Gold & Precious Metals

Rob Levy: Life on the Front Lines of the Gold Rush


The physical precious metals industry (bullion and sovereign coin sales) has never seen a period like this in the past 40 years, if at all. One way to succinctly describe the situation we’re in is a ‘perfect storm’. To explain, demand is elevated due to monetary and fiscal events comparable to the beginning of the Great Recession. This time, however, supply has been constrained by broken down supply chains whether we are talking access to raw material, transport costs increasing due to decreased scheduled airline routes, and labour constraints in production due to Covid-19 safety measures. Like many other industries, there are many aspects that make it not business as usual.

The great misconception by some though is that bullion is not being delivered. However, retail investors have been able to participate in this rally all the way back to its early days of March when silver traded briefly below $12 US/oz. Simply, the process was to purchase first and take delivery later. For many new and even regular buyers, this may have been a foreign concept, but all caught on almost instantly.

From our position though, we began to see demand for physical begin to pick up noticeably in October of 2019. It wasn’t at all to do with investors anticipating the shock of a health crisis or any other world moving events, but the elevated risk associated with equity markets trading near more elevated levels.  For obvious reasons sitting out of the stock markets wasn’t an option for many and precious metals were and still are an attractive and effective hedge.

Still in those months, we would have access to gold and silver inventories necessary to fill large orders and be able to replenish in order to continue to make immediate and forward delivery depending on the item(s) ordered. However, some of the items most in demand delivery was interrupted by the COVID-19 pandemic.

As the Royal Canadian Mint (RCM) shutdown production for the final two weeks of March owing to the unknown nature of the virus, the void for supply of the RCM’s Silver Maple Leaf had to be filled by other refiners (primarily private) out of the United States that made products we refer to as a near perfect substitutes. It’s fabricated silver for the retail investor that buys and sells for a slight discount to sovereign coins, and is just as recognized, and perhaps not as preferred by some. To us as a dealer, if its good silver we will trade it.

Like silver, Gold Maple Leaf coins saw a brief hiatus for immediate delivery, but we were able to make up the void with recognized Swiss Bars. The only challenging investment decision for our customers was whether they were willing to take on the extra premium risk that was in their investment as supplies tightened and prices for physical expanded owing to the excess demand. Those that bit the bullet and bought silver before its biggest weekly rally in 4 decades have been amply rewarded.

Because of this ‘perfect storm’ though, every player in the supply chain was incurring additional costs in the process of getting their product to market. Premiums became wider than historically normal, but in this scenario the Latin term “caveat emptor” comes to mind. This market is extremely transparent in terms of what the paper market trades for (which the physical price is based on) and thanks to the internet, the pricing by competitive sellers.

We had many conversations with customers where the phrase “historically larger than normal premium to the spot price is being paid.” To us more than anything, it highlighted the demand for physical, especially as we’ve seen the alternatives like ETF holdings maintaining all-time-record levels and the resurging interest in mining stocks.  But the times have dictated that the axiom of customers wanting to own real hard metal.

As gold this past week took out its nominal record highs in US dollars, we’ve seen some customers begin to liquidate positions. Whether they were in it for the short-term trade (which isn’t recommended in physical because of relatively higher transaction costs) or they’ve held for multiple years and see more productive use for the cash elsewhere, they’re attracting unbelievably high premiums on their sales, meaning the price we would pay above the spot market. Patient investors in what was an especially dormant decade for silver prices are looking to take advantage.

As investors have not been stunted by higher prices, the question arises around what may give. In many instances gold and silver see a bit of an economist’s quagmire in which higher prices see higher demand. One thing for certain though with the volatility of precious metals markets and when that inevitable pull-back comes (at whatever level), is one again to anticipate some time for delivery.

Robert Levy, Border Gold Corp |


Gold price rebounds from biggest one-day drop since 2013

Gold prices went on a rollercoaster ride on Wednesday, sinking below the $1,900/oz mark earlier in the session before overturning those losses later.

By 11:30 a.m. EDT, spot gold rebounded from an intraday low of $1,866.40/oz and advanced 1.4% to $1,938.42/oz. US gold futures were up 0.2% to $1,950.90/oz in New York.

Gold’s headline-setting rally over recent weeks has been engulfed by volatility as investors reassess the merits of one of the hottest pandemic-driven trades of the year.

As one of the best-performing commodities of 2020, bullion has risen by more than 30% this year for its reputable role as an safe-haven asset during times of economic uncertainty.

After setting a record above $2,000/oz last week, the rally has come to a sudden halt as US bond yields rose, eroding the haven’s appeal. On Tuesday, the precious metal dropped by a staggering 5.7% — the biggest one-day loss in seven years.

Benchmark Treasury yields have climbed more than 10 basis points so far this month amid improving risk appetite and an imminent flood of debt issuance.

The recent rebound in yields also reflects investor hopes that the coronavirus outbreak will be contained after Russia’s covid-19 vaccine announcement, according to Standard Chartered Plc.

Despite the recent lapse in gold’s record-breaking run, there is no shortage of supporters who are optimistic of an extended rally in prices…CLICK for complete article

Russia on track to become world’s top gold producer by 2029

Despite some disruptions caused by the covid-19 pandemic, Russia is expected to surpass China as the world’s top gold producer by 2029, achieving average annual growth of 3.7% y-o-y between 2020 and 2029.

This forecast was presented in a report by Fitch Solutions Country Risk & Industry Research, whose experts believe that in the short-to-medium term, strong domestic demand for gold will underpin increasing gold production in Russia.

Despite a 900-case coronavirus outbreak at Polyus Gold’s Olympiada mine in the Krasnoyarsk region of eastern Siberia – which is one of the largest operations on the planet producing 1389.2koz of gold in 2019 – most mines have remained virus-free and operational so far.

Thus, there is some limited downside risk to the current gold production forecast in 2020 but, at the same time, there are other forces playing in favour or Russia’s gold industry.

“Expanding US sanctions and tension between the two countries have incentivized the Russian central bank to increase its gold reserves,” the analysis reads. “Moreover, in early August, the Libya Stabilisation Act is expected to pass through the House of Foreign Affairs Committee, imposing additional sanctions on Russia for its alleged role in escalating the civil war in Libya. The act would allow the Trump administration to freeze funds in American banks, cutting off access to dollar-denominated assets and in turn maintaining elevated domestic demand for Russian gold.” CLICK for complete article

Nobody is about to give up monetary sovereignty to a shiny metal

‘Golden Balls’. That was the name of a not-very-successful UK game show from 2007. It was also what the British used to call David Beckham, arguably the most talented footballer of his generation locally. He bestrode the world football stage like a colossus from Manchester United to Real Madrid to LA Galaxy. Everyone around the world knew him and loved him. And yet, Becks never won anything when playing where it really mattered most – internationally, for England. There were several times when his England team almost nearly kinda could shoulda woulda won something…but never did. All they ever had were flashes of brilliance from Golden Balls and a memory of when they were winners in the distant past

All of which seems appropriate, to me at least, given there is so much obsession with gold at the moment. We are now close to USD2,000 and there seems no stopping it. Will we get to USD3,000, as one major bank with a Beckham-esque name is claiming, or will we go to USD5,000, as a razor-sharp friend suggested to me yesterday? Either is possible given the current trend. And, if you buy gold, technically that is going to make you money.

And yet that money is still going to be priced in US DOLLARS – and that gives the whole game away. Like fans of the England football team, gold fans can dream of the distant past when gold was the centre of the global monetary system; but they can keep dreaming if they think those days are ever going to return. Gold may be an appreciating asset, but all the evidence suggests that it won’t be one that is of any direct relevance to day-to-day life, finance, and business. Your currency won’t be tied to it. You won’t get paid in it. You won’t spend in it or save in it (other than to the switch back to US Dollars). You won’t be doing deals in it or importing in it.

Yes, as the gold bugs rightly point out, there are spooky parallels between today’s trends and those of the 1930s. Uncertainty abounds. We have political polarisation and the collapse of the centre almost everywhere, albeit tapered by the welfare state for now (on which front, the Republicans have apparently agreed on the details of a new US1 trillion stimulus package).

We also have the international environment to match. Yesterday I shared the summary of global defense strategists that within three years US-China conflict is seen as “almost unavoidable”, while it is also “likely” within 12 months. Here’s an even better summary of the reality of the world as it stands today – Philippines’ President Duterte stating of the South China Sea that falls within their own national economic zone, according to international maritime law: “China is claiming it. We are claiming it. China has the arms. We do not have them. So, it’s as simple as that.” Other areas, even including the territory of EU members, are seeing a similar dynamic play out.

That is exactly the kind of zero-sum, might-is-right, mercantilist world that prevailed the last time we had a gold standard, and which is part of its architecture. As David Graeber’s “Debt: The First 5,000 Years” shows, during historical periods of global exogenous money (e.g., gold) we see an increase in inter-state violence to get that gold compared to periods of endogenous money. That said, once the war starts, the fiat money certainly kicks in too, as we all know.

The missing link, for all of the constant muttering about the US going back on gold, or China linking CNY to gold, or Russia doing something mysterious and Russian with gold, is that during the 1930s almost everyone went OFF gold to deal with the ruinous socio-economic problems they faced as a legacy of WW1 debts and then going back ON the gold standard with a consequent need for austerity. (Which, like violence, is part and parcel of a gold standard’s architecture.)

Look around you: does anyone look like they are ready to embrace austerity right now? Quite the opposite. That Beckham-seque US investment bank is now saying that the Federal Reserve’s balance sheet could soar to USD20 trillion ahead, or nearly 100% of GDP: we had said the same thing in our recent report on MMT, as that’s the only way to finance 8-9% fiscal deficits for years ahead; and indeed, we made that prediction years ago when describing the big picture trends now emerging – apart from a virus as the proximate trigger.

Indeed, some central banks are backing vast state spending as their government tries to prevent a depression; some are doing the same with their government talking about national security, rearmament, and bringing home supply chains; the ECB are doing it to save the planet; and the New York Fed, representing the rapacious Wall Street that drove globalisation, caused the global financial crisis, and necessarily cheers asset- and not wage-price inflation, now says on its website it is dedicated to eradicating structural inequality and to working towards a “more equitable economy and society for all”. None of the above are going to work with the strait-jacket of a gold standard; and nobody is about to give up monetary sovereignty to a shiny metal at a time when it is needed more than ever to retain physical sovereignty.

So you can buy gold because others are buying gold. Yet you can’t buy gold with the expectation that it is ever going to be anything other than something heavy you need to schlep.

Moreover, whether gold goes up or down **IN US DOLLARS** is ultimately a product of the real US interest rate. The Fed, who start a two-day meeting today, are obviously going to be at zero and expanding their balance sheet for years to either keep people in work, bring back jobs, build a better army, or a better society, or world. Yet that does not necessarily mean the Fed are going to succeed in hitting the one target they were supposed to be focused on in the market’s mind – inflation. Japan shows even a 100%+ central-bank balance sheet is no guarantee of any inflation at all. If the US were to slip into deflation, meaning positive real rates again unless the Fed goes negative, how will yield-free, no-end-use gold look?

In short, it’s pretty clear where the momentum is right now on gold, and on the USD (although as noted yesterday, not vs. many emerging markets, with Turkey’s TRY the latest to have a sudden wobble). Summer volatility is likely to amplify both. However, once one realises what the underlying global architecture –rotten as it is– looks like and requires, then one sees that talk of a ‘golden future’, for all the fancy footwork, also has the intellectual gravity of David Beckham

Gold price climbs again after Citi says record is “matter of time”

The rally in the gold price regained momentum on Monday as investors continue to pile into hard assets amid a flood of easy money on financial markets in the developed world and expectations of a prolonged period of ultra-low interest rates and currency debasement.

Gold for delivery in August, the most active contract on the Comex market in New York with 17 million ounces traded by early afternoon, touched a high of $1,823.40 an ounce, just short of a near 9-year high.

Gold is now up 19.7%, or $300 an ounce so far this year. The last time gold traded above $1,800 an ounce was September 2011, but it ended that year at $1,565 an ounce.

Bloomberg reports, according to Citigroup’s third-quarter commodities outlook, the price of gold “is expected to climb to an all-time high in the next six-to-nine months, and there’s a 30% probability it’ll top $2,000 an ounce in the next three-to-five months.” CLICK for complete article

For years the gold market was not a popular place to be. But when the stocks move, they move quickly, which has been the case in this rally as well. And now with gold above $1,800 per ounce, some of these companies are making a lot of money. In this Arcada Economic interview listen to what CEO Stephen Swatton of K2 Gold joined the show to discuss. ~Ed

K2 Gold Corp. is a North American mineral exploration company exploring for gold deposits in California, the Yukon, and Alaska.

K2 Gold Corp. is a part of Discovery Group, an alliance of like-minded mineral exploration companies that leverage industry relationships, global knowledge and strong technical skills DiscoveryGroup. Based in Vancouver, Canada.

Watch the interview here: