March 2020
We keep thinking that someday we can do a newsletter that doesn't have to do with change. However, we have been reminded over the last month that the world is in a state of massive change and it is going to continue for many years. In our January newsletter, we dove into how we are preparing as a company to align with one of those trends - "small is the new big." While we didn't see the coronavirus coming, it certainly does support our thesis.
Thus, this newsletter will touch on what people are now saying about the decentralization of economies around the world, opening opportunities like we have never before experienced.
Enjoy,
The OWNx Team
X-cerpt
Wow, what a change a month can make! We decided not to send a C-19 update and instead focus on maintaining a steady hand in these crazy times. I figured you have received enough messages in your inbox to last a lifetime. We have plenty of room for social distancing and our operations are...well...operating. Much love goes out to those who have been negatively affected by the chaos. Love your family and make the most of the time you have with them.
The gold and silver market now is in many ways similar to when OWNx was started just over ten years ago. As the owner of an investment management company, I was looking for a good method to help clients get physical gold and silver into their portfolios. Because why have the metals if it is not direct ownership of the real thing with no counter-party risk? That’s kind of the point of having a real asset as a cornerstone and form of insurance on digital financial products, right?
After the financial system meltdown of 2008, I found high premiums, high minimum purchases, and low availability of silver coins and bars in any sizes less than 1000 oz. A manufacturing/minting/logistics bottleneck drove up premiums on small items, and it pained me to see people paying much more than they needed to if they could just have access to the metal until the mints caught up. It's exactly why we went to work on a solution. Give people access to the physical ownership of a weight of metal at low premiums and low minimums. They could then have the security of owning the metal at the price they wanted while they waited for the bottleneck to subside and premiums to recede to normal levels. They could then decide on the coins, rounds, or bars they wanted and take delivery of more ounces than they otherwise would have owned. That is exactly what happened. New supply capacity was created and the demand for smaller items was met at normal premiums.
Once again we are seeing another bottleneck. And once again I am seeing people paying crazy premiums and clamoring for specific products with more recklessness than a run for the last roll of toilet paper at Walmart. It doesn't make sense. Right now, the premiums are much higher across the board, but the big bars are still the best value. Lead times are longer for new gold and silver product as well, but unless this is the end of the world, it will be comparable to toilet paper in that you can be safe in expecting that they will continue to make trees into more toilet paper, and they will continue to make big bars of gold and silver into smaller bars, and the crazy premiums will subside. It just takes some logistics to make it happen.
We're going to get through this as families, businesses, and as a nation. When we do, we'll see what the "new normal" looks like.
Until then, be safe.
Jeremy Brakenhoff, CEO
Gold and Silver - avoiding the panic spread.
Nearly every market, from oil to U.S. Treasuries to stocks has fallen victim to a panic selling over coronavirus COVID-19 concerns. What we are seeing now in the gold and silver markets is similar to what happened in 2008/2009. That is, large players sold paper gold and silver contracts in order to become liquid. This temporarily drove the "paper" spot price down.
Meanwhile, demand for gold and silver at the retail level is the highest we've seen in many years. The "spread" between the paper spot price and retail items such as coins and small bars has widened and is still growing. That means those who are paying the increased spread on small retail items end up owning less ounces of what they want - gold and silver - and instead are feeding profits for someone in the supply chain.
One of the main reasons we created the OWNx platform over ten years ago was to help people avoid dumping their money into this "panic spread." You can choose to buy and own physical gold and silver right now in a form that offers the lowest spread on the market, then hold it at the depository until the shortage of smaller items subsides. When that happens (and it will), the spread will fall, enabling you to maximize the ounces that you ultimately take delivery of.
We certainly understand the desire to hold some metal close to home. We're just making it possible to do it the smartest, simplest, and most beneficial way for our clients.
What Do the Charts Say?
As the markets stabilize after the panic liquidation phase, we want to point out two charts. The first one shows key support prices for gold, the first one being in the $1,450 range. The next is in the $1,375 range. Critical support is the uptrend line established from the December 2016 bottom. Selling could stop at any of those lines, however the price of gold bounced nearly exactly off of the first support line. This is a good sign that strong buying has shown up in the market at this time.
The second chart is stunning. It is a chart of the gold to silver ratio. Historically, this ratio has averaged in the 40:1 range, meaning it took 40 ounces of silver to buy 1 ounce of gold. Over the last decade or so, it has hovered in the 80:1 range. It's interesting to note that, in the early 1900s, when gold and silver were still the nation's money, the ratio was fixed around 16:1. Yet here we are today with the ratio making all time highs at well over 120:1. This means that silver is cheaper relative to gold than ever before in history.
We provide these charts and commentary for your information only. It is not a recommendation of when or what to buy. We simply want you to be informed during this very volatile time in the global precious metals markets.
Global Supply Chain Transformation is Here
For well over two years, we've been writing about a mega-trend toward decentralization. Interestingly, high tech financial innovations such as Bitcoin brought out the possibilities of supporting local economies with new financial instruments. The question was, "Just because we can, does it mean we should?"
Now, a virus is helping answer that question with a resounding "Yes!"
An open letter to the Supply Chain Caucus of the U.S. House of Representatives
The global re-evaluation of supply chains is inevitable now. "In light of the undeniable and negative impact that the Novel Coronavirus and COVID-19 have had on supply chains all over the world, the authors call on leaders and professionals in supply chain, innovation, and technology, whether based in the United States or abroad, to unite in helping the recently formed Supply Chain Caucus of the U.S. House of Representatives..."
China's Grip on Supply Chains is a Problem
The novel coronavirus is laying bare a central problem for the global manufacturing industry: China’s shadow has grown so long that even industries that have shifted production beyond the country can’t wriggle free of its grip on supply networks.
Made in China Isn't What it Used to Be
“Had I to do it over again, I would have spent more time looking for contract manufacturers in New England that could do some of the work instead of moving it abroad,” Smith said. This sentiment will forever be in the minds of CEOs of companies large and small around the world.
Suggested Reading
Dirt to Soil: One Family’s Journey into Regenerative Agriculture
This author switched to no-till planting, started planting diverse cover crops mixes, and changed his grazing practices. In so doing, he transformed a degraded farm ecosystem into one full of life—starting with the soil and working his way up, one plant and one animal at a time. We have made multiple contacts with people around the world who are on a similar journey. It is a trend that will take years to gain critical mass. However, its benefits are beginning to be undeniable.
Going Local: Creating Self-Reliant Communities in a Global Age
Written in 1998, this book was a pioneer in seeing the trend of local community sustainability. What they didn't have then was an economic and monetary model to sustain the vision. Those exist today.