I’ve been saying this for a while, not that I am a guru or can predict the future, but it’s been obvious: “When the vaccine for COVID-19 comes out, gold will drop like a rock.” Why do you think that is?
The spot price of gold is leveraged in exchange traded funds (ETFs) like GLD. Most investors today are invested in some type of fund. The professional brokerage houses like Raymond James, Charles Schwab, Merrill Lynch, Fidelity and others work hard to keep your returns consistent and keep your shares growing in value by constantly trading individual stocks, ETFs and equities within the fund that you have interest in.
Since late March gold spot price has been steadily trending up so fund managers position your money to take advantage of that growth. More demand equals more value equals higher prices. Gold spot topped $2,063 in August of this year and has since been hovering in the 1,900 range ever since. With the recent news that Pfizer, Moderna and BioNTech all have developed COVID-19 vaccines that are nearly ready vaccines for distribution, those friendly fund managers see opportunity-- sell off the gold ETF that is now in less demand and use that money to buy those vaccine stocks. After the vaccines are all sold, they will attempt to sell those stocks high and then turn back to the gold ETFs at a low.
This selling high and buying low strategy ultimately makes the fund more money and the price of physical gold go down. Similar practices transpire in the markets for silver, platinum and palladium. This is how precious metal prices are considered to be rigged and are therefore manipulated. The spot price does not reflect the actual value of gold.
The only way to get a true grip on what the actual price of gold should be is to compare it to it’s original price of $35 per ounce in 1971, right before it was removed as the backing of our dollar. In June of 1971, the US National debt was around 398 billion dollars. Today the National Debt is 27.3 trillion dollars. That is an increase of 6,918%. Remember, gold is the exact opposite of the dollar and should grow equal to the dollar, or should I say grow equal to US debt. If you multiply 6,918% by $35 you get $2,421.30. Based on these numbers, spot gold should be at $2,421 an ounce if it were to be a true representation of the US debt. This means that gold is greatly undervalued in market terms.
The problem, however, is not the price. The problem is the availability. While gold demand is still near all-time highs, the availability is close to all-time lows. The COVID-19 crisis shut down the biggest precious metal mines in the world and has put a major strain on production and delivery, so much so that GLD got caught claiming ownership of some 70 tonnes of gold that the Bank of England also claims it owns.
News of the COVID-19 vaccines also had an impact on the stock markets. The Dow Jones set a new record high over 30,000 points, and the NASDAQ and S&P are near all-time highs as well. The market jumped also on the Biden transition news when he announced former Fed Chair Janet Yellen as Treasury Secretary. This is big news because Yellen is expected to create massive stimulus for US citizens. She will also further ease up lending to mega banks that invest in appreciating and income producing products that are in the paper markets. This formula could spell much more debt for the nation as well as additional devaluations of the dollar. Is it good for America?
Like I said, I am not a fortune-teller and it doesn’t take a psychic to see what is coming down the road: more debt, more dollar devaluation and possibly higher metals prices. Between you and me, I think that getting the actual physical asset in your hand is going to be very hard, if not impossible to do in the future. Better act soon.