Friday’s Spectacular Mini Gold Rush
When you bet against a commodity, you agree to buy it at a future price for the investor on the opposite end of your trade. Hopefully, prices go down, but unfortunately, a volatile and out-of-character gold of late has bucked its downtrend and thrown traders off the ride. Bigger than expected losses are one thing, but when investors sought to make good on their deals to deliver actual gold, that’s when things got wild!
“We watched a panic develop in hours,” veteran metal traders said. Nobody could fly in the ingots because coronavirus had knocked out air travel, and only 100-ounce gold bars are acceptable on London exchanges. The wrong sized yellow metal had to be sent to Swiss refiners to get re-melted, which of course, were shut due to the virus.
Needless to say, some traders lost their shirts, while others made stacks.
In these virus-stricken times, bulls say central banks are printing too much money, and that’s going to debase currencies. Alternative havens like gold would benefit from that, and it’s also interesting to see producers like Kinross pack up the picks and shovels and send miners into quarantine. Commodities rise in value when supply dries up.
There’s a bear case, though, too. The king of metals lives and dies by its reputation for safety. It’s supposed to be a “risk-off safe haven asset,” but the coronavirus has upended that. Gold-plated armor doesn’t protect you from being infected by fear, it turns out.
Not many people know this, but gold fabricators, private mints, bullion retailers, and mining stocks are almost always superior investments to gold itself. The sector is struggling with inefficient bullion pipelines from the top-down, one of the reasons for Friday’s crunch. That results in rationing by sovereign coin-makers, and shortages that run up the cost of trading ingots and bars.
If the price of gold spikes 10%, shares in a good bullion dealer can get even more spring. Plus, it’s wiser to buy profit-generating assets. A 100-ounce bar is pretty cool and all, but it’s only going to sit there. A business generates a cash flow.
Touched gold since mid-February. Let us know how it went!
