We now live in a world where it’s nearly impossible to get your hands on quality physical gold and where people will pay you to take delivery of oil. Yeah, I’m gonna lead with that this week.
I mean how messed up is this situation. And stocks rise at the end of the week? This is what educated people call a Sh*t Show!
Now for my disclaimer: this post contains affiliate links where the blog may receive a small commission on any sales from EQ Bank, Scotiabank, Questrade and Tangerine.
Oil Goes Below Zero!
It all started on Monday when the May Futures contract came under intense downward pressure. The problem is that there is no place to store oil in the world. All storage facilities are full. So are all the oil tankers in the world, and barges. So once traders realized they would have to take delivery of the oil under contract, they panicked and sold. The price settled at $ – 37. Yes negative! The first time it’s ever happened.
Who knew that shuttering the global economy in the midst of a pandemic would cause a huge drop in oil demand?
Evidently the market thinks the bottom’s in on oil as oil stocks rebounded into Friday’s close. Me, I’m not so sure, a lot of bad news came out this week that should give us all reason to pause.
Unemployment Surges
US unemployment figures came in at about 4.5 million, the economy lost all the jobs created post 2008 Financial Crisis. Unemployment now stands around 25 million.
I expect Canadian unemployment to be even worse as many industries were already struggling with low commodity prices.
So here we are with all those crappy employment figures and believe it or not the market rallied on that news! Guess it figured it could have been worse or most of the damage has now been factored into pricing models.
So I guess investors have 2 important things to look for. 1. Watch the number of Covid-19 cases and watch the weekly unemployment numbers. When both start to fall that might be the beginning of a recovery.
More Bad Coronavirus News
This week we had some bad news re: the pandemic. I said the only way out of this mess will be an eventual vaccine, or some combination of effective drugs and a certain level of herd immunity.
Well a promising Gilead Sciences drug called remdesivir had no effect on the coronavirus during trials.
Some parts of China are again entering a lockdown phase as the coronavirus makes a comeback. This is a bad sign for the rest of the world. In fact many health officials are now saying that we can expect a second wave in the Fall.
On the vaccine front, British scientists tempered expectations by saying that there is no guarantee that there will be a coronavirus vaccine. The implication of course is that we’ll simply have to manage the outbreak so as not to overwhelm the healthcare system and take the necessary casualties to achieve herd immunity.
And then there’s Gold and Silver
In light of the chaos on the oil futures market, some people have been talking about the growing disconnect between the spot prices of gold and silver and the actual physical bullion.
Silver spot price hovered around USD $15.5 this week but good luck actually buying physical silver for that price. The premium between spot price and physical is about $7-$10. So if you want to buy physical silver, like a 1OZ coin, you’re looking at about USD $22 or $31 CAD.
Spot gold prices were between a low of 1680 and high of 1760 USD. The physical premium for 1OZ coins is about $200-$300. In CAD that’s about $2650-$2750 depending on the dealer.
World Mints are closed so there’s huge demand for physical gold and silver right now. And that is pushing up premiums.
So the question is why is there such a disconnect between spot and physical gold and silver prices? Does spot even remotely reflect the true value of gold and silver? Certainly the physical gold and silver markets suggests not. Again, this is another argument in favor of physical gold and silver over paper instruments that track the underlying asset.
So Where Do We Go From Here?
I don’t think anyone can say with any certainty what will happen at this point. And never mind a time frame.
As far as I can tell, the Bulls see a big recovery at the end of this year and into 2021 if all goes well (ie. the economy restarts and the virus contained).
The Bears on the other hand see the worst bear market we’ve ever seen and a slow weak, shaky recovery over 3 to 5 years. They look at the Depression years of 1930-1935 as their guide with all of the accompanying social, political and economic upheaval.
What do I think? I think if ever there was a case for a diversified portfolio of stocks, bonds, cash and a little gold, now’s the time. Our investment portfolios need to be properly diversified to weather these kinds of storms so we don’t get spooked and sell out.
I continue to hold my stocks, I raised a little bit of cash and I boosted my gold a bit. I plan to make some small investments in gold mining stocks and hopefully sell them later and buy some of my dividend darlings at great prices.
I don’t think the worst is behind us yet and I think those of us with some cash on hand need to get used to saying “I can’t believe I bought X at that price! Never in my wildest dreams!”
Have a great weekend everyone~
How I Manage My Money
In case you’re wondering here’s where I park my money and some financial services that I use:
For my Daily banking and no-fee cash back credit card I use Tangerine. Curious? Check out my Tangerine vs Simplii Financial review and the Tangerine Money Back Credit Card Review.
For my Savings I use the EQ Bank Savings Plus Account. Never heard of it? Click the link to check out my EQ Bank Savings Plus Account Review.
For investing I use a combination of TD Waterhouse (for legacy investments) and Questrade (low cost stock purchases and free ETF purchases). If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.