I Believe Gold and Silver Are Just Getting Started

The U.S. Mint made an unusual request this week. In a press release dated July 23, the bureau literally begged Americans to start putting coins back into circulation by spending or depositing them.

As you may have noticed, people just aren’t making transactions with coinage like they used to. That’s especially the case now in the age of the coronavirus. With many people sheltering-in-place, billions of dollars in everyday purchases are being made online that in normal times would have happened at the cash register.

This is creating a national coin shortage.

“Until coin circulation patterns return to normal, it may be more difficult for retailers and small businesses to accept cash payments,” the Mint writes, adding that for millions of Americans, cash is the only form of payment. Without coins, retailers can’t break bills.

This crisis, if it can be called that, got me thinking about the velocity of money. In simple terms, money velocity measures the number of times a unit of currency changes hands in a given period of time. As an illustration, imagine you spend $10 on lunch at a restaurant in a strip mall. That same $10 is then used by the restaurant owner to pay the lease, the landlord then uses it to pay its own creditors, and so on.
When the velocity of money increases, it suggests greater economic activity. Money is being spent more freely and rapidly. And when it decreases, it suggests the opposite—that the economy is stagnating or deteriorating. People aren’t spending.

Below is the velocity of M2 money supply, which includes not just cash but also so-called “near money”: savings deposits, money market securities and the like. As you can see, it’s at its lowest level ever, using 60 years’ worth of data.

So what does this mean, and can we blame coin hoarders for this decline? Hardly. Instead, we should be directing the blame at the Federal Reserve, which has flooded the economy with easy money.

Record Money-Printing Has Been Rocket Fuel for the Price of Gold

Never before in its 244-year history has the U.S. economy been so saturated with money. In fact, there’s too much of it. M2 money supply growth is at 24 percent year-over-year, the fastest rate ever.

Obviously the economy isn’t growing that quickly. It’s simply impossible for much of this newly-issued money to be lent out to consumers, and with rates so low, there’s little financial incentive to do so. So it’s just sitting in banks’ excess reserves.

Kind of like how coins are just sitting in people’s couch cushions and mason jars right now instead of being put into circulation.

For many people, this underlines the belief that fiat currency is intrinsically worthless. Because cash is not linked to a hard asset—or, for that matter, anything of value—the central bank is free to print as much of it as it pleases, right out of thin air, regardless of there being a demand for it or not.

And as anyone who’s taken high school economics knows, when supply outpaces demand, the value of any asset plummets.

Dalio and Mobius Urge Investment in Gold

“Cash is trash,” Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund firm, said back in January. “There’s still a lot of money in cash.”

Instead, Dalio advocates for a highly-diversified portfolio, one that includes gold and other hard assets that we can’t just print more of.

“I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio,” Dalio wrote last July in an article posted on LinkedIn. That same month, he revealed that gold would be among his top investments at Bridgewater.

It was a masterful call. Since he wrote the article, spot gold has climbed 35 percent. And today, for the first time since 2011, the precious metal crossed above $1,900 an ounce.

Dalio isn’t the only big-name investor and money manager who’s recently thrown his weight behind gold. Speaking to Bloomberg TV today, emerging markets investor Mark Mobius urged viewers to buy gold now and “continue to buy” as interest rates remain near zero and as COVID-19 continues to impact mine output.

And Jim Reid, research strategist at Deutsche Bank, reportedly described himself as a gold bug recently, adding that he believes “fiat money will be a passing fad in the long-term history of money.” You may consider Reid’s position extreme, so do with it what you will.

Hi Ho Silver!

When gold makes moves like this, silver isn’t too far behind. The white metal rose above $23 an ounce on Thursday before trading in the $22.70 range on Friday. Since silver’s 52-week low in mid-March, holdings in silver-backed ETFs have increased by 255 million ounces. Total holdings now stand at a record of just under 860 million ounces, according to Bloomberg data.

I believe silver is only getting started. As I explain in this video, silver has historically had a higher beta than gold. When gold has gone up 10 percent, silver has gone up 15 percent. The reverse has also been true: When gold has fallen 10 percent, silver has fallen 15 percent.

We all know that past performance is no guarantee of future results, but you can see in the chart below that the white metal could possibly be setting up for another epic run-up. At this stage of the bull market, silver’s current price appreciation is ahead of any previous rally.

I’m pleased to see the ratio between the gold price and silver price fall further off its recent all-time high. This shows that the white metal is acting more competitively against its more expensive cousin.

Mark Your Calendar for July 30…

This upcoming Thursday, July 30, at 9:00am CT, I will be co-hosting a webcast with O’Shares ETF’s Kevin O’Leary—Mr. Wonderful himself. We’ll be discussing internet giants and airline stocks.

Email [email protected] for the free registration details!


Gold Market

This week spot gold closed at $1,902.02, up $91.60 per ounce, or 5.06 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 6.83 percent. The S&P/TSX Venture Index came in up 2.44 percent. The U.S. Trade-Weighted Dollar sunk 1.66 percent.

Date Event Survey Actual Prior
Jul-23 Initial Jobless Claims 1300k 1416k 1307k
Jul-24 New Home Sales 700k 776k 682k
Jul-27 Hong Kong Exports YoY 4.2% -7.4%
Jul-27 Durable Goods Orders 7.0% 15.7%
Jul-28 Conf. Board Consumer Confidence 94.2 98.1
Jul-29 FOMC Rate Decision (Upper Bound) 0.25% 0.25%
Jul-30 Germany CPI YoY 0.2% 0.9%
Jul-30 GDP Annualized QoQ -35.0% -5.0%
Jul-30 Initial Jobless Claims 1450k 1416k
Jul-31 Eurozone CPI Core YoY 0.8% 0.8%


  • The best performing precious metal for the week was silver, up 17.79 percent. Silver had its biggest weekly gain in nearly 40 years and could keep soaring. The metal hit its highest level since 2013. Mike McGlone, commodity strategist at Bloomberg Intelligence says the white metal could eventually climb to $30 an ounce amid a broad-based bull market for precious metals. McGlone predicts the metal will stay between $20 and $25 for an extended period before moving higher. The Global X Silver Miners ETF had a ninth straight day of inflows and the iShares Silver Trust saw five consecutive days of money flows.

  • Gold has rallied an amazing 24 percent so far this year and rose above $1,900 an ounce for the first time since 2011. Investments in U.S.-listed commodity ETFs rose last week for the fifth straight week of inflows, according to Bloomberg data. Precious metals funds saw investment inflows of $3.8 billion in the week ending July 22, which is the second largest weekly inflows ever, according to Bank of American strategists citing EPFR Global data.
  • Veteran investor Mark Mobius says that investors should buy gold now and keep buying it as political tensions and worries over global growth fuel the bullion rally. Mobius said in a Bloomberg TV interview this week that “I would be buying now and continue to buy. When interest rates are zero or near zero, then gold is an attractive medium to have because you don’t have to worry about not getting interest on your gold.”


  • The worst performing precious metal for the week was gold, still up an incredible 5.06 percent. With gold positive 24 percent for the year, investors are broadening their exposure across the precious metals space with palladium and platinum both with nearly double digit gains this week too.
  • Teck Resources Ltd reported an 82 percent drop in second quarter adjusted profit as the Covid-19 pandemic hurt demand for its products and squeezed prices, reports Kitco News. Miners globally have been faced with challenges in the commodities market, forced mine closures and production cuts. Teck largely produces copper and zinc and suspended its 2020 outlook in April.
  • Pan American Silver announced this week that it is moving two of its operations in Peru into care and maintenance after several works at the mines recently tested positive for Covid-19.


  • Platinum could rise higher along with gold, according to UBS Group AG. “Our near-term bullish view on gold implies higher platinum prices this year,” said analyst Giovanni Staunovo in a note this week. The bank raised its platinum forecast to $975 an ounce at the end up September, up from $850 an ounce. U.S. imports of platinum from Switzerland more than tripled in June from a month earlier to 3.4 tons – the highest level since October 2006.
  • According to Deutsche Bank AG, the close correlation between gold and the Japanese yen has broken down in the new macro environment. A risk-averse environment that leads to easy monetary policy, which in turn triggers a rebound in risky assets, is among the most constructive for a long-gold and short-yen position, writes strategist Alan Ruskin. “Gold then remains the easier long” versus the dollar or yen.
  • Gold miners have room to catch up with spot gold. The performance of gold miners relative to the MSCI World Index has widened a gap with spot prices in recent years, signaling plenty of catch-up potential. According to Societe Generale strategist Sophie Huynh, “both fundamentals and positioning look aligned for gold miners to shoot higher.”


  • Gold’s meteoric rise is flashing a warning signal that faith in central banks has disappeared. Bloomberg’s Eddie van der Walt comments: The risk is that top central bankers’ “clay feet are exposed by asset price bubbles and the fear of stagflation. In particular, I’m starting to hear the question: ‘If these people really knew what they’re doing, why is gold going gangbusters?’ The assumption being that there should be no reason to own the metal if growth is steady and inflation is benign.”
  • U.S. and China tensions rose dramatically this week. The U.S. ordered China to close its consulate in Houston after accusing it and other Chinese diplomatic missions of economic espionage and visa fraud, reports Wall Street Journal. Beijing then ordered the closure of the American consulate in Chengdu in retaliation on Friday.
  • Many see a bubble brewing. According to a Bank of America survey, a majority of fund managers believe tech stocks to be the “most crowded trade” in history. The combined market cap of Apple, Amazon, Microsoft, Google and Facebook now represents close to a quarter of the total S&P 1500 market cap. tech stocks, as measured by the NASDAQ 100, are now more overvalued relative to the S&P 500 than they were during the dotcom bubble, after which the market tumbled nearly 50 percent.


Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 0.99 percent. The S&P 500 Stock Index fell 0.02 percent, while the Nasdaq Composite fell 1.06 percent. The Russell 2000 small capitalization index lost 0.02 percent this week.
  • The Hang Seng Composite remained flat this week; while Taiwan was up 1.20 percent and the KOSPI rose 0.76 percent.
  • The 10-year Treasury bond yield fell 3 basis points to 0.584 percent.


You can read the remainder of this article at http://www.usfunds.com/investor-library/investor-alert/i-believe-gold-and-silver-are-just-getting-started/


July 24, 2020

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors