates (10-year Treasury note yield) at minus 2. That will take gold to $2500. The DXY at 85 and real rates at minus 1.75 will also take you to $2500. DXY at 80 and real rates at minus 1.5 also take it to $2500 an ounce,” Widmer said.

Carlo Alberto De Casa, chief analyst at ActivTrades, says that investors are watching to see how the next coronavirus stimulus package shapes up here in the US to see how much additional money the Federal Reserve will be printing. De Casa says any large increase could be the catalyst for the next surge in gold prices.

“It is clear the resistance level of $2,000 is a strong threshold for the price and significant volumes are placed there,” he wrote. “Any news regarding new monetary stimulus from the US Federal Reserve could trigger gold to break up the resistance level of $2,000.”

Horizons ETFs portfolio manager Nick Piquard says the longer the coronavirus pandemic drags on, the more dollars the Federal Reserve will have to print as stimulus.

“Investors are seeing that this COVID crisis isn’t going to go away anytime soon. The cases keep going up globally. And the longer it takes, the more debt needs to be created,” Piquard said. “Congress is debating right now about how many trillions of dollars they’re going to have to spend for a new stimulus after having already spent trillions of dollars.”

Piquard says that will inevitably push gold prices higher. “The U.S. is probably going to have to print a lot of dollars to bail out all this debt. That’s really fuelling the gold rally.”

And once the pandemic is behind us, he says there will be too much stress on the system to raise taxes and pay off all the debt. “After all that money has been spent, it’s not like you’re going to be able to raise taxes to get that money back, or it’s not going to be easy to raise rates. The market is anticipating that the Fed is going to have to do more. And all those things are just beneficial for gold.”

Piquard says there’s an easy way to tell when the gold rally has ended.

“Silver price generally makes new highs towards the end of a gold bull market,” Piquard said. “The reason for that is because silver is more of an industrial metal, which is used more in the economy. So when silver starts rallying, that implies that the economy might be picking up.”

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Gold and silver prices continue to push higher in reaction to further rounds of stimulus money both here in the US and in Europe.

Spot gold prices jumped $24.50 yesterday to hit $1,840.40 an ounce, the highest price for gold since September 2011. The price of silver increased $1.34 per ounce to settle at a 6-year high of $21.46 per ounce. Both precious metals moved higher as the dollar slid 0.5% yesterday.

During an interview with Fox Business, George Gero, managing director at RBC Global Wealth Management and a member of the COMEX board of directors, said yesterday’s jump was due to another round of money printing in Europe. They mentioned this as the European Union approved a $2.06 trillion spending plan. This step aims to help offset the economic slowdown caused by the coronavirus pandemic.

Here in the US, Congress is working on the framework for another stimulus bill. This will add to the $3 trillion that’s already been printed as the country struggles to recover from the economic shutdown.

Metals as a Store of Value

Investors have now turned to precious metals as a store of value. They do so to offset all the money printing that has gone on across the globe.

Yields have plunged as the Federal Reserve has cut interest rates to near-zero. It also announced an open-ended asset purchase plan and two programs to buy bonds. One program relates to the open market. They need the other one to purchase bonds directly from the issuing companies.

James O’Rourke, a commodities economist at research firm Capital Economics, says he expects real yields to “remain low” and sees gold ending the year at $1,900 an ounce. He also expects real yields to remain “elevated over the next couple of years.”

Cause for Concern?

The move higher in gold prices is also causing some concerns. Many have started to doubt the ability of some banks to settle their contracts. This creates a bit of a panic in the markets.

During an appearance on Fox Business, host Stuart Varney asked Fosterville South Exploration CEO Bryan Slusarchuk about 20 million ounces of gold that was just delivered to New York vaults.

Slusarchuk said some of the price action in gold is from traders that are looking to hedge their positions. However, a larger part of the price increase is a supply disruption. This happens while getting the gold from the London market to here in the US.

“Remember that traders use COMEX futures in order to hedge against their exposure to the London gold market. This is a win-win for everyone involved, but it relies on getting physical gold from storage points in London to the USA for settlement. Now there’s been a lot of disruptions to that recently and it’s caused chaos. It’s caused a gap in pricing and it’s caused some traders to worry about an inability to settle contracts.”

He added, “Individuals all over the world are worried about getting their hands of physical gold. So there’s out there looking for gold coins that they can put in safety deposit boxes, that they can hold at home for that matter. They are worried about the difference between paper gold or promises and physical gold. We’ve seen countries worried about physical gold. Countries are trying to repatriate their gold supply. Now for the first time, we’ve seen what happens when traders at banks get nervous about the ability to take physical delivery.”

Market Performance of Silver

For all the attention paid to gold prices lately, silver has actually gained the most since precious metals bottomed in March.

“Silver has finally come into its own and it’s no longer poor man’s gold,” Gero said.

“Silver has been a misunderstood component of the reopening because the industrial part that held it back for months is now in its back, propelling it forward,” Gero added.

He expects silver to move as high as $22 by year-end and the gold/silver ratio falling to around 80.

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The Trump Administration released details yesterday on the success of the Paycheck Protection Program (PPP). They also released the names of the businesses that took out loans from the program.

The program was signed into law in late March as part of the CARES Act. It offered forgivable loans to small businesses in an effort to keep them afloat and their employees on the payroll. The program came as the coronavirus forced the US economy to shut down. Originally, the business had to use 75% of the loan amount to keep employees on the payroll. However, that was later reduced down to only 60% of the loan amount.

The program originally had $349 billion as funding to help small businesses. After those funds ran out, the government replenished the program with an additional $310 billion.

With information provided by the Treasury and Small Business Administration, the White House released the list of companies that received a loan of at least $150,000. Loans of that amount or greater represent nearly 75% of the total dollar amount lent out by the program.

The vast majority of loans, however, were for a much smaller amount. Nearly 87% of the loans approved as part of the PPP were for $150,000 or less, according to the SBA.

PPP Funding and Other Figures

Looking at the information provided by the White House, more than half of funding went to businesses in just five industries. The health care and social assistance industry received just under 13% of the money, while professional and technical services received 12.7% of the funds. 12.4% went to the construction industry, 10.3% went to the manufacturing industry and 8.1% went to restaurants, bars, hotels and other food- and hospitality-service employers.

Other notable figures from the report:

• The program has approved 4.9 million loans for a total of more than $521 billion.
• According to the companies receiving the funds, the program has saved or supported more than 51 million jobs.
• The program has about $132 billion in funding remaining.
• The average loan size is $107,000.
• California-based businesses received the most money overall at $68.2 billion. Texas was second at $41.1 billion and New York third at $38.3 billion.
• Businesses in economically distressed areas as designated by the SBA got nearly 23% of the loan money, while companies in rural areas received about 15% of the funds.

Additionally, public outcry helped return more than $30 billion dollars to the fund. Ruth’s Hospitality Group, which owns the Ruth’s Chris Steak House chain, AutoNation, ShakeShack and even the NBA’s Los Angeles Lakers are among those that took out PPP loans that were ultimately returned.

The administration just extended the program, but it has already proven to be a huge success.

“The PPP is an indisputable success for small businesses, especially to the communities in which these employers serve as the main job creators,” SBA Administrator Jovita Carranza said in a statement. “In three months, this Administration was able to act quickly to get funding into the hands of those who faced enormous obstacles as a result of the pandemic.”

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