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What re-opening success or failure means for metals

As a general rule, the most successful man in life is the man who has the best information

Richard (Rick) Mills, Ahead of the Herd

 

May 22, 2020 (Investorideas.com Newswire) "There is a Chinese curse which says; ‘May he live in interesting times.' Like it or not we live in interesting times. They are times of danger and uncertainty; but they are also more open to the creative energy of men than any other time in history." - President John F. Kennedy, in a speech in Cape Town, South Africa, in 1966.

JFK's "Chinese curse" meme seems appropriate to the coronavirus crisis the world has been struggling through for the past two months. We know covid-19 came from China, and its effects have certainly changed the way we live, work, conduct business and travel. Several people I've talked to comment wryly on how the new normal sure is "interesting".

Editorials are full of predictions about how life will never be the same, now that covid-19 appears to be with us for the long haul.

I offer no comment as to what is coming, but as a smart investor, I want to know how to position myself, and my subscribers, to benefit - what to do to make sure "the trend is your friend".

The way I see it there are two scenarios, each with about a 50% chance of coming to pass. The first is that attempts to re-start shuttered economies are successful, the US and China iron out trade war wrinkles and militarily the pot comes off hard simmer. We know that stock markets are hanging on every word of new treatments and/or vaccines. If enough progress, globally, can be made in lifting restrictions, getting people working again, businesses re-hiring, without resulting in a second wave of cases, we just might get household spending going, business confidence would improve, and economies would return to growth.

Call this the bad-for-gold scenario.

We all know that gold loves a crisis and hates tranquility. A return to some semblance of normal would very likely knock gold back, probably to under $1,700, and suck some of the air out of recently inflated gold stocks.

In the second scenario, things don't return to normal; in fact they get worse. Governments, bowing to pressure from citizens tired of being controlled, and afraid of losing their comparative trade advantages, re-open too soon. They underestimate the power of the coronavirus to come roaring back, which it does, re-infecting populations, triggering new lockdowns, putting the pressure back onto outstretched health care systems and exhausted front-line health workers.

As the country with the most cases and deaths, the United States is most vulnerable to this scenario.

Tensions between China and the US might not ease, they could easily start to boil over. If it happens, and most viruses come back for a second round that is worse than the first - look for gold to go on another run, possibly even testing 2011's $1,900 all-time highs.

Call it the good-for-gold scenario.

In this article we're tallying up the pros and cons of re-opening success or failure, regarding the metals we want to be invested in.

Re-opening failure

Nobody knows how relaxing shelter-in-place orders, allowing more people to gather, and businesses to re-open with social distancing measures in place, will have on the rate of coronavirus spread.

However after a few weeks of several countries trying it, we know there is a high likelihood of the virus returning.

Clusters of new covid-19 cases have appeared in China, South Korea, Germany, Iran and Lebanon.

In northeastern China, over 100 million people could be forced back into lockdown after 34 cases and one death were reported in Jilan province. Although Jilan's 134 cases and two deaths are a small fraction of the 68,134 cases in Hubei province, the epicenter of the outbreak, health officials are taking no chances. According to The Hill, buses and trains are being prevented from entering and leaving the region, and schools have been shut down. In Wuhan, all 11 million inhabitants are being tested after a cluster of new infections appeared five weeks after the city had apparently rid itself of the disease.

In China the virus might also be changing, which would complicate efforts to eradicate it. The Times of India reported Chinese doctors are seeing covid-19 manifesting differently compared to the original cases in Wuhan. Patients in the northeast provinces appear to carry the virus for longer and face lengthy recoveries.

South Korea's success at containing the virus was threatened by hundreds of party-goers who descended upon a neighborhood popular with young South Koreans and foreigners. Last week the country rescinded a go-ahead for bars and clubs to re-open after a spike in cases, just hours after announcing the lifting of previous social distancing restrictions. President Moon Jae-in warned the country on Sunday to "brace for the pandemic's second wave" and called the battle against covid-19 a "prolonged" war, said the Philadelphia Inquirer.

On Tuesday Lebanon became the latest country to reimpose restrictions after a surge in infections.

US states and Canadian provinces just started re-opening, so it's too early to tell whether efforts have been successful or made things worse. The fact that neither country, nor the rest of the world, is opening up in a synchronized manner, will likely impede progress. Manufacturers that rely on materials abroad may be unable to source them, and economists expect people to be slow to resume everyday activities, and spending.

Re-openings that result in boomerang covid cases, and that fail to inspire business and consumer confidence, will add to gold and silver's luster.

Gold and silver offer stability during a period of extreme stock market volatility and low bond yields, and while they do not pay interest or dividends, they are not subject to inflation like paper currencies.

One of the advantages of investing in gold and gold mining stocks is they tend to do well when other assets are tanking.

While steady-as-she-goes blue chips are fine in a regular market, in times of crisis they, like most other large companies whose valuations are based on fundamentals like free cash flow and earnings per share, will see their stock prices and market caps fall.

As no-one needs reminding, this is not a regular market.

While bonds and stocks rallied in April after a horrific March, investors are likely to face more volatility. While some economies are experimenting with limited re-openings, and researchers are racing to develop a vaccine, there remains a great deal of uncertainty in the markets.

For example, the S&P 500 index ticked up in the first 10 days of May, dropped sharply May 11-14, and has since clawed its way back, on May 20 setting a one-month high of 2,947.

Record-low US Treasury yields are another sign of the times, and also reflect interest rates near 0%, with the 10-year Treasury note falling 3.2 basis points Wednesday to 0.679%, and the 2-year note slipping to 0.161%. Despite the 2-year and the 10-year showing negative real rates (the yield minus current core inflation of 1.43%), they continue to be popular among investors chasing yields in a time of widespread market turbulence. High demand for Treasuries boost their prices while causing yields to fall.

As savvy gold investors know, when real Treasury yields turn negative, funds tend to rotate out of stocks and bonds, into gold.

In its monthly commentary, the World Gold Council noted on May 7 that gold has outperformed most other major asset classes this year, up more than 11% in dollar terms.

How were investors choosing to invest in gold? Many of them - against our better judgment, we prefer physical gold or gold stocks to leverage against a rising gold price - bought gold-backed ETFs. According to the WGC April marked the sixth straight month of net inflows, boosting holdings to an all-time high of 3,355 tonnes. Assets under management (AUM) also hit a new peak, US$184 billion, as gold prices moved higher by 5.8%.

Others piled into gold mining stocks.

A reliable trend in gold investing is that major bull rallies in gold stocks tend to be preceded by generalist/ retail investors rushing into the sector.

In a recent interview with Kitco, Frank Holmes, CEO of US Global Investors, says that is exactly what is happening right now.

He cites evidence of historical highs in gold-backed ETF flows, already noted, along with some 600,000 new online trading accounts opened in the past two months, coinciding with coronavirus lockdowns. That seems reasonable and logical. After all, what are millions of people either working from home or thrown out of work, to do with their free time? - retail guys/ gals stuck at home, bored with their routine are trading stocks!

Like all investors, these newbies are looking for opportunities. Many are finding them in gold stocks, including the miners, mid-tiers and juniors.

In fact gold equities have outperformed the S&P 500 during a time when the broad equities indices have been gutted. The VanEck Vectors Gold Miners ETF (GDX), a measure of how gold equities are doing, is up 20.7% year to date, compared to the S&P 500's 8.6% loss over the same period. The juniors are also feeling some love, with GDXJ up 9.7%, YTD.

Holmes attributes this performance disparity on gold miners' superior cash flows.

"This past quarter has been a game changer. We now have gold rally for three years, and we have many big gold producers promoting and telling the story, like Newmont and Barrick, that they have free cash flow," Holmes told Kitco News. (a year ago most gold stocks were returning negative cash flow)

"We're going to see falling cash flow, and no free cash flow [for the broad stock market]. Gold equities, on the other hand, look beautiful," he said.


Although gold is still 10% below all-time highs in US dollars, the World Gold Council said gold in April made record highs in Australian and Canadian dollars, euros, pounds, yen and yuan, and briefly made a new high in Swiss francs during the month.

The council expects gold to continue to do well, given the grim economic growth statistics coming out of the US and Europe during the first quarter - negative 4.8% and negative 14.4%, respectively. We all know the second quarter will be worse, but good for gold. WGC states,

"With the Fed taking interest rates to zero for the foreseeable future, gold could do well as it tends to outperform during easing cycles. Additionally, multi-trillion dollar fiscal stimulus policies to combat the economic impact of covid-19 could prove inflationary – a development that could support gold prices in the long run," the WGC said.

In a column, Sprott Senior Portfolio Manager John Hathaway speculates on whether investors will return to stocks and bonds when the market returns to some semblance of normal. He concludes that equities are unlikely to see a bounce and that (low) bond yields will continue to be impaired by inflation. This leaves major upside for gold, especially considering that gold prices are currently less than 2011's $1,900/oz peak, despite the combined balance sheets of the Fed and the European Central Bank more than double what they were in 2011 ($11.4 trillion vs ~$5.5 trillion):

Despite the solid price gains achieved by gold in the past two years, there is much more upside to come as investors gradually give up on repeated equity market bottom fishing and the hope of a return to financial market normalcy. A full reversal to the previous complacency cannot take place following a brief crash. The mood change will more likely become pervasive after grueling stretches of disappointing returns from previously successful investment strategies.

Looking forward, bonds may no longer be able to play the safe haven role they traditionally filled to balance equity risk. The vacuum could be filled in part by increased gold exposure for all classes of investors. Sovereign credit liquidity injections are likely to remain significant and permanent. The bond market has become socialized. Owning Treasury bonds of any duration could become akin to parking Treasury bills, with little upside and considerable risk of impairment through inflation. Gold is the antidote to the fixed-income investor's dilemma.

Gold is also the logical response to fear.

Heightened global tensions such as terrorist attacks, border skirmishes, coups, protests and pandemics, scare investors into shifting their funds to precious metals.

Nowadays the only people and institutions who own physical gold are central banks and those who distrust the monetary system - people who see gold as a hedge against inflation and want to own it as insurance against some calamity (eg. banking system collapse, war), when getting access to cash is difficult or impossible, and paper currencies plummet in value.

Most people think such an event is so unlikely, they disregard the idea of owning gold or returning to the "barbarous relic", as economist John Maynard Keynes referred to the gold standard in his 1924 book, suggesting gold had outlived its usefulness.

In reality there are many instances in history of how gold came to the rescue of states on the verge of collapse, and a number of frankly terrifying scenarios that could destroy the meaning and value of today's money in a heartbeat.

The trends we identified as affecting gold prior to coronavirus, are still in play, but the worsening economic fall-out has meant their effects are magnified, resulting in even higher gold prices. We are talking about low interest rates, quantitative easing, debt, slowing GDP, declines in manufacturing and retail spending.

First, global GDP is anticipated to slide 3% this year, triple the slowdown in economic activity during the Great Recession.

The forced closure of businesses across the United States, and the sudden surge in unemployment, is expected to contract US GDP by 30%, at an annualized rate in the second quarter, and 5% overall in 2020.

That is huge.

In an earlier article we showed the close relationship between debt-to-GDP ratios and gold:

As the crisis continues to restrict business operations, and people from getting out from their homes and spending money in the economy again, GDP will continue to stagnate.

According to Bloomberg Economics' GDP tracker, we were already in recession in March.

That's the first part of a rising debt-to-GDP ratio - a fall in GDP. The second part is an increase in debt.

It's been estimated that a fresh round of quantitative easing to deal with the covid crisis could increase the central bank's balance sheet from an already-record $4.7 trillion to $9-10 trillion.

The longer stimulus measures continue, including a creeping expansion of the Fed's balance sheet and negative real interest rates (interest rates minus inflation) which are always bullish for gold, we see no reason to doubt that gold will keep climbing.

Gold's fundamentals are also very bullish on the supply side. Gold output peaked in 2018 at 3,503 tonnes, in 2019 it fell to 3,463t - the first annual decline in 10 years. We believe it will continue to drop further, owing to all the reasons I've been writing about: the depletion of the major producers' reserves, the lack of new discoveries to replace them, production problems including lower grades, labor disruptions, protests, etc.

On top of these supply constraints, a lot of gold mines have cut production during the pandemic and some have closed indefinitely. Finally there is the disconnect between gold prices and the physical gold market. Severe restrictions on commercial flights have impacted the supply chain for bullion.

Back to our re-opening failure scenario, imagine that the status quo continues throughout the year. Little progress is made in controlling the spread of coronavirus, the United States continues to grow the number of infections, despite attempts by states at re-opening. Dr. Anthony Fauci's prediction comes true, the country re-opened too soon and is paying the price for it. New lockdowns keep people from working and spending, businesses continue to struggle, bankruptcies pile up. All over the economy supply chains are breaking, due to the inability to deliver "just in time" parts and products. Among the worst-hit sectors are manufacturing, agriculture due to continued lack of demand from restaurants, meat processing - outbreaks are still a problem in slaughterhouses - and retail. Even with masks and plexiglass shields, not a lot of people are shopping.

Gold is loving it. Like ER doctors trying to revive a DOA patient, the Federal Reserve finally gives in and sets interest rates below 0%. Real rates are already negative but now they're worse. US Treasuries look increasingly like bad investments. Why invest in a 2- or 10-year bond that charges you for the privilege of holding it? Desperate to park funds somewhere that won't pick their pocket, many investors turn to gold as the safe haven of last resort.

Re-opening success

Of course nobody in their right mind wishes for a re-opening failure. Whether you are a student, a working-age adult, or a senior, all of us depend on a well-functioning economy, whether it is to complete our schooling, to secure full-time employment that pays for expenses plus allows for retirement savings, or to live out our golden years in relative comfort.

In our second scenario, governments successfully "thread the needle", with enough of them managing to re-open businesses and public facilities without causing the boomerang effect of more covid-19 infections, that economies gradually begin to come back. 

As case curves flatten, people return to malls, fitness centers, and in limited numbers, restaurants. Consumer spending increases.

Workplaces accept employees back, although a lot of positions remain work from home, to the delight of some and the consternation of others. It will take months, maybe years, for the millions that were furloughed or laid off to get back to work, but it's a start. The number of people applying for unemployment insurance in the US and Canada levels off.

It's all good news, but what the global economy really needs is a push - something big that will attract huge amounts of investment, and workers. As we have suggested, this could be a massive infrastructure spending program, on the scale of President Roosevelt's "New Deal".

An extremely large infrastructure program by leading industrial nations such as the United States, which needs to spend around $2 trillion to close its "infrastructure gap", could help to ameliorate the economic impacts of covid-19, which has so far been impervious to monetary easing.

It would also be very good for base metals which, despite a sell-off in March, have actually done not too badly. Copper, nickel and zinc have all seen significant price gains over the past month. 




Recently President Trump took to Twitter to renew his pledge for infrastructure renewal, urging Congress to pass a $2 trillion plan for improving the country's roads, bridges, water systems and broadband Internet:

"With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country." Trump tweeted.

In its 2016 report card, the American Society of Civil Engineers projected the country needed to spend about $450 billion per year to maintain an "adequate" level of infrastructure through 2020. This compares with actual expenditure projections of about $250 billion per year.

The Chinese have been touting their own form of blacktop politics as a way of restoring the economy, particularly manufacturing which has been crushed by coronavirus.

Beijing is eyeing a $570 billion infrastructure build-out, not unlike its stimulus package of 2008, to get the economy back on track.

Among the projects that could receive a huge boost in investment, courtesy of a government rescue package, are a $44.2 billion expansion to Shanghai's urban rail transit system, an intercity railway along the Yangtze River ($34.3B), and eight new metro lines worth $21.7 billion, to be constructed in the virus epicenter city of Wuhan.

Research by the International Copper Association found that China's Belt and Road Initiative (BRI) is likely to increase demand for copper in over 60 Eurasian countries to 6.5 million tonnes by 2027, a 22% increase from 2017 levels.

Upgrading cellular networks from 4G to 5G is expected to result in a vast improvement in Internet service, including nearly 100% network availability, 1,000 times the bandwidth and 10 gigabit-per-second (Gbps) speeds. Even though 5G is wireless, its deployment involves a lot more fiber and copper cable to connect equipment.

A report by Roskill forecasts total copper consumption will exceed 43 million tonnes by 2035, driven by population and GDP growth, urbanization and electricity demand. Electric vehicles and associated charging infrastructure may contribute between 3.1 and 4 million tonnes of net growth by 2035, according to Roskill.

We already know that copper demand is outstripping supply.

Over the next two years, copper supply is expected to be weak in relation to all the strong demand factors we outlined above. In short, the world needs more copper.

The base metal is heading for a supply shortage by the early 2020s; in fact the copper market is already showing signs of tightening - something we at AOTH have covered extensively.

We believe a significant part of a global infrastructure build-out should be "green". There is an undeniable need to move away from energy sources powered by fossil fuels, and replace them with renewable hydro, wind and solar. A key part of the program should be a continued ramping up of vehicle electrification, since the transportation sector is such a large contributor to greenhouse gas emissions.

Electric vehicles contain about four times as much copper as regular vehicles.

Copper is a crucial component for auto-makers because it is a fraction of the cost compared to silver and gold, which also conduct electricity. There is about 80% more copper in a Chevy Bolt compared to a Volkswagen Golf; an electric motor contains over a mile of copper wiring.

Wood Mackenzie states that US utilities have invested nearly $2.3 billion in EV charging infrastructure. The consultancy predicts that by 2030 there will be more than 20 million (residential) charging points consuming over 250% more copper than in 2019.

With each residential charger using about 2 kg of copper, that's 42 million tonnes, or double the current amount of copper mined in one year.

Ideally, we could move right away to electric cars, buses and trains, but that is neither practical nor realistic. At a conservative 40% market penetration of EVs to total vehicles by 2050, we found @ 83 kg of copper per EV, the electric vehicle market would need 39,654,080 tonnes of copper, or 2.2X 2018 global production.

Clearly, we need something to serve as a bridge to widespread electrification, and the answer is, hybrids and palladium.

We are talking here about hybrid electric vehicles (HEVs) and plug-in hybrid vehicles (PHEVs). A plug-in hybrid's battery is recharged either by being plugged into an electrical outlet, or "regenerative braking". The latter charges the battery when the brakes are applied. PHEVs usually go 20 to 50 kilometers before their gasoline engines take over from battery power. The PHEV can be thought of as sitting between a full hybrid (an HEV) and a conventional gas vehicle. Many "EVs" on the market currently are actually PHEVs, including the Chevy Volt, the Hyundai Sonata and the Toyota Prius.

Because a hybrid, obviously, is a mix between a gas vehicle and a battery electric vehicle, it requires a catalytic converter to reduce its air emissions. Autocatalysts are a combination of platinum group element (PGE) metals but for gas-powered vehicles the dominant PGE is palladium.

The combined palladium use in hybrids (HEVs) and plug-in hybrids (PHEVs) this year is expected to be nearly triple that of 2016.

The growing popularity of renewable energy in the United States, at the expense of coal, is another good reason to get behind a green infrastructure buildout.

Employment creation must obviously be a factor in deciding how to restore crippled economies, given the millions of jobs losses from covid-19.

Oxford University economists note that construction jobs for renewable energy installation or retrofitting buildings can't be offshored, and that they are labor-intensive - for every million dollars spent, 7.49 full-time renewable energy jobs are created but only 2.65 jobs in fossil fuels.

The New York Times reported the US is on track to produce more electricity this year from renewable power than coal, for the first time on record. The newspaper states:

The latest report from the Energy Information Administration estimates that America's total coal consumption will fall by nearly one-quarter this year, and coal plants are expected to provide just 19 percent of the nation's electricity, dropping for the first time below both nuclear power and renewable power, a category that includes wind, solar, hydroelectric dams, geothermal and biomass.

Over 50% of silver demand comes from industrial uses like solar panels, electronics, and the automotive industry. The solar power industry currently accounts for 13% of silver's industrial demand. Around 20 grams of silver are required to build a solar panel.

The Silver Institute predicts 100 gigawatts of new solar facilities will be constructed per year between 2018 and 2022, more than double the world's 2017 capacity of 398GW. A recent study by the University of Kent found that rising demand for solar panels is driving up silver prices.

While silver is expected to be in surplus this year, the Silver Institute says the glut will be limited (to 14.7 million ounces, 53% smaller than in 2019), by a number of government shutdowns in top producers Mexico and Peru. As of April 3, silver mine closures had restricted 40% of global production.

Lithium is another metal bound to be in high demand from a global infrastructure program designed to reinvigorate stagnant economies. Lithium demand is mostly driven by the element's use in electric-vehicle batteries, but a new and exciting application is grid-energy storage systems - critical to harnessing wind and solar power and storing it for later use.

While the biggest obstacle to large-scale energy storage is cost, recent analysis by BloombergNEF found that for applications requiring two hours of energy, lithium-ion batteries are beating natural gas peaker plants on price.

In fact lithium ion batteries are expected to be the fastest-growing energy storage technology, accounting for 85% of newly installed storage capacity, and over 28 gigawatts by 2028, according to an analysis by Navigant Research. (there was only 1.4GW in 2017)

The upshot? Total lithium demand of 300,000 tonnes of lithium carbonate equivalent (LCE) is expected to reach over 1 million tonnes by 2025 or higher, states S&P Global Platts Analytics. Current annual supply is around 360,000 tonnes.

While demand has been able to meet supply in the last couple of years due to a number of new lithium mines coming online, particularly hard-rock (spodumene) producers in Australia, obstacles to increasing lithium supply in the "lithium triangle" of Chile, Argentina and Bolivia are mounting. They include social unrest happening in Chile and Argentina, problems with water in the Salar de Atacama, low lithium grades in Argentina, and difficulties processing lithium in Bolivia because the salars are higher in altitude, not as dry, and contain more impurities, magnesium and potassium, than in neighboring Chile, making the extraction process much more complicated, and costly.

Recently the BBC reported protesters clashing with police on the outskirts of the capital, Santiago, amid tensions over food shortage during the covid-19 lockdown. According to the story, the government promised 2.5 million baskets of food but only 2,000 aid packages were delivered. "I understand the deep anguish of millions of Chileans, thousands are starving," Santiago Mayor Felipe Guevara tweeted.

Last October a state of emergency was declared and armed forces mobilized on the streets of Santiago for the first time in nearly 30 years. Chile, the world's largest producer of copper and with the most lithium reserves, is considered among the most stable and business-friendly Latin American nations.

But many Chilean are poor. Chile leads the OECD's 30 wealthiest nations in inequality, followed by Mexico, Turkey and the US. The richest 1% of Chilean society earns one-third of the nation's wealth. Half of the country's workers earn less than 400,000 pesos per month (roughly US$550).

Our final metal, actually, group of metals - required by a global green infrastructure buildout, are rare earth elements.

We are not talking "Green New Deal" schemes costing trillions, espoused by twits and putting governments even deeper in debt, which as we know from a previous article, strangles gross domestic product. No, what we want to see happen is the roll-out of clean and green infrastructure that puts thousands of people to work, restores confidence in heavy industry, while at the same time, cleans up the environment and provides renewed hope for a cleaner, safer, sustainable planet for future generations.

Rare earths are used in dozens of defense and civilian applications including missile guidance systems, permanent magnets, wind turbines and electric vehicle motors.

Since becoming cheaper in the 1990s, neodymium magnets have replaced earlier alnico and ferrite permanent magnets in a number of high-tech applications. Common uses include computer hard disk drives, wind turbine generators, speakers/ headphones, MRI scanners, cordless tool motors, and motors in hybrid and electric vehicles.

The US Military is an important buyer of permanent magnets. Stealth helicopters have neodymium magnets in their noise cancellation technology blades. Aircraft use them in their electric motors and actuators, as will the US Navy's Zumwalt DDG 1000 guided military destroyer (The ship's induction motors generate 58 megawatts of electricity while cruising), hub-mounted electric traction drives and integrated starter generators. Aircraft electrical systems employ samarium cobalt permanent magnets to generate power.

Conclusion

This article has presented two scenarios that could play out with respect to the re-opening of economies after coronavirus lockdowns. In our "good for gold" re-opening failure, we see the demand for precious metals as a safe haven against other asset classes continuing to gather pace. With so much economic activity restricted, amid real and imagined fears of the virus returning, gold shines as a safe haven especially if interest rates turn negative and real yields on US Treasury notes drop even further than they are currently.

In this scenario all the bullish factors for gold are in play, including low interest rates, quantitative easing, debt, slowing GDP, declines in manufacturing and retail spending. Peak gold also plays into this picture. With gold mining already on the decline due to a lack of new discoveries and depleted reserves, we have output reductions happening from coronavirus restrictions and in some cases indefinite closures. It's really the perfect storm for gold, and I wouldn't be surprised to see prices rip past $1,800 this fall, if economic re-starts fail. The United States as both the largest economy and the country worst hit by the coronavirus is clearly the one to watch.

Our second scenario is one in which re-openings succeed, and economies move in the direction of growth. Gold (and silver) would obviously encounter headwinds in this environment. As stock markets recover, investors would see bonds and equities as better places to park their funds, given their ability to book gains and pay dividends, versus gold which pays neither dividends nor yields.

However, an improved global economy would work wonders for base metals like copper, nickel and zinc which depend on industrial production. We advocate a major green infrastructure build-out attracting billions in investments and putting thousands of people back to work in high-paying jobs. This would not only serve to pull the global economy up from its boot-straps, but would also provide the opportunity to make a decisive move away from fossil fuels towards renewable energy and the electrification of the global transportation system - all of which are necessary in addressing global warming, whose negative impacts are already here, and some would say, impossible to stop.

As smart resource investors, we want to be investing in metals, and companies, that are at the leading edge of a trend. At AOTH we see a great green infrastructure spend involving copper, silver, lithium, palladium and rare earths. There are others, of course, but these are the commodities we are focused on.

It is also, in my opinion, a smart strategy to allocate a portion of gold and silver to your investment portfolio, knowing that precious metals can be used as a "fail-safe" currency in the event of a total financial collapse. Until we can say, in a broad sense, that re-openings have succeeded and the coronavirus is beaten, gold is going to continue to do well, and I would therefore strongly suggest holding some physical bullion or investing in one or two quality gold juniors - which historically present the best leverage against a rising gold price.

Richard (Rick) Mills

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