KITCO NEWS/Neils Christensen

Gold prices holding above $1,750 following mixed U.S. durable goods report

April 24, 2020

“Gold prices are holding on to gains ahead of the weekend as the latest data point to mixed health in the U.S. manufacturing sector.  Friday the Commerce Department said that U.S. durable-goods orders declined by 14.4% in March. The data was much worse than expected; consensus expectations compiled by various news organizations called for durables to drop 12%. Excluding transportation, new orders declined by 0.2% the government said. Coe durable goods orders were much better than expected as economists were calling for a decline of 6.5%.

Although the transportation sector was a significant drag on the headline data, market analysts and economists have noted that core goods data is some positive news for a beleaguered economy, impacted by nation-wide lockdowns due to the spreading COVID-19 pandemic. However, while some manufacturing data were held up better last month, many economists are expecting weakness in the months ahead has businesses remain shuttered. ‘With so many businesses either shuttered or facing a severe reduction in demand, including areas that are typically big investors such as oil extraction and airlines, we still think that investment will be a large drag on growth in Q2 and that durable goods orders will weaken in the months ahead,’ said Andrew Grantham, senior economist at CIBC.”

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BLOOMBERG/David Stringer

Gold Bars Are Flying 11,000 Miles to New York to Ease Supply Squeeze

April 24, 2020

gold bars“Australia’s largest gold refinery has ramped up production of one kilogram bars to ease the supply squeeze in the U.S. that helped propel a surge in the premium for New York futures. The collapse in air travel that’s grounded passenger jets — frequently used to transport gold products — and virus-related disruptions to some refining capacity has tightened availability of the rectangular bars, typically used to settle the Comex futures contracts.

‘We’re producing as many kilobars as we can, we’re probably churning out seven and a half tons of them a week at the moment and we are forward sold well into May,’ Richard Hayes, chief executive officer of the Perth Mint, said in an interview. ‘A very large portion of those kilobars are ending up as Comex deliveries.’ In a chaotic couple of days in late March, the premium for New York futures over the London spot price rose above $70 — the highest in four decades. The spread has narrowed to about $21, yet that still compares with just a few dollars in normal times.”

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THE ASSOCIATED PRESS/Martin Crutsinger

US factory orders plunge 14.4% as economy grinds to halt

April 24, 2020

factory working in front of american flag“Orders for big-ticket manufactured goods plunged 14.4% in March, the second-biggest decline on record. The worse-than-expected slide underscored the severity of the economic impact from the pandemic.  New orders for commercial airlines actually went negative as cancellations outpaced sales. Those orders plunged 295.7% with skies largely empty of planes. The last time so few people traveled by plane was in the pre-jet era.  The March decline was surpassed only by an 18.4% drop in August 2014. There was a 1.1% gain in February, before the government-mandated shutdowns begun.

The report from the Commerce Department showed widespread weakness, with demand for transportation products falling 41%. Demand for motor vehicles and commercial airliners both tumbled. The dire numbers from Commerce followed a report showing that manufacturing production collapsed in March, with declines that have not been seen since the country demobilized after World War II. And worse is on the way. The numbers from March capture only the beginning of the lockdown in mid-March. When April manufacturing numbers are released next month, the full force of the pandemic will be on display. ‘We expect the coronavirus will deal a severe blow to U.S. business spending via suppressed global and domestic demand, broken supply chains, depressed oil prices, tighter financial conditions and elevated uncertainty,’ said the chief economist at Oxford Economics. ‘This will translate into some of the largest pullbacks in capital spending of all time,’ he said.”

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MARKET WATCH/Shawn Langlois

Bill Gates: As things get back to ‘semi-normal,’ it’s impossible to overstate the pain that lies in the years ahead

April 23, 2020

Bill Gates“‘It is impossible to overstate the pain that people are feeling now and will continue to feel for years to come… No one who lives through Pandemic 1 will ever forget it,’ said Bill Gates, co-chair of the Gates Foundation, sharing his latest thoughts on the coronavirus pandemic in a memo cited by the Seattle Times. The good news, he said, is we can look forward to a semi-normal world over the next two months. ‘People can go out, but not as often, and not to crowded places,’ Gates wrote. ‘Picture restaurants that only seat people at every other table and airplanes where every middle seat is empty.’ He said he believes schools will reopen, but stadiums won’t.

In a separate piece penned for the Economist, the tech billionaire said that, when historians write the book on the pandemic, what we’ve lived through so far will only take up the first third. ‘The bulk of the story will be what happens next,’ he wrote. ‘Even if governments lift shelter-in-place orders and businesses reopen their doors, humans have a natural aversion to exposing themselves to disease. Airports won’t have large crowds. Sports will be played in basically empty stadiums. And the world economy will be depressed because demand will stay low.’ He said life will only return to normal when most of the population is vaccinated, and that could take a while, though he hopes that one will be in mass production by the second half of 2021.”

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CNBC/Jessica Dickler

401(k) balances sink 19% due to coronavirus, Fidelity says

April 24, 2020

401k balances“Wild market swings have taken a toll on retirement savers. The average 401(k) balance plunged 19%, to $91,400, in the first quarter of 2020, according to a new report by Fidelity Investments, the nation’s largest provider of 401(k) plans. The financial services firm handles more than 30 million retirement accounts altogether. The average individual retirement account balance also fell, by 14%, to $98,900. Before the coronavirus wreaked havoc on the economy, 401(k) and IRA balances were at record highs. The average 401(k) balance was $112,300 in the fourth quarter of last year, while the average IRA balance was $115,400.

‘Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,’ Kevin Barry, president of workplace investing at Fidelity, said. Still, the majority of retirement savers continue to contribute, Fidelity found. The average 401(k) contribution rate held steady at 8.9%, while the employer contribution stayed at 4.7%. There was a slight uptick, however, in the number of savers who changed their asset allocation, with most moving their savings into a more conservative investment option, Fidelity said. And only 1.4% of savers took a hardship withdrawal from their 401(k) as of March 31, 2020 — largely before the CARES Act made it easier to access your retirement money.”

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THE WALL STREET JOURNAL/Tim Congdon

Get Ready for the Return of Inflation

April 23, 2020

money fire hydrant spraying out cash“The economists Milton Friedman and Anna Jacobson Schwartz demonstrated in ‘A Monetary History of the United States’ that a collapse in the quantity of money was the main cause of the Great Depression. Hoping to avoid a repeat, the Federal Reserve in recent weeks has poured money into the economy at the fastest rate in the past 200 years. Unfortunately, this overreaction could turn out just as poorly; history suggests the U.S. will soon see an inflation boom.”

“Excluding the years immediately after the Revolutionary War, the past few weeks have seen by far the highest rate of monetary expansion in U.S. history. The Fed might defend itself by saying that its ‘shock and awe’ tactics have given financial markets confidence that the coronavirus won’t cause a long and deep recession … It’s reasonable to assume that by spring 2021 the quantity of money will have increased by 15% and possibly by as much as 20%. That wouldn’t quite match the peak rates of expansion seen during and immediately after the two world wars of the 20th century, but it could surpass peacetime records, outpacing previous peaks in the inflationary 1970s. Policy makers have called the battle against the novel coronavirus a war. As in wartime, federal expenditures are rising sharply while tax revenues are being hit by the lockdown. Both World War I and World War II—and, indeed, the Vietnam War—were followed by nasty bouts of inflation. If that happens again, policy makers being cheered for their decisive action will instead have to answer for their lack of foresight.”

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