Re <<brandy>>
Goes well w/ read from Fleck
On Tue, Mar 24, 2020 at 2:40 PM D wrote:
Below is what Bill Fleckenstein posted today to subscribers
Gold: Almost as Good as Toilet Paper03-24-2020The stock market was on fire early on, as some folks had high hopes for Congress bringing fiscal firepower to combine with the monetary nukes that the central bank have unleashed. The result saw the indices more than 5% higher through midday. From there, they kept going, led by the Dow, which rallied around 11%, while the Nasdaq rose 7%, and the S&P 9%-ish.
Away from stocks, green paper was a little weaker, fixed income was hit, but the real fireworks were in the metals market. Last night the linkage between the Comex futures and the physical market was broken. Normally, how far away the front-month expiration is determines the premium between the nearby contract and the spot price, and usually there's a small spread.
Must Be a Wedge Issue Gold trades around the clock with the physical market and futures market arbitraged back and forth, but for probably a variety reasons, although no one seems to know for sure, the relationship between the two exploded at one point last night. What typically is a several-dollar difference became $85, and today the futures and spot traded far apart, although the spread did narrow over the course of the day, closing at around $35.
The proximate cause appears to be a shortage of metal thanks to several refineries being shut down and an inability to move gold around. In addition, there may have been a shortage of capital with which to do the arbitrage amongst the people who would be capable of doing it, if they could actually physically get the metal to it.
Without going into all the gory minutia, I think the takeaway from this is that everyone took for granted that the supply would always be there. When something like this happens, it changes psychology about a potentially infinite supply of gold (just look what happened to toilet paper-nothing incites buying like the fear of not being able to get something). And the fact is there isn't really that much gold in the world relative to financial assets when you think about roughly $10 trillion for all the gold that has ever been found and the size of the wampum printing around the world.
I think this also illuminates how little gold inventory there was that was trying to "run" to the worldwide market. In the future, more inventory will be required and more people are going to be less inclined to take the availability of gold for granted. Said differently, this will impact psychology for a very long time.
"Catch a Wave and You're Sitting On Top of the World" On that subject, I got a call last night from a friend who is a gold dealer in Japan and believe it or not, the price in Japan is just now threatening to take out the high price of 1980. To this point, gold has taken out the 1980 price in every currency on the planet except for the yen, as far as I can tell. Given the way the Japanese operate, if that were to happen, which wouldn't take much of a rally from here, that will likely really produce some excitement in Japan. Anyone who's ever watched the Japanese "invest," once they decide to do something it's quite a tsunami.
By day's end, gold was 4.5% higher while silver gained 7%. All of the same things I just said about gold could be said about silver in terms of inventories, etc. The only difference is that silver's a much smaller market, so the chance for it to do something incredibly wild is quite high.
The miners all came to life today and saw quite good-sized gains. It's sort of perverse that these stocks were destroyed, with almost all of them losing well over 50% at one point, while the price of gold essentially didn't go very far. It was the selling panic in the gold market that probably helped precipitate this blowing out of the exchange-for-physical spread that I just discussed regarding the Comex and the spot price. Obviously, many of them are still far below where they were, even though, net-net, gold has given up next to no ground. Maybe now, given what has occurred in the gold market, people will view miners more favorably as a source of precious metals with strong and strengthening financials, as opposed to just scorning them.
Maybe Something About a Goose? Lastly, here's a link to an interview with Dan Tapierodone by Ed D'Agostino of Mauldin Economics. This is an absolutely excellent interview that illuminates what's been sort of missing from the gold market, that is, a storyline (which he calls a narrative). I think this is very important to psychology, especially when it comes to getting the world's large institutions to allocate some exposure to gold.
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