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A $10 Trillion Response to the Global Pandemic

This week I was introduced to a board game called Pandemic. In the game, players are up against the clock to find the cure to viral outbreaks and contain them before they spread across the entire globe. What makes Pandemic especially unique is that, unlike most games, it’s cooperative. Players are not opponents, as they are in, say, Monopoly. Instead, they must work as a team to eliminate the viral threat, or die trying. The real-life situation involving COVID-19 is very much the same. Preventing the spread of this disease will require the vigilance and cooperation of everyone on the planet in some capacity or another. While we await treatments and a vaccine to be developed, the most impactful thing people can do is keep their distance from others and, of course, wash their hands. To that

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This week I was introduced to a board game called Pandemic. In the game, players are up against the clock to find the cure to viral outbreaks and contain them before they spread across the entire globe.

What makes Pandemic especially unique is that, unlike most games, it’s cooperative. Players are not opponents, as they are in, say, Monopoly. Instead, they must work as a team to eliminate the viral threat, or die trying.

The real-life situation involving COVID-19 is very much the same. Preventing the spread of this disease will require the vigilance and cooperation of everyone on the planet in some capacity or another. While we await treatments and a vaccine to be developed, the most impactful thing people can do is keep their distance from others and, of course, wash their hands. To that end, California, New York and now Illinois have imposed stay-at-home orders this week, joining a growing number of countries, some of which are fining people and companies that choose not to comply. People entering Australia from abroad right now face up to $11,000 in fines and six months in jail for ignoring a 14-day self-isolation quarantine.

These extreme measures appear to be having great success, particularly in Asian countries. Whereas the number of cases continues to rise in Italy, Spain, Iran and elsewhere, the number has begun to stabilize, if not plateau, in Asian countries.


Synchrony among central banks and finance ministers will also be key in softening the virus’s economic and financialA $10 Trillion Response to the Global Pandemic blow, which by some projections will be unprecedented. Goldman Sachs estimates that the U.S. economy could contract as much as 24 percent—roughly one-fourth—in the second quarter alone.

Such a drop, according to Goldman analysts, “would be nearly two-and-a-half times the size of the largest quarterly decline in the history of the modern GDP statistics.”

Get Ready for Synchronized Monetary and Fiscal Stimulus

As a result, we’re seeing rates being cut to near-zero—at least 38 central banks lowered rates this week alone—while fresh rounds of quantitative easing (QE) are quickly being rolled out. Unheard-of amounts of money are being printed to add liquidity, with more on the way.

On the fiscal side of things, President Donald Trump announced today that the government will be waiving all interest payments on student loans and pushing back the income tax deadline to July 15. This is on top of a $1 trillion stimulus package, which is currently being debated in the Senate.

In a webcast conducted this week by Jeffrey Gundlach, the DoubleLine Capital founder said that he predicts the U.S. deficit will grow from $1 trillion today to $3 trillion on stimulus spending, and that within the next two to three years, total national debt will top a head-spinning $30 trillion.

All of this is to say that combating COVID-19 is not going to come cheap. My guess is that once the dust settles, this global health scare may well have cost us upwards of $10 trillion, potentially making it one of the most expensive crises in human history.

Gold Well-Positioned to Climb to New Record Highs on Unprecedented Volatility

That’s why I believe adding to your gold position is so crucial right now. The yellow metal is trading around $1,490 an ounce, discounted down nearly 13 percent from its 52-week high as investors have liquidated their holdings to cover margin calls and pay upcoming income taxes. The U.S. dollar soared as a result, with the Bloomberg Dollar Spot Index hitting an all-time high on Thursday before pulling back after California Governor Gavin Newsom issued the statewide stay-at-home order.


With the dollar this strong, it’s been an exceptional time to accumulate gold. Real rates are negative in the U.S., which is positive for the yellow metal, so when the dollar pulls back, I expect gold to take off. Unlike the greenback, the metal has been trending up and to the right since the gold bull market started nearly five years ago.

A $10 Trillion Response to the Global Pandemic

Eventually, though, I see gold hitting new all-time highs—possibly surpassing $10,000—on the ballooning monetary base and ballooning debt, not to mention the unmatched fear that’s gripping Wall Street.

This week the CBOE Volatility Index (VIX), known as the “fear gauge,” hit its highest-ever recorded level. The VIX closed at 82.69 on Monday, beating the previous high set in November 2008. Not only was Monday’s close a new record, but it was also the biggest one-day spike in VIX history, jumping almost 25 points in a single session.

A $10 Trillion Response to the Global Pandemic

As further evidence of the deteriorating market sentiment, our proprietary U.S. Global Sentiment Indicator fell to an all-time low on Wednesday. The indicator—which tracks 126 commodities, indices, sectors, currencies and international markets to help monitor volatility and cash flow levels—plunged below 20, indicating that the market is extremely oversold, even more so than it was during the financial crisis.

A $10 Trillion Response to the Global Pandemic

With gold doing well and poised to go higher, I anticipate that gold mining stocks will report strong earnings and cash flow for the first quarter.

The Coronavirus Is the Biggest Threat to Globalization

A final word this week on the virus. An interesting op-ed appeared in the Wall Street Journal yesterday, titled “Coronavirus Vindicates Capitalism,” and in it, the columnist, Kimberley Strassel, argues that the reason the U.S. is faring so much better than other countries in the fight against COVID-19 comes down to the strength of our commitment to capitalism.

“To the extent America is weathering this moment,” Strassel writes, “it is in enormous part thanks to the strength, ingenuity and flexibility of our thriving, competitive capitalist players,” including drugmakers.

I couldn’t agree more. Even as Joe Biden said during his debate with Bernie Sanders, Italy’s single-payer health care system has not appeared to have benefited the Italian people.

Similarly, I think the coronavirus has exposed America’s vulnerabilities related to its supply chain. Globalization has been great at keeping prices low for consumers and saving manufacturers money, but we’re finding out the hard way that it can also result in shortages in essential drugs and medical supplies and equipment, including testing kits. Germany, for instance, has restricted the export of face masks. It’s being reported that China is hinting at withholding certain drugs.

Where this is all leading, I believe, is an even stronger resurgence in economic nationalism. Because of the impact the coronavirus has had on supply chains, we may start to see drugmaking and health care manufacturing return to the U.S. Just this week, the Austin American-Statesman reported that a small medical diagnostics company, Everlywell, will be offering coronavirus home test kits starting Monday.

Everlywell’s exactly the sort of ingenuity, flexibility and competitiveness Kimberley Strassel was referring to in her op-ed. As long as the U.S. remains a free and capitalistic society, challenges such as COVID-19 won’t stand a chance.

If you missed my reflection this week on the bear market, you can read it now by clicking here!  


Gold Market

This week spot gold closed at $1498.65, down $31.18 per ounce, or 2.04 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 0.42 percent. The S&P/TSX Venture Index came in off 8.84 percent. The U.S. Trade-Weighted Dollar rose 3.67 percent as investors sold anything to get their hands on cash, creating a spike in demand for dollars.

Date Event Survey Actual Prior
Mar-17 ZEW Survey Expectations -30.0 -49.5 8.7
Mar-17 ZEW Survey Current Situation -30.0 -43.1 -15.7
Mar-18 Eurozone CPI Core YoY 1.2% 1.2% 1.2%
Mar-18 Housing Starts 1500k 1599k 1624k
Mar-19 Initial Jobless Claims 220k 281k 211k
Mar-24 New Homes Sales 750k 764k
Mar-25 Durable Goods Orders -1.0% -0.2%
Mar-25 Hong Kong Exports YoY -22.7%
Mar-26 GDP Annualized QoQ 2.1% 2.1%
Mar-26 Initial Jobless Claims 775k 281k


  • The best performing metal this week was gold, down just 2.04 percent. BullionStar, a bullion dealer in Singapore, has seen a record number of orders, order revenue and number of visitors to its center over the past month, according to a post on its website and as reported by Bloomberg. “We have managed to replenish a bit of gold on Saturday but it’s very difficult to find any supply anywhere.” A lack of physical gold supply is positive new for buying and a sign that demand is strong. Bloomberg’s Andrew Cinko writes that gold has a love/hate relationship with equity bear markets. At first, havens such as gold are a good bid, but then they are sold to raise cash. This is what happened this week, with investors selling gold to raise cash. Gold traders are also selling out of their futures contracts, which are dragging on gold’s price. Margin calls hit hedge funds on derivative trades and their traders are forced to sell and pony up cash with gold being liquid.
  • On Tuesday, the 10-year Treasury yield surged the most since 1982 and the moves in term premium and real rates were the largest in recorded history. Cornerstone Macro writes that those moves reflect a serious lack of liquidity in the market. UBS’ Joni Teves writes that gold’s correction this week coincides with higher real interest rates and a stronger U.S. dollar and is broadly in line with performance during the 2008 selloff. “Gold is down, but not out.”
  • Dymon Asia Capital Chief Investment Officer Danny Yong said in a Bloomberg TV interview this week that investors should be long gold as the U.S. dollar strength won’t last. Yong added that periods such as now with extreme volatility serves as a reminder that there is still a place for active fund managers. Australia is expected to overtake China as the world’s largest gold producing country in 2021, according to its Department of Industry, Science, Energy and Resources. Australia hopes to produce 383 tons of gold in 2021, due to higher prices. The coronavirus outbreak is likely to reduce China’s production by 2.9 percent in 2020 to 369 tons. Nord Gold SE said that it submitted a proposal to acquire shares in Cardinal Resources Ltd. that it doesn’t already own. Bloomberg reports that the preliminary takeover proposal is an 83 percent premium to Cardinal’s March 13 closing price.


  • The worst performing metal this week was platinum, down 19.63 percent as hedge funds cut their bullish positioning to a 6-month low.  The leveraged loan market fell to levels not seen since the financial crisis, signaling higher default rates and a potential funding crunch ahead, writes Bloomberg’s Lisa Lee. The average price on loans to the riskiest and most-indebted U.S. companies was 84.6 cents on the dollar on Tuesday. In less than two weeks, the amount of distressed debt has doubled to half a trillion dollars. U.S. corporate bonds that yield at least 10 percentage points above Treasuries, as well as loans that trade for less than 80 cents on the dollar, have surged to $533 billion, reports Bloomberg. In another sign that things are trading where they shouldn’t be due to the liquidity crunch is that municipal bonds are twice Treasury yields. Tax-exempt municipal bonds typically return between 80 percent to 90 percent of Treasuries. As of Tuesday, muni bonds were at 1.72 percent.
  • Gold has been under pressure due to a higher U.S. dollar. The dollar has been propped up on concern that there will be a global recession and people want to get their hands on cash now. Silver has been hit especially hard as it is seen as more of an industrial metal, rather than used for jewelry. The white metal, also used in solar panels, is down 28 percent in the last eight trading sessions as of Tuesday, according to Bloomberg data. Norilsk Nickel’s partner on a palladium project in the Artic, Russia Platinum, said that it is ending talks on the joint venture due to its second-largest shareholder, Rusal, not approving the participation.
  • The State Department is halting most visa processing for Mexican guest workers due to the coronavirus pandemic, creating concerns from U.S. farmers who rely on their labor to harvest crops, reports Business Insider. The restriction could threaten farmers’ ability to put food on American tables if there are not enough workers to pick crops. The Bloomberg Mortgage REIT Index fell on Wednesday to the lowest since 1994 amid discussion of the government to aid borrowers and offer payment forgiveness on mortgages.


  • Wayne Gordon, executive director for commodities and foreign exchange at UBS Group AG’s wealth-management unit, told Bloomberg TV that now is the time to buy gold. “When I think about what would I buy in the right here and now, I would be buying gold.” Gordon says that gold prices should appreciate over the next three to six months. One positive for gold miners right now is lower oil prices. Morgan Stanley research shows that a 50 percent drop in the oil price could lower costs of production by 10 percent to 20 percent across commodities.
  • Contrarian investors are starting to smell the opportunity in gold, because its near-term outlook is improving, writes Mark Hulbert for MarketWatch. Eight Capital writes that volatility in the market has created compelling opportunities for gold stocks, particularly miners with strong balance sheets, greater free cash flow certainty and discretionary spending opportunities, reports Bloomberg.
  • An analysis from Baker Steel shows why gold has faltered in the face of the coronavirus and why a recovery is in order. “While the short-term outlook is certainly volatile, we believe gold and gold equities will be substantial beneficiaries of the economic conditions and post-crisis policies which we see beginning to be implemented currently.”


  • JPMorgan writes that market depth has virtually disappeared. Unwinding of risk parity trades was largely accomplished last week but some spillover continues. The trigger event for the unwinding, according to Wall Street strategist David Zervos , was the collapse in the 10- and 30-year yields earlier in the month. Effectively there was no yield on the Treasury curve to keep the risk parity trades alive. Zervos noted “Given that many risk parity folks also hold gold and TIPS as an inflation hedge, the weakness in these two assets can also be explained well by the unwind.” Calculations by Bloomberg show that bond futures positions equivalent to $150 billion in 10-year Treasuries were sold from Friday through Tuesday. Record high volatility has in turn prompted machines to pull liquidity, which triggered a vicious feedback loop of volatility, illiquidity and outflows. However, JPMorgan suggest that in the next 10 days there will be the month-end and quarter-end rebalancing period that should bring significant buying of equities.
  • The Fed is facing a threat that hasn’t been experienced before – a sudden collapse in corporate revenue and household income from a global pandemic. Equity markets are plunging, indicating fear of a global recession, and volatility in the bond market just hit the highest since the financial crisis. U.S. lawmakers are rushing to pass a fiscal package of as much as $1.3 trillion. The U.S. dollar continues to surge, raising speculation that there might be a coordinated effort to weaken the currency. However, currency strategists see little chance that such efforts would succeed, reports Bloomberg. The dollar isn’t surging for any fundamental reasons. It’s only surging due to the liquidity crisis driven by fear of a recession and the desire for cash. Corporate share buybacks will likely come to a halt. Last week, eight major banks stopped the practice and more are expected to follow suit as companies focus more on balance sheets and supporting clients.

A $10 Trillion Response to the Global Pandemic

  • Are Modern Monetary Theory (MMT) supporters about to see it in practice? The idea is that countries with their own central banks don’t need to worry about budget deficits because they can just buy whatever debt the government issues. The U.S. deficit continues to skyrocket, especially after the $1.3 trillion (or more) stimulus package is released. This week the Trump administration floated the idea of a 50-year bond to finance the massive $1.3 trillion package.


Index Summary

  • The major market indices finished sharply down this week. The Dow Jones Industrial Average lost 17.30 percent. The S&P 500 Stock Index fell 14.98 percent, while the Nasdaq Composite fell 12.64 percent. The Russell 2000 small capitalization index lost 16.16 percent this week.
  • The Hang Seng Composite lost 6.23 percent this week; while Taiwan was down 8.83 percent and the KOSPI fell 11.59 percent.
  • The 10-year Treasury bond yield fell 10 basis points to 0.863 percent.

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March 20, 2020

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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