Gold Intrigue 2020

  • Gold’s Tom Clancy-level intrigue
  • S&P 500 Index with atypical gold tagalong
  • Breaking the (golden) rules
  • Zach Scheidt: Keeping pace with inflation
  • Hourly rates at posh hotels… 
  • … for work-from-home refugees
  • A reader on empty high-rises… Cities and the “snowball” effect… And more!

The gold manipulation story has more intrigue than a Tom Clancy novel (no relation, in case you’re wondering)…

Although it’s the same old story when it comes to investors piling into gold as the economic crap hits the fan, right? As a direct result: When risky stocks plummet, gold floats.

Take for example the most dispiriting month of the Panic of 2008: “The correlation between daily returns on the S&P 500 and gold was minus 41%,” says an article at Medium.

“But during the past month, indeed the worst month for the U.S. stock market since 2008, gold’s correlation with the S&P 500 has been plus 20%.”

Hmm…

Unconventional Action

Click to enlarge

The chart above depicts the S&P 500 (blue) along with its market capitalization on the right, and the spot price of gold (outlined in yellow) is on the left side of the chart.

Medium explains: “The only periods when the S&P 500 stopped falling coincided with sharp falls in… gold which were, typically, timed just a few hours before markets closed for the weekend…

“The spot price of gold fell by more than 5%… In just a few hours of frenetic futures trading on Friday, Feb. 28… It recovered on March 3, jumping up 3% between 09:36 and 12:21 CDT. But the subsequent rally was short-lived.

“On March 12 (the worst day on global financial markets since 1987) [gold] fell by more than 4.5% and on Friday, March 13 [gold] fell by another, whopping 3.86%.”

“What can explain this bizarre and a-typical behaviour of the gold price?” Medium asks. The answer? “Excessively large single trades.”

Zooming in on one date from the chart above, here’s what happened at the CME’s Comex…

  • On Feb. 28, a “coordinated sell-off with 19,849 contracts for April and June futures exchanging between 07:26 and 07:31 CDT”
  • Also on Feb. 28 — about two hours later — “some excessively large single trades on April and June futures were executed milliseconds apart: two sets of block trades of 2,499 contracts and one block of 222 contracts (2,499 contracts are worth c.a. $450 million).” (Emphasis ours.)

Would you be surprised then that the bottom fell out of the price of gold on Feb. 28? Down $80 per ounce to $1,570.

In fact, a white paper — published by Paul Craig Roberts and Dave Kranzler — details this phenomenon.

Take one example: “These authors claim that the Federal Reserve instructed its bullion dealers to sell over 4,900 gold contracts on the Globex system in a two-minute period from 02:40 to 02:41 EST [on Dec. 19, 2013], resulting in a $24 decline in the price of gold.”

Medium continues: “Normal conduct is for any large order to be broken into smaller parts, in order to minimize its impact on the market price. But these very large orders are deliberately aiming at quite the opposite effect.

“[This] type of painting the tape on Comex futures… is a manipulative act, but nevertheless it is common behavior.”

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Mr. Market giveth… and taketh away: The S&P 500 Index has erased yesterday’s 1.5% gains. The Dow, meanwhile, continues to steam ahead — up 245 points to 25,240; on the other hand, the tech-heavy Nasdaq’s shed 65 points to 9,275.

As for oil, it’s down 3.4% to $33.18 for a barrel of West Texas Intermediate. Per gold, the yellow metal’s dropped $15 to $1,713.20 per ounce. 

And from the front lines of the war on savers…

“Once upon a time, putting money aside for a rainy day — or even to use in the future — was considered a good thing,” says our income specialist Zach Scheidt.

“But over the past few decades, the government has moved to make saving as painful as possible,” he says.

“It started with bank interest rates — making the returns on checking and savings accounts so low that people had no choice but to put their money into riskier instruments.”

That is, if they had a prayer of keeping up with inflation, right?

“So people turned to bonds for safety,” Zach says, “until interest rates for those got too low, too.

“Some government bond rates even turned negative for a while, and President Trump is still calling for the Federal Reserve to make that official.

“If that happens, government bond investors will receive less than what they pay for them!

“That’s left dividend-paying stocks as one of the last refuges for income investors. But the war is coming for them, too.

“The list of companies that have reduced or eliminated their payouts gets longer by the day….

  • Ford Motor Co. (F)
  • General Motors (GE)
  • Hilton Worldwide (HLT).

(To name a few… along with scads of oil companies.)

“There will be plenty of exceptions, though,” says Zach, “companies with strong businesses and steady cash flows.

“These businesses won’t have any problems sharing the success with their investors.

“Procter & Gamble (PG), for instance, makes products that people buy no matter what’s happening to the economy,” Zach continues. “I’m also still very bullish on Home Depot (HD).

“The company has seen brisk business as folks figure they may as well fix stuff around the house while they’re quarantined.”

(Indeed… my husband has painted pretty much everything that’s not nailed down. And he’s sprucing up our patch of land as I write.)

“I not only expect HD’s dividends to grow,” Zach concludes, “but I expect refugees from the war on savers to notice, too. And as they buy in, the stock’s price could easily double from its current level.”

“Hotels slammed by the coronavirus pandemic are turning to a different kind of guest,” says the New York Post, “the cooped-up parent down the street.”

Household names in the hotel space — including Hilton, Sheraton and Marriott — are drumming up business any way they can after the corona-crash. Now hotel chains are cleverly enticing overworked parents looking for a private place to work (and show up for those ubiquitous Zoom calls sans distraction).

An ad for Hilton’s Cincinnati Netherland Plaza hotel, for example, says: “Need a productive office day?” The accompanying picture “features a mother rubbing her temple as her two children run amok, including one who is pounding at the mom’s open laptop.”

The hotel throws in “complimentary Wi-Fi and coffee, along with a desk in quiet comfort.” A 12-hour workday — check in at 8 a.m. and out at 8 p.m. — will set work-from-home warriors back $69.

A small price to pay for some peace and quiet? And perhaps keeping hard-hit hotels afloat…

“They are helping us to pay our bills,” says Andrew Labetti of Sheraton College Park North hotel in Maryland.

“Instead of conference-goers and tourists, the hotel… now rents rooms to about 15 area residents in need of a quiet place to do their jobs.”

The New York Post continues: “The new revenue stream is expected to continue to trickle in through the summer — even as businesses and co-working spaces… reopen.”

Jess Solomon, displaced from her Kansas City, Missouri, office, has taken advantage of a local hotel work package, saying: “I needed to focus and when you have a 1-year-old in quarantine, you can’t do that.…

“Our office is technically open now,” she says, “but I’ll probably go to the hotel again.”

And why not? An undisturbed hour at the gym… or a fully stocked minibar? Hmm… are hotels the new WeWork?

For more on the office-space exodus…

“I was talking to my boss the other day,” a reader says, “and he brought up a topic that has been stuck in my head ever since.

“With so many people currently working from home during the pandemic, surveys are showing most of them don’t want to return to the office.

“This sounds fine, but nobody seems to take the corporate bean counter’s side of this dilemma. With more people working from home, corporations will no longer need large, expensive lease spaces in city high-rises anymore. 

“I don’t believe it will take very long before (if they haven’t already) bean counters see the huge cost savings in not needing real estate for workers who want to work from home anyway. I see a move away from large offices to smaller ones where people only come together occasionally. 

“What is this move to smaller commercial leases going to do to the commercial market as employees mostly work from home? How long is it going to take before they start figuring out that they can cut their rents/mortgages by 50–75% by moving out of big cities? 

“Once people start moving out, what about city shops and restaurants? I can see a snowball effect.

“Thoughts?”

The 5: Well, if you call BlackRock’s billionaire CEO Larry Fink a “bean counter” — and we suppose most every CEO wears that no-frills more or less — then you’re onto something.

Fink said: “I don’t think any company’s going to go back to 100% of the workforce in the office. That means less congestion in cities. It means, more importantly, less need for commercial real estate. So to me that’s one of the great outcomes of this.”

Umm… not sure how to take great. As in big? Most certainly. But if your bread and butter is commercial real estate, then not great. Of course, less city congestion also means less commerce for shops, restaurants, parking garages… you name it.

The impact from the work-at-home revolution won’t just hit commercial real estate either. It’s not a stretch to think young millennial families who live in the city — chasing that elusive work-life balance — will hightail it to the ‘burbs and beyond.

According to realtor Tina Richlin, who serves rural Sullivan County in Pennsylvania, her phone’s been ringing off the hook as Philadelphians want to escape the city. One client who purchased a property sight unseen told her: “I just need to get away from all the people.”

High on the list of amenities these homebuyers are looking for? Home offices, backyards, a decent internet connection and space to grow their own food.

A new homebuyer catty-corner to me just installed a chicken coop with a brood of hens. Heh… mercifully, no rooster. Yet.

Best regards,

Emily Clancy
The 5 Min. Forecast

P.S. For your money, we believe the best way to invest in gold is to buy physical metal; we fully understand that can be cumbersome. Here’s the solution…

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To be completely transparent, Agora Financial purchased a stake in Hard Assets Alliance last year. Yes, we’ll get a cut of the fees (which are among the industry’s lowest), but we wouldn’t have made the investment if we weren’t impressed by what Hard Assets Alliance does for everyday investors who want exposure to precious metals. One more time, here’s that link.

Emily Clancy

Emily Clancy

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