Gold & Silver Mines Closed as Physical Silver Becomes "Most Undervalued Asset" / Commodities / Gold & Silver 2020
A surge in coronavirus cases, an expansion ofeconomic lockdowns, and an explosion in unemployment claims hit markets thisweek. But this deluge of bad news didn’tseem to catch investors by surprise.
Instead of crashing to new lows, the stock marketheld within a trading range and rallied yesterday following the release of ahorrific jobs report.
It’s been a huge week for commodity markets as oilprices posted their biggest single day percentage gain ever Thursday, poppingmore than 25%. Oil prices lifted fromtheir severely depressed $20 per barrel level after President Donald Trump metwith oil executives and announced Russia and Saudi Arabia would agree tocurtail production.
Turning to the precious metals, volatility finallytamped down a bit after three straight weeks of some of the wildest moves we’veever seen in both the spot market and the bullion market.
With so many disruptions and dislocations nowhitting the economy, investors have to ask themselves: What is trulysustainable? A great many businesseswon’t be around after this global pandemic finally recedes. Entire industries will never be thesame. And so many families will befinancially wiped out.
Government “stimulus” may well prevent politicallyfavored companies from going under. Butat the cost of putting federal spending and borrowing on an even moreunsustainably steep trajectory.
While there is no limit to how much currency theFederal Reserve can create to prop up the government and the entire financialsystem, there are limits to the U.S. dollar’s credibility as a store of value.And they are likely to be tested as the currency supply accelerates upward.
At the same time, production of scarce assets suchas precious metals and an array of commodities is likely to fall off acliff. The current supply and demanddynamic in most raw materials is both unprecedented and unsustainable.
The big story we have been told with regard tocrude oil is pandemic-driven demand destruction. The global oil market is seeing demandcontract by up to 25 million barrels per day as economies remain virtually shutdown.
To make matters worse for oil producers, Russia andSaudi Arabia had been flooding the world with more output. They drove crudeprices down so low that the entire North American shale industry, which wasalready reeling, now faces the prospect of being driven out of business.
In the first quarter of 2020, oil prices suffered a66% crash – a record drop for a single quarter – settling right around $20 perbarrel. At that price, nearly the entireenergy sector is unsustainable. From thefrackers to the deep-sea drillers to even the more conservatively positioneddiversified energy giants, $20 oil simply doesn’t work.
Until oil prices get back above $40, the only way someof these companies can hope to survive is by drastically shrinking theiroperations. Wells are being capped. Industry analysts anticipate a 70% drop inU.S. drilling over the coming months.
At the same time, demand is also expected torecover from current levels. Althoughenergy use will increase gradually at first as sections of the economy reopen,demand can increase a lot faster than supply – especially when that demand isbeing accelerated by $6 trillion in federal stimulus so far, and likely evenmore ahead.
Similar supply and demand pressures face the basemetals and precious metals mining industries. Multiple mines around the world – from South Africa to South America –are currently shuttered due to the coronavirus.
Even before the pandemic, the mining industry was in distress due to low marketprices for metals. First Majestic CEOKeith Neumeyer had determined it made more business sense for the company tohold onto its silverassets rather than sell them into the market at extremely depressedprices.
This year could see a record decline in miningsupply for silver and other metals. Andwhile the crude oil market entered the year with a supply glut that has onlycontinued to grow, silver and palladium in particular were headed for supplydeficits. Although industrial demand iscurrently way down, when it does recover, it will be difficult to see how thosedeficits don’t widen and perhaps lead to price spikes.
Analyst and MoneyMetals.com contributor Steve St.Angelo expects investors will continue to seek precious metals forfinancial security during this pandemic and its aftermath. But there may simply not be enough gold andsilver above ground to go around – not at current prices, anyway.
And here are some of Steve St. Angelo’s thoughtsfrom a video presentation he posted earlier this week:
SteveSt Angelo: As a lot of large cities in theUS and around the world, and countries are on lockdown and they're going tocontinue to be unlocked down. I believe the US now according to Trump, is onlockdown till the end of April. That's another month. This is really going todamage the system and so we're going to get into a financial storm in the nextseveral months. So, I believe the precious metals, you’re going to see a lotmore investors move into the precious metals and there just won't be thesupply.
I believe we're going to seeserious trouble with the bond market in the next month or so. And that's goingto cause trouble with actual bank accounts, the money market accounts, all themoney… the digits that are held in the commercial banks, and then as well asthe fiat money, the currency in circulation. So right now, the total gold value, and this is identifiableabove ground investment stocks, central bank and private is valued about $4 trillion.Compare that to the base money supply, which is about $28 trillion. That'sseven times more than all the gold. Now, get silver, total silver value is only$40 billion. It's 100 of the gold. Again, to me, I believe the most undervaluedasset is physical silver, and we'll start to see that in the future as more andmore investors move into silver to protect wealth.
Retail investors in precious metalsacross the globe seem to agree that silver is the asset to own at currentprices. Supply of minted coins, bars,and rounds have all but disappeared in the past three weeks.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
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