The Coronavirus and Gold

Source: Rudi Fronk and Jim Anthony for Streetwise Reports 06/08/2020

Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, discuss movements in the gold markets since the onset of the coronavirus pandemic.

In mid-January, 2020, COMEX open interest (OI) set a new record of nearly 800,000 contracts. Swap dealers as usual supplied the market by going short 205,679 contracts on January 14, also a record. They probably expected to reduce their risk by purchasing physical at spot to but along came COVID-19 and spot physical supply was suddenly not readily available as refiners and shippers abruptly shut down.

The shorts attempted to shake the market to get back on side. OI fell to 650,000 contracts but this did not dent the price. A second push took OI down to 550,000, temporarily dropping the gold price to $1470 on March 19. OI continued to fall, but the gold price did not follow as it usually does, recovering sharply to higher highs in mid-April as speculators themselves had decided to offset the undersupplied spot physical market by the unusual practice of purchasing on COMEX for delivery.

The Swaps have not managed to square their net shorts, which on May 26 were 182,864, only 25,815 less than on January 14. In other words, with open interest down 40%, the Swaps have only reduced their net exposure by 12.4%. Scotia Mocatta was an obvious casualty which we know about because it was owned by a public bank. The pressure continues. This week 45,259 June contracts stood for delivery, amounting to 140.8 tonnes of gold.

American money managers and individuals are apparently using COMEX to take physical delivery and being in a hurry, they were willing to overpay to do so because of the COVID-19 temporary shortage in the physical spot market. Meanwhile, global gold ETFs are setting new records for their physical holdings every week, reaching 3,510 tonnes this week, up 1,110 tonnes or more than 46% since the start of the year. The squeeze seems to be on.

The gold price took a hit this week as those who bought it against the possibility of a global economic collapse were quick to sell when the amusingly inaccurate U.S. jobs report on Friday seemed to signal that better days were just around the corner. Non-workers on payroll thanks to the Payroll Protection Program were not counted as unemployed. A temporary miscalculation we are sure. But the end of the world was not, in our view, the reason to own gold in the first place. The unprecedented monetary and fiscal stimulus designed to prevent Armageddon is and the consequences of those efforts lie dead ahead, in our view.

This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders.

Disclaimer: The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.

Sign up for our FREE newsletter at: www.streetwisereports.com/get-news

Disclosures:
1) Statements and opinions expressed are the opinions of Rudi Fronk and Jim Anthony and not of Streetwise Reports or its officers. The authors are wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation. The authors were not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the authors to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
2) Rudi Fronk and Jim Anthony: we, or members of our immediate household or family, own shares of the following companies mentioned in this article: Seabridge Gold. We personally are, or members of our immediate household or family are, paid by the following companies mentioned in this article: Seabridge Gold.
3) Seabridge Gold is a billboard sponsor of Streetwise Reports. Click here for important disclosures about sponsor fees.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Scroll to Top