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Tuesday, July 7, 2020

STOCK EXCHANGE – THE weekly outlook for Dax, S&P 500, gold & oil price

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Gold bars

The gold price gap between New York and London has narrowed. But the number of open positions in the gold future has also declined massively. The surcharges that have to be paid for physical coin gold, especially in the USA, have increased. The gold market remains in crisis mode. Since February, previously unknown scenes have been taking place on the gold market. I reported already several times about the faults that lead to clear price gaps between the individual futures markets. Last Friday the gap was between New York traded Comex-Gold and traded in London LBMA-Gold was still around $ 20, this afternoon it was $ 10. This is still more than before the corona crisis, but significantly less than the $ 70 that would have to be paid on April 9, for example.

In the United States, gold coins are traded well above the spot price

However, the price gap between the stock exchange price and the price on the street in the USA has widened significantly for gold coins. We saw the same phenomenon in Germany a few weeks ago, when coins were practically sold out and surcharges of sometimes 200 euros were to be paid on the spot price. In the United States, the surcharge has now risen to $ 135. I personally advise you not to panic in paying such absurd surcharges. Ideally, gold reserves are invested before a crisis and not in the middle of it. In recent years there have been no problems in accumulating any amount of precious metal at low surcharges.

And there will be opportunities to buy gold and silver at reasonable prices in a few months. Globally, the demand for precious metals is still tiny. The vast majority of people don’t even think about buying tiny amounts of gold. And if the financial crisis taught me one thing, it was that even at the height of a crisis, hardly more people thought about it than before the crisis. So instead of leafing through surcharges of more than 100 euros per ounce, I would personally secure the current metal price by means of derivatives and exchange it for physical gold in two to three months.

The cutting and embossing facilities are also in full swing to meet demand

By then enough gold will have been brought into an investment-grade form to meet demand. Gold is produced for the United States not only in the United States itself, but also, for example, in Europe and Australia, where for some time now refineries have been regarded as essential companies and may work to contain the corona virus despite any existing operating bans. And yet the demand currently far exceeds the supply. The Australian Perth Mint assumes that they could sell five or six more for each gold and silver coin produced, but for which there is currently no production capacity. The Perth Mint also produces 7,000 to 7,500 1kg bars per day, which are then flown to the USA and used to service delivery obligations on the Comex futures exchange.

Gold is not scarce, it is simply not available in the appropriate dosage form

All sources confirm that gold in itself is not scarce. It was just not in the form and in the places for and where there is demand. For example, gold mines currently have the problem of actually moving their gold away from the mines. As scheduled flights have largely been discontinued, the transport capacities that the scheduled machines normally provide are lacking. However, passenger aircraft are usually not used for freight only, since it is not worth it for customers or airlines. On the one hand, e.g. in the USA gold in the form of 1kg and 100 ounces bars and coins has been in greater demand than in years, on the other hand so-called Doré Barren in e.g. Africa and are waiting to be transported to the divider in the customer countries. Doré bars are unprocessed bars that are cast directly at the gold extraction site without further concentration of the gold and have neither a defined degree of purity nor an exactly specified mass.

By the way: If there was any indication that the gold demand substantially exceeded the supply, we would see it first on the futures market. Market participants who process gold would stock up on the futures market with the material in order to have access to it in a few weeks. But the opposite is the case. The open interest in Comex decreased significantly. All the market players who had burned their hands with shortselling in the past weeks bought back positions and closed their books. Between the end of February and last week open interest decreased by 33 percent.

The original owners of the futures were therefore ready to part with 33% of their holdings. If there were signs of a prolonged, extreme increase in demand that would make immediate gold purchases necessary at any price, we would not see such a drop in futures stocks.

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