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How to Invest in Gold, Silver and Precious Metals: Part 3

Editorial Staff



Determining the Price of Precious Metals

As with most markets, supply and demand most directly affect the price of precious metals. Supply and demand is reflected in the bid and offer prices of daily transactions, which occur in the billions and trade freely on and off exchanges.

The spot price of the precious metal is reflective of the value of the asset at the moment of the quote, and is also called the current ( or spot) price.
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Typically spot prices are consistent through all types of precious metals in the market at a given time, meaning that if the price of one goes up, so does the price of another.

In addition to paying the spot price for a precious metal, large banks typically charge a minimum purchase amount, such as 1000 ounces of a gold for example, and a premium, an amount paid in addition to the standard rate. Unfortunately, this can sometimes make the market impossible to participate in for investors with little capital, and is one of the major downsides of investing in precious metals. Luckily, futures contracts make gold accessible to each and every one of us, but that’s a different report for a different time.

Get Started in Investing

When investing in precious metals, you may chose between physically possessing the metal or owning the paper version of your precious metal that represents its value. The latter is far more common, though the former is generally a lot more desirable, particularly amongst gold bugs.

There are various options to choose from when deciding how to invest in precious metals. First, there are commodity ETFs (exchange traded funds), which tend to be very convenient, as they are a liquid method of buying and selling precious metals. They allow for ownership while blending the best aspects of growth potential and risk management. The downside (as with all ETFs) are the fees which can sometimes make the cost of ownership prohibitive.

Second, there are common stocks and mutual funds. In this case, shares of precious metals change based on price movements in the market of precious metals, and you can rely on the managers of the funds to monitor the value of the mining stocks.

Next, there are futures and options markets, which have the highest potential to profit or lose as you bet on the future price of products. Futures and options allow for great customization on the part of investors but also require more than just base knowledge. Options in particular can be very advanced weapons in the hands of a sophisticated investor. Likewise, a novice investor can easily vaporize their trading account with options, so make sure to know what you’re doing before proceeding.

Bullion is the form of precious metals that is purchased and delivered in the form of physical bars and coins. While they are a burden to keep hold of, many investors like having the option of holding their investment in the palm of their hand. Finally, there are certificates, which are representative of value, and are not as cumbersome as bullion.

The major exchange for purchasing precious metals is the New York Mercantile Exchange (NYMEX). It is the largest physical commodity futures exchange in the world, and is broken down into two trading divisions.

Energy, platinum, and palladium markets are traded in the NYMEX division, while metals such as gold, silver, and copper are traded in the COMEX—commodity exchange—division along with the FTSE 100 index options.

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Expert: Gold Could Climb to $10,000 Per Ounce to Reach ‘Equilibrium’




Expert: Gold Could Climb to $10,000 Per Ounce to Reach ‘Equilibrium’

With the new daily cycle driven by coronavirus numbers and the stock market recovery, little attention has been paid to gold as it continues to climb higher and approaches the all-time high of $1924 per ounce set in 2011.

What has caught many investors off-guard is the unusual correlation between the price of gold and the stock market. Typically, gold will climb during times of uncertainty, like when the stock market is falling, and moves lower when the market advances.

But both gold and stocks are moving higher, and Chris Weston, head of research at Pepperstone, says the reason is both are being pushed higher by falling bond yields.

He points out that the market views gold as a zero-coupon bond, so as inflation-adjusted Treasury yields head lower, gold may climb and becomes more attractive.

The Possibilities

Weston does express concern that if stocks do sell off and the dollar strengthens, gold could take a hit. But he says “Until that time the path of least resistance is higher” and has a price target of $1796 per ounce.

Chris Vermeulen, the founder of Technical Traders, says the reason gold continues to climb higher in tandem with stocks is actually a lack of conviction in the market rally since the March lows.

“What this is telling us is that global investors and traders are very fearful of this rally in the stock market and are actively hedging in Gold and Silver. Traders understand the risks to the credit and banking system and are playing the rally in the stock market cautiously while “loading up” on Gold as a means to protect against unknown risks.”

Vermeulen believes that once gold crosses over $2,000 per ounce, the next price move will be significant.

“Once Gold clears the $2000 price level, we believe Gold will enter a parabolic upside price trend that could accelerate well above $3250 very quickly – possibly before the end of 2020,” said Vermeulen.

In a worst-case scenario where the central banks can’t find a way to generate real economic growth going forward or we see a collapse in the credit markets or banking sector, Vermeulen says the historical precedence for the price of gold is stratospheric.

“Should the credit markets or banking sector collapse or experience any real extended risks, Gold could rally to unbelievable levels (like in 1979~80; where the price of Gold was over $650 per ounce and the price of the SPX was $110). If that were to happen at today’s levels, Gold would reach levels above $22,250 or higher. Think about it.”

A Less Aggressive Price Target

Dan Oliver, founder of Myrmikan Capital, has a slightly less aggressive price target but says every dollar the Fed prints mean a higher price of gold.

“I’m at $10,000 now,” says Oliver, of his price target for an ounce of gold, compared to his previous prediction of $3,000 per ounce.

He says the price of gold comes down to one thing: the Federal Reserve’s balance sheet.

“It’s very easy, you say ‘Okay, what are the Federal Reserve’s assets and what are their liabilities?’ Well their assets include some gold, they say they have 300 tons of gold on their balance sheet… what are their liabilities? The dollar. That’s what their liability is,” says Oliver. “So my point is that when you project a crash in the value of the other assets of the Fed, ie the mortgage bonds that they own, the Treasury bonds that they own, all these new funky commercial debt that they’re buying, some of it sub-investment grade, when those things crash, the Fed will find its assets completely stripped of value… and that will have a direct influence on the dollar.”

“So if you just crunch the numbers, if you say what happens when the market stages a run on the Fed, what does that look like? What it looks like is the price of gold rising to a price that balances the Fed’s balance sheet. And as the Fed increases the balance sheet size, that equilibrium number goes higher and higher and higher.”

Gold loves monetary debasement,” says Oliver, “and that’s where we are and that’s why gold is responding.”

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Gold Becoming ‘Unavailable’ Due to Overwhelming Demand




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.

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Gold Climbs Again As Fed Turns On “Unlimited” Printing Press




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 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 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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