Incoming

As Covid-19 worries explode, sell orders once again flood world stock and commodity exchanges. The rush for liquidity has once more included gold among its victims.

But now the Fed has fired its first major monetary salvo in the battle, essentially guaranteeing the financial markets unlimited liquidity.

Things are bad, and this is nowhere near the end.

Let’s get that out of the way first. With global markets cratering as investors everywhere sell anything and everything they can, we need to understand that there is more bad news to come on the pandemic.

The scarcity of testing kits in the U.S. has spared us some of this bad news, but at some point it will become known that there are tens of thousands of infections within America’s borders, and this will deliver yet another shock to the markets.

Dour data will come from other sectors as well, but what we received in just the last 24 hours — with travel bans from Europe and the suspension of virtually all events, including major sports leagues — has certainly been a lot to chew on.

And in fact the markets have choked on it. The U.S. stock market tripped its initial circuit breaker almost immediately upon opening this morning, with the Dow sliding well over 2,000 points.

For its part, gold was not spared during this liquidity vacuum, much as it has suffered through previous waterfall declines over the past two weeks. After falling as much as $74 midday, the yellow metal recovered some of its losses after the Fed made a major announcement….

All The Money You Want!

Under the stresses of the selling, even the typically massively liquid U.S. Treasury market was experiencing issues with its plumbing. So in the early afternoon, the Fed fired its first “bazooka” of liquidity at the problem.

And it was a doozy, including three separate $500 billion repo programs over the next two days and at least one $500 billion program a week for the remainder of the month.

Now, the Fed statement isn’t precisely clear and is open to some interpretation. Thus, reporters and analysts have used potential figures, if all of the facilities are fully subscribed, of between $1.5 trillion and $4 trillion. Again if fully subscribed, these would swell the Fed’s massive, $4.2 trillion balance sheet (built over years following the 2008 crisis) by between 35% and 100%.

Moreover, the Fed also announced that it would begin to include coupon Treasurys in its now-standard monthly purchase program, thereby eliminating the last semantic differentiator it was holding on to in its claims that it was not conducting QE.

I promised you that the Fed would “dial it to 11” in this next crisis, but even I didn’t expect that they could potentially double their balance sheet within a couple of weeks.

Now, to pull us back from the edge a bit, I should note that what the Fed appears to be doing is putting a shocking, seemingly unreachable number out there, thereby assuring the markets that it will supply any and all of its requests for liquidity.

But doesn’t that make it even worse if the markets demand all of that money, and perhaps more?

I think we could get there over the next couple of weeks because, as I noted, there will be more unsettling news to digest.

What This Means For Gold

Gold climbed back from the lows after the Fed’s big announcement, but still stands with heavy losses of around $65 to trade on a spot basis around $1,569. Silver is off about a dollar to $15.68 which, quite coincidentally, puts the gold:silver ratio at an all-time high over 100.

Again, not your typical day.

Gold is, again, suffering from a massive liquidity vacuum, a panic when investors are selling not what they want, but what they can.

It’s important to also note that, when I talk about a sell-off in gold and silver, I’m talking about the “paper gold” and “paper silver” markets. In other words, the futures.

In real life, in the physical metals, we’re seeing demand soar. My friend Dana Samuelson, proprietor of American Gold Exchange, just emailed me that their phones are ringing off their hooks with orders. Not only that, he just told me that the U.S. Mint has announced they’re out of U.S. Silver Eagles. Dana expects Gold Eagles to be next.

Does this sound like everyone’s selling gold? No, in the physical market, where there are true supply and demand signals, investors are buying all the metal they can get their hands on. I can’t disagree with them.

(By the way, Dana has a limited supply of older-date quarter-ounce Gold Eagles available for just melt plus 7.5%. That’s basically the U.S. Mint’s wholesale price for new issues. If you’re interested in having portable, trading-sized gold coins — these are perfect for that. Or something similar.

Again, it’s just a limited supply, so contact American Gold Exchange at the link above or by phone at 800-613-9323 if you’re interested.)

Looking Forward

As with the 2008 crisis, this too shall pass. The Fed will come in with a zero-rate policy (perhaps even negative rates if the trend holds true), more QE than ever before, and whatever other novel liquidity operations it can imagine — perhaps even purchases of corporate bonds and equities, if Congress allows.

Speaking of Congress and the Trump administration, they are still haggling over the fiscal rescue programs, but you can rest assured that they will come out with shock and awe. They will bid to out-do each other, and the federal debt — which as I have detailed ad nauseum was already out of control — will explode higher. I’m guessing the debt will grow by close to $3 trillion this year alone.

This will be tremendously bullish for gold, silver and mining shares.

As you’ll remember, my thesis has been that we will have negative real interest rates for years to come. The current and upcoming events mean that rates will be deeply negative…and even those who have blithely ignored the debt situation will recognize that it has grown far too large to manage without significant depreciation of the dollar.

Even CNBC will soon be reporting what we’ve been talking about for the last few years.

Right now, I recommend accumulation of physical metals at these levels. They may get cheaper in the days just ahead, but it’s hard to imagine them being more valuable to your portfolio and peace of mind.

I am not recommending purchase of mining shares, whether senior, junior or in-between, at this moment. We have to let the current crisis blow over.

But there are tremendous bargains being created, especially in light of the powerful metals rebound that lies ahead.

If you want to get my recommendations when they’re issued, I urge you to read Gold Newsletter and our Gold Newsletter Alerts.

If you’re not already a subscriber to one or the other of these publications, now is the time to get on board.

Because the current situation is so urgent, I’m going to reopen the opportunity to subscriber to Gold Newsletter at half price, or our Alert Service at a deep discount.

Simply CLICK HERE to take advantage of this limited offer now.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference