The coronavirus has been causing havoc in markets all over the world and investors are deploying all sorts of investment tactics. The information for this week's article was sent into us by our good friend, Russell, who explores 3 interesting precious metal investment trends.
1. Germany Decreases Gold Limits
Like other countries, in Germany, owning gold bars and coins is a way of preserving wealth, especially in times of war or economic crisis. However, on 10th January 2020, something in Germany changed.
The maximum amount of gold an individual could purchase, without disclosing personal information used to be €10,000, but at the start of the year, this changed to €2,000.
Investors now have to provide proof of identity, and in the case of a company acting as a buyer, the trader needs to clarify beforehand who the beneficial owner is. Criminal background checks are also carried out with the business partners, and business relationships are examined in case the companies or individuals are from 'high-risk countries' and 'politically exposed persons'. If a dealer suspects, he must report the potential customers to the authorities.
This was in response to a European Union directive targetting money laundering and terrorist financing. If a bullion dealer fails to provide this information, they could receive big fines.
What does this mean?
Is Germany more concerned about citizens buying gold, or are they more concerned about why they're buying gold? If people decide they don't like what's going on with the banks, they might decide to take out their money and put it into a safe asset class that isn't at risk from bank failure, like gold. In the near future, this means Germans won't even be able to anonymously purchase common 1oz gold bullion.
These restrictions and safeguards increase the power of the state and decrease the power of the individual.
2. Investors Stockpiling Cash
As large and small investor groups try to understand this uncertain future, many feel that cash is a good bet in a world of negative interest rates. Hedge funds are quickly stockpiling cash as a result so investors can redeploy their cash in stocks, bonds, commodities, and currencies. Some hedge funds will look to invest in beaten-down companies who look like they could make a rebound when the time is right.
What does this mean?
Investors and individuals could face long waits to withdraw their cash. In a fractional-reserve banking system, most banking institutions only keep a small portion of their assets in cash at any time. By law, banks must have a minimum level of deposits (known as the reserve requirement), and quite low in proportion to their total deposits, generally around 10%. So, a bank can only pay out a small fraction of the deposits of its customers on-demand at any given time.
If a large enough number of people demand to take their money out of the bank at the same time (if customers suspect their money is no longer safe in the bank), the banks would block cash payouts entirely.
Our feeling is, is cash without a gold standard really worth anything anyway?
3. Silver Supply Shortage
News surfaced last year that American mints were having difficulties keeping up with global silver demand and silver mining companies were withholding supply.
Through the first half of 2019, silver significantly underperformed gold. On the 17th March 2020, the gold:silver ratio reached its highest level in 5,000 years, a record-breaking 1:120.
That market signal was received by the mining industry. Since there are few primary silver producers (and those that do mine silver, also mine gold and some other metals), meaning that the miners had an incentive to invest more into gold production and less into silver.
What does this mean?
The scarcity of any commodity would increase its price. Simultaneously, a higher price would dishearten some potential buyers, reducing the shortage and balancing the market. The price of silver has been held down and is still (arguably) completely undervalued. Mints cannot purchase enough silver from the mining companies to keep up with demand these days.
According to some sources, mining companies are finding that this demand has also made them start selling the more expensive stock they were holding in reserve, and when it was more expensive to produce, refusing to sell at spot price. Therefore, they are doing alternative deals at much higher prices and as stocks dwindle, this is now happening more and more.
Physical bullion is in demand right now. As the world continues to battle with the spread of the Coronavirus, precious metals have become an incredibly popular way for people to maintain financial value, protect savings and safeguard investments. If you'd like to purchase some bullion for your protection pot, please purchase through the website or email [email protected].