Gold bugs were likely counting on the coronavirus leading to a major rally for gold, but it’s not happening. We may see gold gain some lost ground these days, but one of the best barometers of whether there will be a rally or not is central bank activity--and so far, the world’s biggest are shunning the precious metal.
In early Friday trading, gold prices were up, with June gold futures gaining around $5.30 an ounce to hit $1,643.50. That bump was largely on the back of the unemployment report for March, which showed a rate of 4.4%--up from 3.5% in February--and the first decline in monthly non-farm payrolls in nine years.
Gold bugs will also point out that April is bound to be much worse for unemployment and payroll declines, which will give gold another boost in Q2.
And, indeed, the unmitigated bleed in jobs data is also boosting gold mining stocks right now. Shares of Coeur Mining (NYSE:CDE) gained nearly 25% yesterday, while B2Gold (NYSEMKT:BTG) enjoyed an 11% jump, among others.
Those, however, are the smaller players. The gold-mining giants aren’t feeling the same love. Newmont Gold (NYSE:NEM), for instance, managed to gain less than 2% in March. Kinross Gold (NYSE:KGC) lost ground over the month of March, and so has AngloAshanti (NYSE:AU).
The SPDR Gold Trust (GLD), the world’s largest gold exchange-traded fund with over $50 billion in assets, has also experienced only modest gains.
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By March 20th, the decline in the amount of gold held by the SPDR trust fell to 29.2 million ounces, according to Reuters--down from 30.99 million on March 9th.
The likelihood is that while gold may continue to inch upwards, it’s not going to get the major crisis boost that one typically expects in a time of crisis when everyone runs to safe havens.
Looking at Chinese demand and what the central banks around the world are doing tells the real story.
Supply may be getting squeezed, with mine shut-downs, but that’s being offset by major hits to demand.
The Chinese gold market is languishing in coronavirus purgatory. There’s virtually no demand at all, and that’s a huge indicator because the country is the biggest buyer of gold bars, coins and jewelry--and for a country that accounted for around one-fifth of total global gold demand in 2019.
According to Bloomberg, China saw a 41% drop in retail sales of gold, silver and jewelry in January and February, with predictions that Q1 will register at least a 50% drop.
And then the other shoe dropped earlier this week when the Russian central bank announced that starting on April 1st it would suspend all domestic gold purchases as oil prices hit 18-year lows thanks to a game that Russia itself has perpetuated with OPEC.
Because Russia has spent the past five years stockpiling gold, the announcement came as a harsh wakeup call for gold bugs. Moscow has spent a massive $40 billion during that time to create a stockpile of 2,279.2 tons of the precious metal.
And while we do not yet have numbers for March, globally, central bank purchases of gold across the board in February were 52% lower, year-over-year, according to the World Gold Council, via Mining.com.
Still, Georgie Milling-Stanley, the “Godfather” of gold and one of the forces behind the creation of GLD, says gold is still the safe haven it’s always been. In an interview with CNBC, he noted: “Coronavirus is going to continue to be a concern. Brexit is still an issue. There are problems in the Korean peninsula. Investors have shifted from, “Is there going to be a bear market” to “How long will the bear market last?” All of this is positive for gold.”
The bottom line: Gold will always be a safe haven, but in this crisis, it’s nothing more than that. A rally, though, does not appear imminent. Right now, cash is king.
In fact, the U.S. dollar is stronger than ever, and not even dire unemployment figures and massive non-farm payroll declines are denting it right now.
“As we see poor data coming in from Europe, UK, Italy, if you’re trying to be rushing anywhere, it would be U.S. Treasuries and the U.S. dollar as a safe haven,” CNBC quoted John Doyle, vice president of dealing and trading at Tempus Inc, as saying.
By Josh Owens for Safehaven.com
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