Welcome to another installment of The Daily Cut Friday mailbag edition.
You’ve had a lot on your minds this week…
We’ll start off with a question about our favorite form of disaster insurance – gold.
Reader question: Please outline the most efficient way to buy gold – in coin form, in ingots, or in mining shares?
When you say you will take it abroad if the government forbids ownership, how can you go through security at airports? Or is there a way to buy it in Europe or in South America and keep it there in a bank? Would you be obliged to declare it as a type of investment? Which gold dealer would you recommend in the U.S.?
Sorry for the deluge of questions, but more practical advice would be greatly appreciated.
– Ilka A.
One of our go-to gold experts, E.B. Tucker, is on hand with an answer.
E.B.’s answer: Ilka, this is an important question. I prefer to own gold two ways: common one-ounce coins and gold royalty shares.
For me, physical gold means hold-in-your-hand (or a safe place) metal. Most ETFs traded on the public market are not the same. These funds traffic in the futures market – let’s call that “paper gold.”
Last week, the price of gold futures and London physical gold diverged by a record $70 an ounce. This may be just the start of paper claims on gold and gold itself having different prices.
Most online gold dealers in the U.S. are out of stock right now.
Try Gainesville Coins. It offers my paid-up Strategic Investor readers special pricing on common coins. And I’ve extended that pricing to Daily Cut readers as a courtesy. (We do not get any compensation from Gainesville Coins for bringing you this offer.) The company typically notifies customers when supplies replenish.
I am a big investor in gold royalty shares. These companies are not mining gold. They merely have a small claim – often 1% – on all gold produced within a defined property boundary.
A rising gold price means the value of that royalty rises while costs stay fixed to the acquisition date of the royalty. Franco Nevada (FNV) is the market leader in the gold royalty sector. There are only six serious companies in the group.
I expect they’ll be some of the largest wealth creators in the stock market over the next two years.
As for portability, gold is hard to move in serious quantities. I met a German man once who fled Sri Lanka during a coup. He had his gold hoard melted and reshaped into belt buckles, necklaces, and all the jewelry he could comfortably wear. If you’re in this type of situation, Godspeed.
I expect governments to attempt a gold confiscation at some point. But at much higher prices. If that happens, go with the flow. You’d likely be far better off than your fellow countrymen who don’t own anything worth confiscating.
Next up, our globe-trotting rock hound (geologist), Dave Forest, weighs in on the gold “crunch” we’ve been telling you about.
In short, physical gold is running out as supply dries up… and demand ramps up… thanks to lockdowns.
Reader comment: I work at a mine in Alaska. We are basically sheltering in place at work. I’m not scheduled off until June. The crew that was off shift is now being quarantined at a hotel in town for two weeks before it can come out to work.
Another of our properties, in Quebec, is shut down by the government due to the COVID-19 emergency. It won’t be able to start mining again until restrictions are lifted. The output of gold from one mine might not affect the metal’s price. But all the mines in Canada might make a dent.
– Eugene L.
Reader question: I get that gold is one of the best places to be invested through this crisis. However, I am concerned about the gold producers. If they are required to shut down operations due to COVID-19, won’t they head lower like everything else?
– Tim P.
Dave’s answer: One of the effects of coronavirus is we’re seeing a lot of mines shutting down.
There’s been a lot of news, particularly in the last few days, about nonessential businesses, including mines, being ordered to close in many places.
Last week, South Africa – which is a top-10 gold-producing nation – said that it’s closing all of its gold mines. The entire industry is going to close.
South Africa is a big producer of gold, platinum, and palladium. So prices reacted positively to that.
Now, in general, this is going to be good support for prices because supply is disappearing.
The question is going to be: How does it impact the stocks? Producers who lose their revenues, who lose production from mines being shut down, how does it affect them?
My feeling is gold miners won’t go far. They will move with leverage to the underlying metal. While gold will do better than equities, gold miners will do well, too.
That’s why I’m not worrying too much about gold miners being beaten down as much as mainstream stocks.
I see this as an opportunity to buy great names at pennies on the dollar. And you should, too.
We still believe gold is the ultimate safe-haven asset.
So take this time to scope out picks you haven’t built a full position in yet… and grab some at bargain prices.
But by far the biggest hot-button issue in our mailbags this week has been the political reaction to the coronavirus.
Last week, President Trump tweeted that the cure – lockdowns – may be worse than the disease. And dozens of you sent us your thoughts on this difficult – but crucial – question.
I think this is an overblown panic. Not because COVID-19 isn’t contagious or killing thousands… but because I don’t believe you shut down the planet over it.
It’s been shown that, unless you are older and/or have some type of preexisting condition, you’re likely to come through okay, even if you get the virus.
I feel a better solution would be to quarantine those more at risk and let the rest of us keep the world running while we build up immunity, just like the flu. What if this comes back next season? Do we continue to destroy businesses and people’s lives?
– Mel L.
Mel isn’t alone in believing the government should quarantine only the folks who are most at risk…
If you quarantine the active population instead of the most endangered part of the population, you destroy the system that could defend the older people. In the end, everybody will suffer, considering the uncertain outcomes of the quarantine.
– Ferenc P.
We know people die in car crashes, plane accidents, truck accidents, and so on. But do we stop driving or flying? No. But now, some are saying that one death is one too many. And then they will drive away waving!
I believe we need to isolate the ones most susceptible to the harm of the virus and let it run its course. It is going to spread anyway.
– Michael D.
Other readers are begging folks to stay the course with the lockdowns to remove the strain on the country’s hospitals…
I sympathize with those who want to abandon self-quarantining for those except the most vulnerable. But the data shows something else.
One of the biggest issues is that scientists have not found a connection in the fatality rate. They don’t have a valid reason why patients fare better in some cases and decline faster in others. Many patients in the “non-risk” group get sick enough to need hospital care, some using the ICU [intensive care unit] of major hospitals.
While more of them may recover compared to the at-risk group, the system was never built, staffed, or supplied with enough equipment to handle the sudden influx of patients needing acute respiratory care. Patients literally suffocate without the devices.
Our healthcare system is overwhelmed. If the country took immediate action to contain the virus when it first appeared (preparations were recommended countless times over the last 10 years), the writers of that feedback would have a strong argument. And the economy would not have needed to shut down.
The disease is now out of control. There’s no telling who has it, where it may end up, and for how long. For those who think sheltering is a one-time thing, you need only look at pandemics in the past.
The famous flu of 1918 crippled Philadelphia because it did not close down fast enough. St. Louis took immediate steps to curtail the first wave, only to experience a second, and more numerous, wave of infections because it abandoned self-quarantining too early.
We must stay the course.
– Dr. Peter A.
Yes, the news is bad. And it’s going to get worse. That needs to be broadcast widely.
As a retired lung specialist, I read the medical literature and the latest reports on COVID-19 hospital admissions. I know about the life-threatening, and often lethal, outcome of patients on ventilators. Doctors and nurses treating these patients are risking their lives.
The public needs to be afraid of this pandemic. It is bad news. I have never seen anything like it in my 40 years as a practicing lung disease specialist.
Americans need to listen and practice social isolation as much as possible.
Some individuals remain uninformed or disbelieving of the COVID-19 pandemic. This is a big risk to all of us.
– James J.
I am astounded by the tone of many of your readers’ comments. The gist is that the reaction to the COVID-19 scourge is overblown and that the cure (staying in place) is worse than the disease.
First of all, I think they should put themselves in the shoes of a person in an ICU fighting for their life against this insidious virus.
Second, I think they need to appreciate that the whole purpose of “flattening the curve” is to prevent a massive and overwhelming overload of the healthcare system. We know that physical and human resources required to fight the disease are limited.
Third, I think that they need to be better informed about the reality that this virus is not killing just older people. Close to where I live, the store manager of a large supermarket and two of his employees recently contracted the virus. He, at the age of 48, is now dead.
New York City this week reported the death of its first child.
Even in the land of the free and the home of the brave, it is, in my opinion, unconscionable to put economic interests above human life.
– David B.
Reading about how people feel regarding COVID-19 is embarrassing! As a grandmother, mother, sister, and HUMAN BEING, I was taught by my Catholic faith to care for others. Oh, never mind. It makes me sick to my stomach to think how many people of independent means don’t care about the poorer in our communities. Absolutely terrible!
– Margaret K.
Another concern among your fellow readers right now is the loss of liberty, as governments around the world award themselves new emergency powers…
You have attempted to educate the masses, but they don’t listen. What may one do to help?
I am not wealthy, nor near comfortable. The effects of what appears to be coming might destroy the freedoms we have enjoyed (but are losing daily) with the people being unaware of the loss until it’s too late.
My children (at this rate) will not recognize what freedom is. All I hope for and work towards is a general wake-up.
– Bernie H.
Hello, I live in Belgium. The insanity is complete. Elderly people living in old folks’ homes are strictly quarantined. They are not allowed to leave their (tiny) rooms. They have to eat, drink, and watch television in their rooms. They are not allowed to see family members. They might have the virus and spread it…
So the older people feel sick from loneliness and boredom… Some don’t understand why their loved ones don’t show up, and feel very worried (as they have dementia)…
Some older people even die because of a lack of personnel to feed them (for example, when they are paralyzed), whereas normally, their partners would come every day to feed them… Really tragic!
And now, police started controlling the people driving on the highways: where they go, whether it is urgent enough. If not, they get penalized €250 to €350 [$270 to $378]…
When you go to a shop, and the police consider you could go closer to your house, you get penalized… When your daughter walks too close to her friend, you get penalized…
But what’s the worst part of it? People start to phone the police when they “suspect” someone is not going by the rules… This is becoming the DDR [Deutsche Demokratische Republik], former East Germany, where nobody could trust anyone… And it has just started…
– Kate R.
First, I want to say THANK YOU to each of your wonderful analysts and writers at The Daily Cut, especially Jeff Brown for his in-depth coverage of the virus.
The virus is obviously real because people are dying (unless that news is being manipulated also). However, the media’s response to the virus has purposefully instilled fear and panic into the general population so they will lay down their freedoms and unknowingly allow government more control over their lives.
I expect to see new regulations coming out of this “pandemic” that will further limit our freedoms.
– Michael P.
Governments make people scared. Scared people become sheep for the government to lead. The wealthier people are, the more options they have. By making the middle class poor, it is easier to control them.
– Frank H.
What’s your view? Are governments taking things too far? Or are the feds’ emergency powers necessary to save lives?
Reach out and share your thoughts at [email protected].
Regards,
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Chris Lowe
April 3, 2020
Dublin, Ireland
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