The Gold & Metals Weekly Navigator (June 14th, 2020)

Weekly Performance Recap

It was a big risk-off week for the market with the S&P 500 down -5% and volatility soaring higher.  The sell off in risk assets was broad based as oil snapped  a 6-week winning streak with WTI down -8% for the week.

The U.S. Federal Reserve on Wednesday stated that it isn’t planning on hiking its benchmark interest rate until 2022 at the earliest because of COVID-19. Additionally, the central bank is projecting GDP to decline by -6.5% this year and unempolyment rate to be 9.3% at year’s end.

Gold rallied on the back of market sell-off, ending the week up +3%; while silver was up 0.5%.  Senior gold equities were up 0.5%, junior gold equities were down -1% and silver equities were flat on the week.

Precious Metals & Equities Performance for June 8th-12th, 2020

Return of Volatility

This week marked the return of volatility, with the CBOE S&P 500 Volatility Index (VIX) spiking 13% on Thursday; pushing through 40% and snapping a sustained downtrend since March 16th, 2020.

We analyzed greater than +10% moves on a weekly basis in the VIX (x-axis) versus the gold price percentage move (y-axis) from 2000 to 2020, the data shows that spikes in the VIX have been positive triggers for the gold price.

The analysis found that 61% of the time the gold price was up during spikes in the VIX. The average move in the gold price during all +10% increases in the VIX was +0.45%.

Greater than +10% Increase in the VIX vs. Percentage Change in the Gold Price (2000 – 2020)

Fear of 2nd Wave of COVID-19 Hits Commodities

On Wednesday, the U.S. hit 2 million confirmed COVID-19 cases, according to Johns Hopkins University.

The graphic below highlights the risks of 2nd wave COVID-19 infections by state, a troubling development that could accelerate after 2 weeks of mass protesting in America.

Gold, copper and silver were the only commodities to escape the week in positive territory, it was a broad based sell off in consumable and industrial commodities.

World is Awash with Bonds

The bond bubble continues to inflate, the value of global bonds has now reached $60 trillion for the first time.

The interest rate on this pile of global debt is also at historically low levels, with Japan and German 10-year government bond yields at 0% and -0.4% respectively.  Over 90% of global government bonds trade at a yield of below 1%.

This is a very constructive backdrop for gold, as the metal benefits from a low opportunity cost versus other investment alternatives.

Silver vs. Silver Mining Stocks

Capital 10X launched the Silver Insights Series, in this week’s edition we examine how silver mining stocks performed in the last silver bull market (August 2010 – April 2011).