By Ellsworth Dickson
In a world of collapsing stock prices due to the coronavirus (COVID-19), March 24 was a great day for mining stock investors and gold bugs. The TSX Composite Index was up 1,342, or +11.96%, and the junior miner-heavy TSX Venture Exchange was up a healthy 29.56 points.
March 24 also happened to be the day that the New York-based CPM Group held their webinar on the heels of publishing their Gold Yearbook 2020 as the price of gold increased by US $78.70 to US $1,630 an ounce.
Like many stocks and other securities, the recent price of gold has also been very volatile, probably more so than at any other time. Its big price drops were due to margin calls and other money demands from highly leveraged positions and related reasons.
While physical gold and silver demand had been low for some time, the coronavirus caused demand to pick up sharply. According to the CPM webinar, this has resulted in physical gold coin and bar dealers selling out who are now finding it hard to replenish their stock to meet the increased demand. This is attributable to three major Swiss refineries – which account for over one-third of world supply – closing due to the virus. Other smaller refineries around the world have also closed.
CPM noted that due to the coronavirus investors are buying gold as a safe haven which was aided by the Fed’s actions to print as much money as needed (open-ended quantitative easing) to get through present difficulties. Other factors driving gold’s price increase was strong gold ETF demand, Central bank demand coupled with less gold sales on their part.
“CPM Group expects gold prices to continue on their upward trajectory during 2020 and to reach new record highs in the medium term,” stated the Yearbook.
Other analysts concur. A new Goldman Sachs report entitled Time to buy the currency of last resort noted that gold acts as a hedge against the debasement of currency when governments need to print massive amounts of money to deal with unprecedented economic problems.
Goldman Sachs is of the view that “both the near-term and long-term gold outlook is looking more constructive, and we are increasingly confident in our 12-month target of US $1,800 an ounce.”
Analysts at Sprott Asset Management agree, who noted in a report that “gold continues to deliver strong relative performance and was up 2.37% on a year-to-date basis through yesterday’s close. This compares to -33.74% for the S&P 500 Index.
Chief Investment Officer Whitney George reflected on markets and the COVID-19 crisis: “We are in a paradigm shift right now, one that may have taken us all a bit by surprise. I expect that central banks will shortly provide the liquidity required to settle the markets, an accomplishment that will be very favorable to gold.”
He went on to say that “Sprott is focused on hard asset investments, specifically gold and precious metals. Hard assets have two key advantages. They represent ownership of something finite and tangible. When the paper you use to purchase it is infinite, hard assets like gold can help to preserve real wealth.”
George remarked that “Right now, we are recommending to clients to own some physical gold, along with physical silver. These are proven safe haven investments. Mining equities would be another place to look for those who are more opportunistic…”