By Gayl Mileszko
All That Glitters is Not Gold
When the world looks to be going someplace in a handbasket, we get very defensive and our survival instincts kick in. We rush to stock up on essentials like water, food and medicine, then hunker down in a safe place with radios, flashlights, and those we love and need to protect. Preppers who see doomsday on the horizon take this to an extreme. But the pandemic forced most of us to adapt to conditions of calamity. Now we cannot help but see disasters imminent behind every headline: illegal border crossings, the trillion dollars of debt we incur every 100 days, reported plans for nuclear weapons in space, theft rings running rampant in cities, violent campus protests, the bird flu outbreak. Popular big box stores like Costco have seized upon some of our panicked sentiment by offering emergency food buckets, survival kits with generators and first aid supplies, and gold bullion.
Striking Gold at Costco
Bars of gold were first sold at Costco’s warehouse club last August and sales are reported to total $100 million to $200 million a month with inventory disappearing more quickly than its mega rolls of toilet paper and giant tubs of Nutella. Members worried about the next looming disaster and questioning the value of fiat money issued by nations drowning in debt, are looking to have something portable, something to store in a safe rather than a bank. Member online purchases are limited to five of the one-ounce bars. They are made of nearly pure 24 karat gold and are said to sell for about 2% above the spot price. At this writing, the spot price is $2,360 an ounce, up more than 45% since November 2022.
Gold Standard
Demand for gold has increased with inflation, fears over the deteriorating fiscal situation in the U.S., and geopolitical conflict. These factors have also led many into the cryptocurrency markets. But gold has long been the most popular hedge against instability. For some 50 years, it was the international standard economic unit, the monetary system linking the values of each country’s currency. President Nixon finally ended the convertibility of the dollar to gold in 1971 in an effort to curb inflation. But it is still a major holding of central banks, most of which strongly oppose any effort to return to a gold standard as it would severely limit their ability to print money and use the kinds of complex monetary tools that have been concocted since the 2008 recession.
Gold Fever
Gold has been a source of fascination for us for thousands of years. Appetite waxes and wanes for this precious metal, whether in the form of bars, nuggets, coins or jewelry. As it does not pay interest, it tends to drop in value when higher interest rates on other safe assets like U.S. Treasury, corporate, and municipal bonds lure investors away. But that has not been the case this year in part due to heavy demand from individuals, other nations and central banks that appear to be stockpiling or hoarding it, perhaps to reduce reliance on U.S. securities. The World Gold Council trade organization reported that worldwide demand for bars and coins grew by 36% between 2019 and 2023. U.S. Customs data show that China imported 194 metric tons of gold in March alone. The People’s Bank of China bought more gold than any other central bank in the world last year, using foreign currencies to add more to its reserves than it has had in nearly 50 years. And Chinese consumers who have lost confidence in real estate and stock markets are scooping up small, affordable gold “bean’s at $87 apiece like there is no tomorrow”, according to the New York Times, citing “jade in prosperous time, gold in troubled times.”
Worth Their Weight in Gold: Charter Schools
Investors interested in gold can purchase it in physical form from jewelers or gold dealers or buy a gold-focused mutual fund or ETF without taking physical ownership and having to safeguard it. There are also individual gold mining stocks, and gold futures contracts. And, of course, there are also plenty of investments that are “worth their weight in gold” and one of those is a child’s education. This week is National Charter Schools Week and we salute the 7,800 charter schools and 200,000 teachers who are raising standards and outcomes in our communities. This year’s theme is “Raise Your Voice” and we at HJ Sims are happy to join with advocates nationwide in recognizing all the changemakers making a difference in the lives of young Americans — those with the vision, the builders, the educators, the administrators, board members and advisers. Kudos also go to all those who help to raise funds for these individual public schools and systems. We are particularly proud of the roles that we have had in financing 17 charter schools in the past two years, in California, Arizona, North Carolina, Florida, Texas, Georgia, Ohio, Louisiana and Colorado.
Gold Plated Bonds
Last week, the Clifton Higher Education Finance Corporation brought a $204.6 million state-guaranteed municipal bond transaction for Idea Public Schools. The golden AAA rated term bonds due in 2054 were priced at 4.00% to yield 4.30%. Among other shiny new charter school deals, the North East Carolina Preparatory School in Tarboro came to market with $28.6 million of Baa3 rated bonds issued through the Public Finance Authority of Wisconsin. The final maturity in 2054 was priced with a coupon of 5.25% to yield 5.27%. Independence Classical Academy in Fort Pierce sold $16.3 million of non-rated revenue bonds through the Capital Trust Authority of Florida, and its 2061 term bonds were priced at 7.25% to yield 7.40%. In the private school sector, the California Municipal Finance Authority issued $32 million of non-rated bonds for St. Mary’s School in Aliso Viejo and the term bonds in 2059 came with a 5.875% coupon priced to yield 5.65%.
Market Movers This Week
This week’s municipal bond calendar is expected to exceed $12 billion. Borrowers in the market are facing announcements on two sets of key inflation data: the producer price index and consumer price index. We also have releases on retail sales, housing starts and the leading indicators. The Treasury has eight auctions scheduled, including one for the 20-year bond. Federal Reserve Chairman Powell is in Amsterdam and his remarks on inflation and rates will be followed by traders around the world. Global headlines on Rafah, the Arab League Summit, the travels of the Chinese premier, actions of the newly re-elected Russian president, and are also part of this week’s market backdrop.
Golden Opportunities
At this writing, markets are largely ignoring 30-year mortgage rates over 7% for four weeks in a row, and consumer sentiment at a 6-month low. Despite the nearly unanimous “higher for longer” cant coming from Fed officials, futures traders are still anticipating quarter-point rate cuts in September and December. The S&P 500 index has gained 4.2% so far in May, and is up about 10% year to date. This month, oil prices have fallen 4.8% to $78.02 a barrel. Gold at $2,354 is up 2.6% and Bitcoin at $61,384 is 1.8% higher. In the bond market, Treasury index returns are down 2.16% in 2024. The 2-year Treasury yield at 4.81% has fallen 22 basis points in May; the 10-year at 4.43% is down 24 basis points; and the 30-year yield at 4.58% has dropped 20 basis points. In line with Treasuries, the 10-year BAA Corporate bond index at 6.13% is down 23 basis points this month. Municipal bonds, with heavier supply than usual these past few weeks, are underperforming their taxable counterparts but have strengthened nonetheless. The 2-year AAA general obligation benchmark yield at 3.07% is down 15 basis points. The 10-year at 2.73% has dropped 8 basis points, and the 30-year at 3.77% has fallen 19 basis points. Investment grade municipal bonds are still in the red this year; indices are down about 0.41%. But high yield munis are up 3%, outperforming corporate and mortgage bond indices as well as convertible bonds. This is a great time to reach out to your HJ Sims representative to learn how to add select higher yielding municipal bonds, whether below investment grade or non-rated, to your portfolio.
Gold Medals
Back in 1962 when gold was priced at $35.35 an ounce, President John F. Kennedy proclaimed May 15 as Peace Officers Memorial Day and the week in which it falls as Police Week. Law enforcement officers from around the country are gathering in Washington D.C. along with surviving family members to honor those fallen in the line of duty, including the 118 lost last year. Tens of thousands are expected to participate in remembrance events including the annual candlelight vigil, the roll call of heroes, and the honor guard standing watch over the Memorial Wreaths commemorating our 24,067 fallen officers. We at HJ Sims join with all those paying tribute this week to the men and women of law enforcement who made the ultimate sacrifice, and honoring all those who put their lives on the line every day to serve and protect our communities.