The Gold Rush of 2019 / Commodities / Gold & Silver 2019
One side of my family has held a reunion every few years formore than four decades. It’s a big, raucous event filled with lots of food,many half-true stories about the past, and copious amounts of alcohol.
In other words, it’s a not-to-be-missed event.
Hosting responsibilities transferred from one sibling at theoldest generation to the next, and then moved down a level. My relatives arespread across the nation. So, we’ve held the reunion in Minnesota, Wisconsin,the Upper Peninsula of Michigan, California, Texas, and Florida. Last week wegathered in Colorado, descending on Mt. Princeton Hot Springs Resort justoutside of Salida.
We enjoyed the springs and pools, and many of us went kayaking,hiking, and riding ATVs. But there was one activity that caught my attentionmore than others.
This year, the Centennial State has experienced a boom in panning for gold.
Grabbing a plastic or metal sluice and standing in 55-degreecreek water has been a thing in Colorado since gold and silver were found there in the 1800s. But this year,things are different. Over the past winter, the state received more than 160%of the average snowfall from 1981 through 2010, which was followed by a wetspring. The resulting runoff has closed attractions like the creek bed hotsprings at our mountain retreat. It’s also moved boulders and sediment that hasbeen in place for hundreds if not thousands of years.
As the rocks have shifted, whatever was underneath has becomeexposed. In some cases, that includes gold.
I didn’t see anyone show up with gold nuggets, or claim they’dfound riches, but there’s no doubt that many of the visitors trolling themountains were keeping a weather eye for the shiny stuff.
Investors appear to bedoing the same thing.
Banking On Gold
After spending almost eight years in purgatory, bouncing between$1,100 and $1,300, gold finally broke out to the upside a few weeks ago,climbing through $1,400 and – despite a brief downturn Tuesdaymorning– now sits comfortably around $1,500. Goldenthusiasts (who are not to be confused with insects) are starting to feel abit more confident. But their benefactor isn’t the weather, it’s thecoordinated efforts of central banks around the world.
The Fed lowered rates at its latest meeting even though theU.S. economy is bumping along with just above 2% growth, less than 2%inflation, an unemployment under 4%. Fed Chair Jerome Powell claimed to befighting a foe that hasn’t yet entered the ring, possible economic headwindsthat could emerge later this year due to the trade wars and a weakening global economy. Butthose are strawmen. His enemy is clear: other central banks.
The European Central Bank all butexplained that it will restart its bond buying program in September, while theBank of Japan is contemplating more aggressive monetary easing. Central banksfrom New Zealand to India are lowering rates as everyone tries to do the samething… keep their currency from strengthening so as to pave the way for greaterexports.
Everyone’s trying to balance theireconomic books on the backs of foreign nations, and they’re cheapening theircurrency to pave the way. The actions make real assets worth more, and booststhe value of precious metals like gold and silver.
We now have more than $15 trillion worthof global bonds trading at negative interest rates.Almost 60% of Americans have some money in savings accounts, although mostdon’t know how much interest they are earning.
I can tell them – almost nothing.
Precious Metals In Context
The FDIC reports that the average savingsaccount returns about .09% per year, which is 90 cents per $1,000. That samechunk of cash loses $18 per year in purchasing power to inflation, which makesthe interest paid close to financial theft, and sets the stage for gold.
A traditional knock on gold is that itdoesn’t do anything. There aren’t a lot of commercial uses for gold, and itdoesn’t pay interest. It’s essentially a dead asset. But if saving moneydoesn’t pay, and bonds actually return less than the original investment, thengold takes on a certain shine. As the currency wars heat up, gold shinesbrighter.
As long as the U.S. and China are tradingtariffs and barbs and central banks around the world are figuring out new waysto separate savers from their cash, I think gold will trade higher. Maybe notpast the highs of 2011 over $1,900, but still above $1,500.
And when we throw in the uncertainty of Brexit in lateOctober and the falling British Pound,gold might get an extra boost.
Over the next year, Colorado might getmore visitors looking for sluicing pans than marijuana shops. Luckily investorsdon’t have to make the trip, they can simply purchase securities like the SPDRGold Shares (NYSE: GLD) if they want to get in the game.
Follow me on Twitter ;@RJHSDent
By Rodney Johnson, Senior Editor of Economy & Markets
Copyright © 2019 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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