WEST PALM BEACH, FLORIDA – Something strange is going on…
You’ve probably noticed that the gold price fell hard last week (down 8%) and then again yesterday (down 1%).
These declines shaved $160 from the gold price.
Meanwhile, on the ground, I’m hearing about RECORD DEMAND for gold. I’ve seen shortages at the bullion dealerships, record transaction volumes, and soaring premiums for physical gold.
What’s going on? More below…
Holed Up in Florida
Greetings from West Palm Beach, Florida…
My family and I are holed up at the house of Kate’s parents. We’re comfortable, we have plenty of food, and of course we have each other, which is the most important thing.
Mostly, I’m worried about my mother. She lives alone in London. She has no family in the UK. And she has advanced Parkinson’s Disease.
She could be in solitary confinement for the next three months. If she has any health issues, I won’t be able to help her…
Three More Homeschooling Series
Kate and I have been homeschooling our children for years. Here are three more educational YouTube video series that we love showing our children:
If you – or anyone you know – is having to homeschool children this week because their schools have closed, perhaps you might find these videos useful.
I’ll post more of our favorite homeschool resources every day. See the ones I posted yesterday here.
Record Gold Sales
Apmex is one of the major American gold bullion dealers. I wrote to the CEO, Kenneth Lewis, yesterday.
“How’s business been recently?” I asked him. This is how he responded…
We are having record-breaking sales and demand across all channels; Apmex, Wholesale, OneGold. Apmex/OneGold Sales and Customer Service both handled more than 1,400 calls Friday, as compared to a typical daily volume of 390, and Monday’s calls are even exceeding Friday’s volumes.
OneGold continues to break records and, in 13 days, has already set a record for flow in a month and also a record in the number of new customers acquired. Apmex shipped 4,000 orders on Sunday alone, and our stellar operations team is putting in significant overtime to get orders quickly to our customers.
Silver demand has shown higher growth than gold across all platforms.
Our Apmex Trading team is working non-stop to buy inventory. Premiums on our site and with OneGold have increased as we now have to pay substantially more for products. We have staffed up our Sales and Customer Service teams over several weeks.
We have not seen volumes like this in more than 10 years. You have to go back to 2008. These are crazy times in our world and believe we will be in tight supply for several months.
Then, I found this note on the website of JM Bullion:
Over the last few weeks, we have seen record order volume, with yesterday being our largest sales day of all time. We are on pace for another record day today.
As a business, we are doing everything we can to keep up, but with a 3-7x increase in order volume, we are unable to answer our phones and ship orders as quickly as usual. You can expect temporary shipping delays of 10+ business days while we scale up our operations to satisfy this unprecedented level of demand.
The increase in demand is also beginning to strain supply chains, with the US Mint announcing yesterday that American Silver Eagles have temporarily sold out. We expect to see ripple effects at other suppliers and mints in the coming weeks.
I saw this one Twitter, from a gold buyer in New Zealand…
Took all day to get through to New Zealand Mint today, they sold out all gold bullion inventory 3 days ago.
Gold Market Pyramid
The gold market appears to me to be an upside-down pyramid.
At the bottom of the pyramid you have physical gold. At the top of the pyramid you have gold futures, gold options, and other gold derivatives. Let’s call this top section “notional” gold or “paper” gold.
The tiny physical gold market underlies the gigantic notional gold market. (I’ve read the transaction volume in the notional market each day is 1,000 times bigger than the volume in the physical market.)
If this is true, then it’s the supply and demand in the notional gold market that sets the gold price… not supply and demand in the physical gold market.
In other words, the gold price has no basis in on-the-ground reality, which explains why demand is exploding for gold bullion while the price of notional gold is falling.
And it may be the case that when people begin hoarding physical gold at the bottom of the pyramid – as they’ve been doing recently – it causes the top of the pyramid to collapse and notional gold prices to FALL.
I don’t know. I just know that the gold price MUST rise much higher in order for the Federal Reserve to prevent the synchronized bankruptcy of the entire financial system.
And in the meantime, I’ll try to accept the volatility with Zenlike detachment.
How I Maintain Calm Indifference
One way I maintain calm indifference to the dramatic moves is I watch the Dow-to-Gold ratio.
As I’ve explained many times, ours is NOT a speculation in gold. Ours is a long-term buy-and-hold stock market investment strategy… with a simple market timing element that helps us buy low and sell high.
Most of the time, we hold the stock of the world’s best dividend-raising companies. We call these “dividend aristocrats.” These are companies like McDonald’s, Coca-Cola, Hershey’s, P&G, J&J and Phillip Morris.
Some of the time – when these stocks get too overbought and expensive – we go to the sidelines in gold. (We went to the sidelines last year.)
We never cash out. And we never hold anything except gold and dividend aristocrats. We just wait for the Dow-to-Gold ratio to reach extremes… and then we rotate between stocks and gold accordingly.
As such, the Dow-to-Gold ratio is the only number that matters to us. Here’s the three-year chart of the Dow-to-Gold ratio…
When this chart falls, it shows the stock market is in a bear market (in terms of gold.) And when this chart rises, it shows the stock market is in a bull market (in terms of gold.)
As you can see, despite the recent declines in the gold price, stocks have fallen even faster, so the Dow-to-Gold ratio has been FALLING.
I expect the Dow-to-Gold ratio will reach 5 sometime in the next five to 10 years. That’s when we’ll rotate from gold into stocks.
Two Centuries of Dow-to-Gold Perspective
I found this chart recently. It shows the Dow-to-Gold ratio going back to the year 1800…
What caught my eye was how low the ratio can go… especially if we return to a gold standard or transition to an alternative financial system involving gold.
When I look at this chart, it’s easy for me to imagine the Dow-to-Gold ratio going to 1, as indicated by the red arrow above.
P.S. I loved the price action in the gold market yesterday. On a day when the stock market had its largest crash in history (in points) the gold mining sector roared higher.
Many of the stocks were up between 10% and 20%. Meanwhile, gold rose more than $80 intraday, erasing a large initial loss. Very reassuring moves.
In today’s mailbag, readers offer suggestions for fighting the coronavirus… thank Tom for his market analysis… and ask about life insurance policies…
Reader comment: I like reading your postings. Thought I’d give a piece of advice for your thoughts. My wife is from Southeast Asia and she reads a lot of news from there and keeps track of what is going on. Right now in Thailand we are entering the hottest season of the year. Talking 90 degrees F at 9:30 p.m. when you go to bed and around 100 degrees F in mid afternoon. The average Thai person doesn’t have full-time air conditioning in their home. They have fans and open windows.
They bathe two times a day, morning and night. They go out in the sun and sweat even though they don’t want to. Coronavirus isn’t having the kind of outbreak there as in other countries. The majority of the cases are all people coming in from China and transmission to Thai people is low.
Suggestions based on the above: Open the curtains in your home and let the sunlight in. Go outside in the sunshine and fresh air to get exercise. Don’t sit around indoors especially in a crowded environment. Not sure about Coronavirus, but viruses in general don’t like sunlight or UV rays. Go to Starbucks and get it to go, and enjoy it in the park or at least sit outside if it’s warm enough.
Reader comment: Last September, the inversion in interest rates happened and most people ignored it. So I knew that in about six months something would hit the fan. And it did. I didn’t know the exact day but it was coming.
About the economy, why don’t people realize that the Federal Reserve doesn’t control interest rates? They float and the feds just follow. Why don’t people realize that instituting “circuit breakers” doesn’t stop the stock market from falling? You cannot control the stock market. It is going to do what it is going to do. The government cannot institute controls on the economy, try to fix it, or make it better. It is going to do what it is going to do.
People have become so disconnected from reality that they don’t use common sense anymore or look at facts. Any idiot could see last year the stock market was in trouble. Too many indicators told me what was going to happen. Maybe computer games have gotten us away from reality?
Thanks for your great insight on things. Never miss reading your thoughts.
Reader comment: Still enjoy reading your adventures. Your kids will always have wonderful stories to share with their future loved ones that will keep anyone listening enthralled and full of questions. Watching this collapse, I’m recalling the Wall Street “plunge protection team” I learned of a few years back, in 2014 or 2015, when markets were taking another huge tumble. Seems I recall hearing the PP-team was put in place because of 2008 crash. Where’s the team now?
Also, when the Dow-to-Gold ratio hits 5 can you give us ideas about what will be good investments? You don’t have to give company names per se, but generally, what kind of businesses that pay dividends would be best. I’m sure many of us would like to be researching and planning our positions as we wait on the sidelines with you and Kate. The day which doesn’t seem too far in the future. Thanks Tom! Happy travels and be SAFE out there.
Reader comment: My wife is arguing the sustainability of walking off-grid on a day-to-day basis with a family. She is questioning that your cash flow statements in the Postcards are not reflected in your real-life travel. Five whole life policies need their premiums paid, expenses for five traveling need cash flow for plane, train, and hotel – does funding come from writing the Postcards?
Holding a few dividend-paying stocks does not figure to fund a family of five traveling, no matter how inexpensively. From my point of view, it would serve everyone to reveal (along the lines of your ongoing postcard honesty) just how you manage your cash flow when all-in on gold. Debunking the doubters by explaining that you are not secretly semi-wealthy and portraying a poor man image would serve the viability of your endeavor for others contemplating the value of doing the same. Here’s wishing you and your family a happy, long ride.
Reader comment: Think whole life insurance is very safe? Think again. Whole life is as safe as the insurance companies that sell you the policy. Yields cannot be higher than the instruments they invest in. Let me quote Tom Dyson here: “The global financial system is completely and irredeemably broken.” Insurance companies are part of the global financial system.
Tom’s note: Thank you for all of your kind messages! Please keep writing us at [email protected]. Kate and I read every one.