Jim Rickards via The Daily Reckoning
The coronavirus continues to take its toll on the stock market.
For investors accustomed to “buying the dip,” this is quite a change. As noted macroeconomic analyst Mohamed El-Erian said earlier today:
I understand the inclination to buy on the dip. I understand that the path of least resistance in this market is to bounce up… but I stress, this is different.
Meanwhile, the all-important 10-year Treasury yield fell to a record low this morning as investors continue to pour into safe-haven assets.
The 10-year yield dropped to 1.32%, falling beneath its previous record low of 1.325%, which it set in July 2016 following Brexit.
That means the bond market is projecting a poor outlook for the global economy. And over the long haul, the bond market has an excellent track record of being right.
Gold was down big today, losing $45.20. But that’s not because of gold itself. It’s all about the falling stock market.
When you think about it, it doesn’t make sense.
After all, if investors are fleeing for safety, which we’re seeing in the Treasury market, why wouldn’t they be buying up gold as well?
Gold was up close to $30 yesterday, before the price began dropping late in the day.
Here’s the likely reason why gold is falling right now when it should be rising…
With the stock market plummeting, hedge funds and other institutional investors have had to suddenly raise cash to meet margin calls on their positions in the equity markets. And they had to get the cash from somewhere.
Gold is a very liquid asset that can quickly be traded for cash.
They can either sell the actual gold bullion they own or they can unload their positions in gold ETFs (like GLD).
So my estimate is that they dumped their gold positions to raise the money. And that’s been driving the listed gold price lower.
It has nothing to do with gold’s fundamentals, which are actually very strong. Demand is increasing, central banks are hoarding record amounts of gold and new supplies are dwindling.
That’s a recipe for skyrocketing prices, and the bull market in gold is still very much intact.
The latest selling is just a quirk of the market, in which institutions have to raise cash in order to cover their positions when the market’s dropping.
Again, it has really nothing to do with gold itself. This is just a temporary blip.
If you haven’t bought gold yet, this is an ideal opportunity to scoop up gold at a bargain-basement price. Or, if you already own gold, to stock up on more.
For gold at least, it’s an ideal opportunity to “buy the dip.”
Gold is going much, much higher.
I’m not sure how many more opportunities like this we’re going to see. I urge you to take advantage of it while you can.
via The Daily Reckoning
See related content in News and Commentary below regarding the sell off and whether it was solely due to margin call selling or whether their was bank or official intervention and manipulation of gold prices via the futures market last week. Both are possible and investors and safe haven bullion buyers need to fade out the short term noise, take a long term view and own gold and silver coins and bars in the safest ways possible.
NEWS & COMMENTARY
Gold rises 1% as virus risks boost rate-cut hopes
Gold Stages a Fightback After Slump Last Week
China factory activity shrank at its fastest rate on record in February
Coronavirus: buying opportunity or end of the road?
Is gold falling along with coronavirus-afflicted global stocks due to margin calls?
Stocks and gold — what happened last week
Gold is said to have been sold to cover margin calls in other assets
Data suggests governments, not margin-call pressure, smashed gold last week
Turkey launches Operation Spring Shield against Assad regime
GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)
28-Feb-20 1626.35 1609.85, 1262.37 1254.88 & 1474.61 1468.18
27-Feb-20 1646.60 1652.00, 1278.58 1282.45 & 1505.32 1504.97
26-Feb-20 1647.95 1634.90, 1273.37 1264.76 & 1515.45 1505.42
25-Feb-20 1655.90 1650.30, 1275.54 1271.39 & 1528.06 1522.73
24-Feb-20 1682.35 1671.65, 1304.49 1293.69 & 1555.84 1540.26
21-Feb-20 1633.70 1643.30, 1264.81 1269.12 & 1512.48 1515.29
20-Feb-20 1610.35 1619.00, 1250.11 1258.45 & 1491.99 1496.77
19-Feb-20 1609.50 1604.20, 1239.80 1237.80 & 1490.40 1486.29
18-Feb-20 1588.20 1589.85, 1218.47 1220.37 & 1467.34 1470.77