Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up Greg Weldon of Weldon Financial joins me for another tremendous interview where he breaks down the market fallout still ahead of us as a result of the coronavirus, why gold and silver won’t be immune to the selloff that will continue to take place in all markets. Even though it could present a fantastic opportunity for precious metals investors. Don’t miss a must-hear interview with one of our very favorite guests, Greg Weldon, coming up after this week’s market update.
Well, what a tumultuous week it’s been in the markets. Fortunately for investors who have diversified into gold, it’s been a bit less tumultuous than for those who are overexposed to stocks.
Wall Street is suffering its most severe weekly drop – more than 15% as of Friday morning -- since the financial crisis of 2008. By Thursday, panic selling had already set in as the Dow plunged 1,200 points in its worst single day point loss on record, though not its worst day in percentage terms.
Back in October 1987, the stock market crashed by over 20% in a single day. In retrospect, that represented a fantastic buying opportunity. Some fantastic buying opportunities will also emerge from the current carnage. Whether it’s the Dow, or the much more severely beaten up energy sector, or perhaps the much longer-term depressed silver market remains to be seen.
Silver prices have certainly succumbed to selling this week and selling pressure has accelerated here during the last couple of days. The white metal is now down and even 10% since last Friday’s close, dropping nearly $2 an ounce and currently trade at $16.70 per ounce.
Meanwhile, gold prices had traded remarkably steady for most of the week. The monetary metal was virtually unchanged through Thursday’s close, but it is taking it on the chin here today, however. As of this Friday recording, gold shows a weekly decline now of 3.6%, with virtually all of that coming here today, to bring spot prices to $1,586 per ounce.
Gold is faring much better than the gold mining stocks. The HUI gold miners index dropped 7% on Thursday and a good deal further on Friday as no sector of the stock market has provided shelter from the selling spree.
Turning to the platinum group metals, platinum shows a staggering weekly loss of 12% now to trade at $861. And finally, once soaring palladium is now getting absolutely hammered today -- down more than $300 today alone and on the week by 6.3% but still trades at a lofty $2,533, albeit off quite a bit from the $2,800+ price seen as recently as yesterday.
In the near term, market risks are elevated for all asset classes. Expectations are now building for an intervention by the Federal Reserve to prop up Wall Street. It now appears likely the Fed will cut its benchmark rate by at least a quarter point at its next meeting.
In anticipation, the U.S. Dollar Index is starting to trade lower as a result.
Sara Eisen: The dollar is actually weakening for a change. And why? Well, after all the hand wringing about China and Europe and global growth, the U.S. growth picture is now the market's main worry. Also, the odds are spiking for the Federal Reserve to cut interest rates, which would weaken the dollar as well with the bond market now fully expecting it to come by March. And there's another factor at play and that is President Trump. In his coronavirus update to the nation last night, the President took a swipe at the Fed and the strong dollar. Listen.
President Trump: We've been hurt, in my opinion, very badly by our own Federal Reserve who has also created a very strong dollar. That's something nice about a strong dollar, but it makes it much harder to do business outside of this country.
Sara Eisen: And the President has been effective at driving down the dollar with words like that before. He's actually also threatened he may do something about it before, like direct the Treasury to actually step in and weaken the dollar.
We wouldn’t be surprised if the Plunge Protection Team is secretly convening right now to try to put a floor under markets. Fed officials are also likely coordinating with other central bankers around the world to engineer a global monetary response to the coronavirus threat.
In China, authorities have been actively buying up shares of Chinese companies to try to arrest downside momentum.
Of course, none of these sorts of interventions will do much to stimulate real demand in the economy if virus fears keep populations hunkered down.
So far, the outbreak has claimed about 3,000 lives worldwide – at least officially. None in the U.S. By comparison, the Centers for Disease Control estimates that as many as 30,000 Americans will die this flu season from infections – with upwards of 300,000 hospitalized because of the influenza virus.
Although the novel coronavirus has the potential to become a major killer, so far, the biggest threat to the economy right now isn’t the virus itself but the fear it is generating.
We suspect the fear-driven selling currently gripping markets will create tremendous buying opportunities – particularly in those assets hit the hardest. But it’s not yet clear whether this panic liquidation event has run its course, and my podcast guest today indicates that we haven’t seen anything yet… stay tuned for his comments.
But until it does run its course, gold, bonds, and cash can be expected to provide safe haven from volatile capital markets. And silver will be one of those assets with tremendous upside potential once the global economy appears ready to bounce back – or central bankers act with currency-depreciating stimulus.
Well now, without further delay, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome back our good friend, Greg Weldon, CEO and President of Weldon Financial. Greg has decades of market research and trading experience specializing in the metals and commodity markets and even authored a book back in 2016 titled Gold Trading Boot Camp, where he accurately predicted the implosion of the US credit market and urged people to buy gold when it was only $550 an ounce.
He's regularly been making more great calls right here on our podcast over the years and it's great to have him on with us for the first time in 2020.
Greg, thanks as always for your time and welcome back. How are you?
Greg Weldon: I'm great Michael, thanks for the invite as always.
Mike Gleason: Well Greg, there's so much to talk about here, but the Covid-19 virus is dominating headlines, so let's start with that. The equity market shrugged off fears for the most part until the last few days. People are seeing photos of empty store shelves in Italy, and news of more quarantines outside of China.
We are also starting to see the impact on supply chains connected to China. What do you expect the overall impact of the virus will be on markets? Do you think the markets are overreacting or under-reacting at this point… and I should mention we're talking here right around the market close on Wednesday afternoon because maybe things will change a lot between now and when this airs on Friday… but give us your thoughts here Greg.
Greg Weldon: You know, Mike, all humility aside. I was shocked… weeks ago I traveled to Vancouver to speak at the World Outlook Conference on February 7th and I was a little skittish about traveling. Vancouver is a city where you've got a lot of Chinese back and forth, and I stocked up on a whole bunch of frozen food and dry foods before I left thinking by the time I get back, you could be looking at a different story.
Shocked that the markets took so long to respond to this story; this was clearly different from the beginning than MERS, SARS, all these other fancy names you want to throw at these things, simply because when you're talking about 14 to 21 day period of incubation, when you're talking about the slowness that... even though people want to give China credit for reacting quickly, they didn't.
This started in the middle of December for crying out loud. So, understanding that we've been lulled to sleep by these stories and with some of the statistics that are in fact a reality, which is that the flu kills tens of thousands of people every year anyway, so why should we get all excited about something that's killed a couple of hundred?
The fact of the matter was this is airborne, easily transmitted, 14 to 21 day period. You saw this coming if you have any kind of foresight; and so, to me we were on top of this, we were pouncing on the short side of global stock indexes, really caught this move big, along the bond market too, long gold.
We'll talk about gold in a second, but from here, I think the markets have finally woken up to... This is going to have a dramatic impact on the economy. It's not about the pandemic itself and it's a pandemic already; it has been for a while, it means basically multiple countries. That's the definition. So, this thing has been a pandemic and when it hit Korea, that was the wakeup call.
So, Italy now too, it's going to hit the U.S., to think that this thing is not going to be a story in the next 10 days in the United States is shortsighted and naive, all right? So, this has a lot more leg yet to go. I don't think it's end of days type of stuff, let's not get overblown on the actual virus.
It's not like 50 million people are going to die, it's not the bubonic plague. Having said that, quarantines of millions of people have only one impact on the economy and that is negative, clearly. We have not at all adjusted for that, the economies in Asia and in the U.S. and in Europe, were already slowing down.
German real GDP had already gone negative in the fourth quarter. So, this only exacerbates and throws a spotlight on what was already happening. It intensifies it, brings the whole dynamic forward in time; and to me, you kind of look at what's going on the U.S. bond market, clearly with the 10-year yield at record lows and 25 basis points below the effective Fed funds rate, which by the way is rising.
As soon as the Fed said we're dropping 20 billion of daily liquidity add, you spiked the effective Fed funds rate, which is the cash rate that trades in New York. So that aside, the yield curve inversion, I mean this has recession written all over it. Japan, already in a recession, Germany, real economy already in a recession. So, how deep does it go? I think stock markets have a lot more downside and I think something critical has happened to gold in the last 36 hours and that is, it's gone from a boon to the upside because now you're looking at stimulating various currencies.
But this was a story that was already manifesting, Thailand, Singapore, New Zealand, these countries are cutting rates and targeting their currencies because the economies are slowing, and this is really pre-virus. At this point, it's not about the monetary dynamic as much for gold; and that's a negative. You have huge speculative long positions in gold. That's a negative, more than at the 2011 peak. So I think you have a situation here, it looks a lot like early stage of the 2008-2009 crash when everything went down. And that's the risk to gold here, that it could go down in line with stock markets, which in my mind still have some significant downside before they have fully discounted the degree to which we already can project the economy declining, let alone if you start to get millions of people quarantined in the U.S.
Mike Gleason: Kind of leads me right into my next question here, if by chance the virus outbreak is the pin which pops the bubbles, we've seen developing in the equity markets, we wonder what investors might expect in precious metals. In 2008 as you alluded to, we saw commodities and metals get whacked hard just before that crisis broke into the headlines and in the immediate aftermath. But metals recovered quickly and wound up making new highs as investors moved from selling just about everything they could to searching for safe havens. Perhaps we will see a similar reaction when the next crisis strikes, but there are some differences between now and 2008. Metals are relatively cheap, especially silver, and at least in our view, the biggest bubbles are in bonds and the U.S. dollar. If those bubbles pop, everything will be different this time around, to say the least. What is your take on how well markets are positioned for a crisis and what investors might expect to see next time panic strikes Wall Street?
Greg Weldon: Well, I think you handicapped it pretty well there, frankly. There are a lot of differences clearly, but there's vulnerabilities here just in the simple fact that everyone's long gold right now. You have a big speculative, long position; the Commitment of Traders report is very clear on this. We did a special on this last week. The way I can now start to kind of see this playing out, Mike, is you have further downside in equities when this thing hits the U.S. It's going to be a free for all and that's going to be negative for gold, you're going to wipe out the stale longs, the people who got in at the top, either on, let's not forget you had a big juice in the market and a whole bunch of new longs in the market when you had this little Iranian-Iraqi missile U.S. bombing crisis. That didn't turn into a crisis.
Those people that had some opportunities to bail out more recently, now at a profit, but you've had these huge long positions. So, if you get a situation again that this thing hits the U.S., stock markets go for a big dump. Gold goes with it. You clear out the length, you get to the point where you start to see light at the end of the tunnel on this virus.
Maybe let's say, late April, maybe early May. You've had the big plunge in stocks, you've had the response in gold to the downside. You've wiped out a good part of the speculative length, then you start to assess the damage in the economies; then you start to talk about the monetary applications to try and boost the economies. That's going to be a major buying opportunity in the precious metals. I agree with you, silver is more insulated. You don't have as much of a long position, that's why we have chosen it in this most recent round to get long. We got stopped out here today actually, but I can see a scenario where you set up at some point in the mid to later second quarter with a tremendous buying opportunity at what could be significantly lower price levels.
Mike Gleason: The gold to silver ratio is over 90 to one again, what will it take to get silver going? It's just so range bound and I think a lot of it personally has to do with the fact that it has both monetary demand driving it and then also industrial demand and it seems like it gets put in conflict with itself and maybe that's part of the reason it's had a hard time getting much going. Give us more thoughts on poor man's gold here, Greg. What's it going to take to get silver to break out of this years’ long trading range?
Greg Weldon: Gosh, the way you say it, it's funny. I don't know why I just thought of this, but I almost don't want to call it silver. You want to call it Sybil, if you remember that great novel, it was a movie back in the 60s or 70s, Sybil. Multi personalities, I mean, silver has multiple personalities; it has the industrial supply demand as a commodity, like copper dynamic, versus it's monetary (demand)... poor man's goal, like you said. They are in constant conflict and you will see that silver really accelerated in the last time that this gold/silver ratio was at a 27 year high, almost 94 (to 1) for crying out loud. We chose silver because it all of a sudden, the Fed, that's when silver took off is when the Fed came back into play.
When the Fed eased off the whole liquidity dynamic, when the Fed backtracked a little bit and then started to cut rates. I mean that was when you had the move in silver because it became a bigger monetary picture and that that monetary picture would potentially provide relief to the negative industrial based metal angle. I see it the same way here, where silver could be very vulnerable here and despite the fact the gold/silver ratio is high, it could go higher and despite the fact that silver doesn't have the speculative length gold does, it could just get whacked because it will respond the same way the stock market will to the potential hit to the economy. When you clear that dust and you get to what our central banks going to do about this, that's when silver will shine again and I think it's kind of this cat and mouse game that's always taking place. It's one of the more frustrating, yet fascinating things to watch in the precious metals complex is this cat and mouse game with silver between its multiple personalities
Mike Gleason: Kind of hitting on the Fed there, there's been some rumors over the past few days that we may see the Fed come out and not only cut rates in response to the virus and the economic slowdown here, but some have said it may not just be the normal 25 basis point cut, but maybe they go 50 or 100 basis point reduction in the Fed funds rate. Do you give any credence to that? Talk about your expectations on Fed policy and then also what that might mean for inflation.
Greg Weldon: Wasn't it just a couple of years ago some of the White House people were suggesting 50 and all of a sudden now there was this expectation for maybe 50? Not happening man. With only 150 basis points of ammunition here; the Fed is not going to waste one third of that in one fell swoop, I don't think. I'm not saying it can't happen; I'm saying it's a very low probability outcome to me. They will want to milk it because that's the way they have to do it with the level of ammunition they have here. The argument that would support that, that makes the most sense is, one we've made multiple times is the fed is the central banker to the world now, given that the BOJ is paralyzed, given that the ECB is paralyzed. So that would bode for the people that believe they could cut 50, that would be their argument.
It's not the argument most of them make, but it's the one they should make to have credibility. I just don't think the Fed’s going to do that, I think the Powell Fed is very deliberate, very steady as she goes. Again, it could happen depending on how severe the situation is, if you have 200 million people in lockdown in the U.S., yeah, that could absolutely happen, man. You could start to get really crazy then. Depending on how bad it gets, you have to adjust your opinion as we go here and the situation is so fluid. I mean it changes every day, this is one of the things that just struck me as odd too. And the human psychology is amazing when you think about it. If you look back to two weeks ago when there was a day that we had 2,000 cases in China yesterday, well we only have 1,400 today and the markets went nuts to the upside.
The next day it's like 2,500 new cases and the market's crapped out. This is kind of how it's going to continue to be for a while until you get signs of light that the thing has spread as far as it's going to spread and killed as many people as it's going to kill. That day will come, that day is not close. So trying to judge what the depths of the hit to the economy are, we're not going to know that for a while. So I think that mandates that the Fed takes a much more cautious approach unless it's a real worst case scenario, in which case they'll do whatever they have to do.
Mike Gleason: Yeah. More volatility ahead in the markets is what I'm hearing you say there, and totally agree until we see this play out. Well, speaking of volatility, palladium and especially rhodium have been incredible performers. My goodness, rhodium has nearly quadrupled in the past year and it's now well above its high of $10,000 last seen about two decades ago. Talk about these two markets, Greg, if you have any comments, what's going on there?
Greg Weldon: Well I mean on a day like today where you see platinum has just gotten wasted this week and palladium, was actually rally today, like pretty good rally, $2,660 I guess it's at now. I don't have any real insights into that, to be honest with you. These markets are in a place, in a universe of their own; they are among the most rare elements in the universe. So, this is what can happen at any time with some of these markets, and that includes gold and silver, frankly. I think it's something of a precursor to what could come in these markets, even though you can't make a direct relationship between those two things. What's driving palladium and rhodium? We know it's a supply/demand dynamic, but this is a market that’s not very deep, it’s pretty thin. And gosh, I don't know. I mean, Mike, I can't really give you any kind of brilliant comments on what's going on in those two metals. I just can't.
Mike Gleason: Definitely makes you scratch your head. I guess one thing you can say about it that once a commodity reaches a new high, who knows how high it goes. We’re in unchartered territory at this point and obviously it can get a lot higher. We’ve never seen prices like this before so there are no resistance zones because we’ve never been here before.
Well, lastly Greg, as we close here, any final thoughts you want to share with our listeners today about anything else that's going on that you're going to be watching in the coming weeks that investors ought to be thinking about?
Greg Weldon: Well, to me it's just kind of managing positions here and we're short equities and we are long bonds and that is the way to be right now and I think currencies are going to be tough to play. I think the metals are in for some correction, I think you have some energy play to the downside. One of the spots that we really picked up on too, this year that has been a boon to us, is solar. So that's interesting, it's kind of taken off already and some of the stocks that we recommend in solar are like four-fold up already. It's been unbelievable, that is the function too, a kind of bigger picture trend in energy. Here I'll give you a new trade idea that we're looking at. We haven't quite implemented it yet, but we're awfully close.
Long gasoline, short crude oil. Why? Because when you have disinvestment going on in energy in general, that means refinery capacity, which doesn't expand much to begin with, even more of a story in that infrastructure capacity is going to be hit here and that’s going to get hit quicker, faster and deeper than the advances in green energy.
So, when you get university endowment saying we're going to disinvest from all our energy companies and you see ExxonMobil break a 50-year upturn line, that's some serious stuff. Then you see solar breakout and solar has been flirting with breakouts for years now. This one's for real, so I think there's a lot of big picture themes that you can see within some of the changes, again, that are all kind of linked back to the same thing where you're getting upheaval in a lot of places. Energy is one of them. I don't know how many of your people are even into the energy markets, but this is something that's affecting all markets and you can see it tangibly already in energy, particularly when you look at solar and when you look at stuff like ExxonMobil.
Mike Gleason: Energy is obviously a huge driver of the global economy and solar, you talk about solar, lots of need for silver in solar. So we'll be watching that. Well, great stuff as usual Greg. Thanks, as always, and before we sign off, please tell people about Weldon Financial and how they can follow you more closely and anything else that they need to know about you, your firm, or your offerings.
Greg Weldon: Sure, we run three different tangents of the business. We have Weldon Live, which is more of an institutional, a higher priced product that is every day covering all the sectors… fixed income, foreign exchange, stock indexes, globally precious metals, industrial metals, energy, ags, opportunities on all of these things all the time. I really feel it benefits anyone to be active in all of these markets today. It's not just what stock do I buy anymore and especially going forward, that's going to be a losing proposition more and more. People call it, I call it, the research that pays for itself because we give you trading recommendations over 21 years. Every year, you follow recommendations, you more than pay for the research. I mean already this year in 2020 in two months, you would have paid for five years’ worth of research, minimum, following our recommendations. So, it's not really a cost, it's an investment.
Then we have Gold-Guru and that is precious metals intensive. It's just a quick video of me every day. And then we do a weekly chart pack, breaks it all down. And it is very inexpensive. So, we offer that to any of your listeners who want to go in and check that out. We do money management too, where I'm a CTA, we run managed accounts programs that are transparent and not commingled. And it's just me here, Mike, it's Greg Weldon. It's not like Goldman Sachs. So the best thing we can do is be transparent and be above board and be beyond reproach. So, those are the three businesses, Gold-Guru or WeldonOnline.com for the Weldon Live or for our money management programs.
Mike Gleason: Well, excellent stuff. Thanks again, Greg. Always enjoy speaking with you, hope you have a wonderful weekend and can't wait to catch up with you again before long, should be an interesting year. Until then, take care my friend.
Greg Weldon: Thank you too, and if I might just throw in one more time too, if people just, for free, you can go to my YouTube channel, which is Gregory Weldon and thank you Mike, you too. I'm sure we'll be speaking again soon.
Mike Gleason: Excellent. Yeah, thanks Greg. Well that will do it for this week. Thanks again to Greg Weldon of Weldon Financial. For more information simply to go to either WeldonOnline.com where you can sign up for a free trial if you haven't already had one of those, and then be sure to check out Gold Investor Bootcamp and now the new site, Gold-Guru. Be sure to check all those out.
About the Author:
Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.