Which causes gold to stop responding

The bubbles burst - precious metals react differently - gold will rise in the long term!

The price of gold rose to a new all-time high of € 1,561 ($ 1,689) in the past few weeks. Most recently, the rally was driven by investors who feared a recession and the coronavirus bursting the everything bubble. While smart investors were already looking for a safe haven, the crowd ignored the standstill in the Chinese economy and drove the DAX, S&P 500 and Dow Jones to new all-time highs just over a week ago. It was only with new epidemics in South Korea and northern Italy, the heart of Europe, that it dawned on the sleeping sheep that the global economy was in danger and that the small coronavirus was the needle that pricked the bubbles and made them burst. If everyone wants to sell at the same time, while nobody is ready to hold their hands, then stock market prices fall into the abyss.

The selling panic last week of trading led to a historically rapid and severe crash on the stock market. The Dow Jones fell by almost 15% in a single trading week and the German share index DAX lost over 11% compared to the previous week's closing price. The search for security caused the prices for US government bonds to rise to new all-time highs, so that the yield on ten-year US government bonds fell to 1.17% for the first time, while the German counterpart is returning -0.61%. The price of crude oil, which had previously suffered from a persistent oversupply, came under additional pressure from the standstill of large parts of the Chinese economy and the OPEC + countries will now be forced to make further production cuts to stabilize prices in the near future.

Click here to enlarge

The stock markets crashed, interest rates and the price of crude oil fell due to the real economic effects of the corona virus.

Click here to enlarge

The virus struck down the bull. However, the injections of fresh money have no effect.

The gold price, which in the past few weeks was still able to benefit from its function as a haven in turbulent stock market times and soar to a new multi-year high, ultimately fell under the wheels at the end of the week and fell by almost one hundred US dollars (-5.7 %) from $ 1,660 at the top to $ 1,563 at the bottom. At the beginning of the week there was already a blow on the gold price, which destroyed the momentum as well as the bullish sentiment. We are convinced that central banks around the world have been hammering on the gold price in a coordinated manner in order to prevent a further rise. All major nations fear the rise in the price of gold, as this reflects the loss of purchasing power of their own state fiat currencies. The USA, Europe, Japan and China have a vital interest in ensuring that the gold price does not rise when the markets collapse. These nations are likely to have prevented a further increase in the price of gold with physical sales last week, as gold is a political issue and may only rise in an orderly manner so that their own fiat currencies are not endangered. In the week before the slump, we had already noticed significant manipulation on the futures market, which is why we gave premium subscribers a short-term sell signal at $ 1,660 at the beginning of last week and the signal to cover the short position at the end of the week.

The silver price, on the other hand, has been relatively weak for weeks, as it has already suffered from the continued weakening of the global economy with high mine production at the same time. As we predicted in the last analysis, the silver price came under pressure again and fell to a low of € 14.85 per troy ounce. All of this led to the gold / silver ratio rising to 96, which means that silver has not been so cheap compared to gold since 1991. Silver is suffering from demonetization and a lack of investment demand, but this will change again in the future. The platinum price collapsed by $ 150, which is exactly what we forecast. For weeks we have been pointing out the physical oversupply and the relative weakness on the futures market and advised to sell platinum at short notice at $ 1,000. After the Chinese automotive industry came to a standstill due to the epidemic and at the same time new car sales in China collapsed by 92%, the demand for platinum threatened to collapse, which is why a decline in the price of platinum was very likely. Palladium was the only precious metal able to escape the downward pull and reached a new all-time high of 2,879 US dollars on Thursday. Ultimately, the fear of a recession and the collapse of the automotive industry caused a short-term sell-off of $ 400 on Friday, which ended at the next technical support at $ 2,480.

Click here to enlarge

Gold and palladium held up well, while silver and platinum plummeted. The G / S ratio rose to a new high of 95 and the HUI gold mining index plummeted as well.

Click here to enlarge

Only once in history has silver been as cheap to gold as it is now.

The potential pandemic has already punctured the bubbles in the markets. This is not just a correction in the stock market, but the beginning of a recession and a real stock bear market. Never before have the players been so heavily leveraged in the markets as they are now after the longest credit expansion and stock market bull market in history. The debt has never been higher and the misallocations in the real economy due to the artificially low interest rates have never been more extreme. This is the perfect storm for the global economy, and the coronavirus is the needle that pops the bubbles.

Even if the FED recently stressed that it did not see a need for a rate cut yet, the Fed Fund Futures show that the markets will already cut rates by 50 basis points at the next meeting of the US Federal Reserve on March 18 and three rate cuts by the end of the year have priced in, which also explains the rise in the price of gold in recent weeks.

As discussed in recent weeks and months, platinum and palladium are more likely to suffer from relative price weakness in the months ahead if the global recession picks up. The following charts show that both platinum metals have so far collapsed sharply in every recession (red bars).

Click here to enlarge

The price of palladium had fallen in every recession so far.

Click here to enlarge

The price of platinum also tends to plummet sharply in recessions.

80% of palladium demand comes from the automotive industry, which uses it in catalysts. The price of palladium was still rising until last Thursday, although global demand for automobiles was already falling. The virus has even resulted in a temporary 92% decline in automotive demand in China and the industry has partially stalled. Should there be similar conditions worldwide, this could lead to a massive short-term collapse in demand. But even in the long term, what is possibly the worst recession in history threatens a collapse in the global automotive industry, which should also reduce demand in the medium to long term. Although higher environmental standards have resulted in more palladium and platinum being used in catalysts than in the past, it remains to be seen whether this can compensate for the slump in demand this time. Due to the ban on diesel, the share of petrol in the EU rose from 44.2% in 2015 to 56.7% in 2018, which on the one hand supports the demand for palladium, but also hits it harder when the demand for automobiles collapses, which is why short violent ones Price drops are possible. In the past, platinum and palladium always fell by around 70% after strong increases in recessions, which is why one should closely monitor the further development of automotive demand.

In 2008, global automobile production fell by only 3.5%, resulting in a 73% drop in palladium prices, and the milder recession of 2001 caused prices to collapse by 78%. This time the situation seems to be more precarious, because even before Covid-19, Chinese automobile production in China fell for the first time in 1999, which shows the first foothills of the inevitable recession. The Japanese and German automotive industries also recently had to report sharp declines and short-time work before the virus spread.

Platinum metals are very volatile, as the costs for 2-4 grams of platinum or palladium per catalytic converter are negligible in relation to the purchase price of a new car and cannot be replaced due to legal regulations. But if the demand for automobiles collapses only slightly, the price of platinum metals can collapse extremely sharply for a short time. Ironically, the platinum price suffers from the high palladium and rhodium prices, as mines like Impala Platinum or Sibanye Stillwater make so much profit from the production of palladium and platinum due to the historically high prices that production in the mines continues to be profitable and platinum, although it makes up the bulk of the funding and is currently more of a by-product, which is constantly expanding the range and depressing the price. Only when all platinum metals fall in price, then some mines will probably restrict production and also reduce the supply of platinum, but until then the platinum market will remain flooded. Platinum and palladium are therefore likely to have a difficult time briefly during a recession, as has been repeatedly said in recent months. We were skeptical about platinum in the medium term anyway, while we saw every setback as a buying opportunity for palladium to corona. With the potential pandemic, our assessment had already changed weeks ago and since then, due to the circumstances just described, we have seen palladium at great risk for a significant price decline, which must be taken into account in trading.

For gold and silver, on the other hand, it looks very good, because the central banks are being forced to intervene in monetary terms if the bank / credit money system is not to collapse during the recession. Trump had already convened his Plunge Protection Team (PPT) last week and helped the stock markets with important supports (S&P 500 2,900-3,000 points) at the end of the week, while the PPT was hammering on the gold price. This may also be revealed in the upcoming futures market report next Friday.

The central banks will soon lower interest rates and expand their money printing programs, while the Keynesian-style governments will expand debt and create replacement demand, which will ultimately only lead to a redistribution of wealth and a devaluation of currencies. The gold price will experience massive buying pressure and the investment demand in ETFs will increase dramatically for both gold and silver. Governments and central banks will face this with sales of physical goods on the open market and short-term interventions in the futures market, which is why short-term timing remains important, even if a higher-level bull market is about to pick up speed. Due to the high silver stocks in the warehouses of the COMEX, JP Morgan and its clients have more powder available here than with gold, which is why it will continue to apply to silver that short-term spikes should also be hedged or used to take profits. The price slump on Friday should therefore not be viewed with fear, but rather as normality in a new bull market that is constantly being attacked by the central banks. The bull market in gold and silver will gain momentum with the start of the recession and the black swan "Coronavirus", which is why you should definitely position yourself in the current short correction for these two precious metals, because the fiat currencies will continue to depreciate.

Federal Finance Minister Olaf Scholz already discussed the abolition of the debt brake in the Basic Law last week and announced today that there would be enough funds for an economic stimulus program. Of course, these funds will only come through the printing press, which will ultimately be stolen from taxpayers through the inflation tax. Another cautionary but far-sighted example is the Hong Kong case, where the government is now handing out $ 1,180 to every resident adult to alleviate the suffering caused by the unrest and coronavirus. If this can happen even in the freest country on earth, then this means will also be used as a last resort in the socialist western nations to prevent political and social collapse. However, the euro will lose its purchasing power while the gold price will go through the roof!