Monday, August 3, 2020

Canary in a Coal Mine - TV Tropes


Gold and Silver Roar Higher: 

The Canaries in the Coal Mine

This week has the makings of an historic one for gold and silver, a week which will be remembered for the stellar performances and breakout of the US dollar denominated gold price and silver price across spot, futures and physical markets. This has ignited everything from gold and silver mining shares, to gold and silver mining ETFs and Indexes, and sparked increased interest across the financial media, as well as across the institutional and retail investor bases. 
Notably, at current levels, the silver price has now nearly doubled from its year-to-date low of $11.9 per oz recorded on 19 March, which was in the midst of wider financial market gyrations and down drafts. 
Over in gold where new multi-year highs for the US dollar gold price have become the norm in the last few months, this week has been key because the holy grail of a new all-time high nominal gold price is currently unfolding as gold seeks out $1900. It is therefore now a question of when, rather than if, the US dollar gold price surpasses the $1920 mark, the previous all-time high level that was set in early September 2011. That would leave gold clear to run up towards the psychologically important and probably media frenzied $2000 mark. 
But to summarize, some of the main triggers pushing the paper gold price higher include the ongoing financial crisis, negative US Treasury yields, explosive quantitative easing (QE) by central banks, fiat currency debasement, zero to negative official interest rates, government Covid-related spending out of thin air, ballooning global debt, the risk of a US dollar crisis, and the growing risks of hyperinflation. It’s also important to stress that there is still an ongoing financial crisis, because nothing in the financial system has been resolved, merely postponed, and in fact has even been made worse by QE and the creation of more debt.
DYI:  Here is where I part ways with the hyper-inflation scenario it is the Japanese experience.  Their fiscal spending and QE has gone to the moon and back repeatedly and yet no inflation but just the opposite they are experiencing deflation (for well over 20 plus years!).  Japanese 10 year Treasury bonds yield as of July 21, 2020 is a scant 0.02% and their 30 year T-bond trading at 0.58%.

These yields and possibly lower is what I expect for U.S. Treasury bonds when the deflationary crash occurs.  Gold and silver will move up in price NOT due to inflation but as an additional safe haven along with long dated U.S. and Swiss Treasury securities.  When the manure hits the fan as U.S. and world wide stock markets evaporating in value there will be the flight to quality by investors and speculators alike.

Gold/Silver Ratio

For those of you who are physical buyers of precious metals the ratio between Gold and silver was at extreme levels indicating silver as the preferred buy as compared to gold (see chart below).
 Gold Silver Ratio
Silver as compared to gold remains the better choice at 83 to 1 ratio (as of July 24, 2020).  Though not extreme the ratio remains high historically for silver purchases.  Be as this may all be due to insane stock market valuations along with crazy high valuations for high yield bonds it is time to remain very defensive. 

I’ll be updating my model portfolio at the beginning of next month (I don’t expect any change or very little at best).  NOW UPDATED!
   Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 8/1/20

Active Allocation Bands (excluding cash) 0% to 50%
65% - Cash -Short Term Bond Index - VBIRX
35% -Gold- Global Capital Cycles Fund - VGPMX **
 0% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]
** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

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DYI

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