Gold News

William Watts with MarketWatch sees the “biggest Inflation scare in 40 years” on its way. He expects massive amounts of stimulus coupled with a boom associated with easing COVID restrictions to generate a surge in prices like the nation hasn’t seen since the late 1970s to early 1980s.

The signs say Watts may be right. Commodities, with the exception of closely managed gold and silver prices, have been screaming higher in recent months. Wheat, corn, lumber, copper, steel, and a host of other key inputs have all spiked higher.

The jump is already being felt in consumer goods and construction, but the bulk of the price hikes may still lie ahead.

Watts’ theory about an imminent move higher in prices looks sound, but his suggestion the surge could be based primarily upon a “data quirk” is nonsense.

Today’s prices are compared to those of a year ago. He suggests inflation would look tamer if prices were compared to pre-pandemic levels.

Watts says prices fell during the pandemic. While futures markets crashed during a brief bout of panic selling, they rebounded quickly.

It’s a mystery how Watts could be finding significant consumer price deflation in the data. There hasn’t been any pullback in the CPI.

Prices continued to rise throughout the past 12 months, even looking at the oft-understated Bureau of Labor Statistics inflation data.

In reality, investors should be positioning themselves for a dramatic and sustained acceleration in price inflation. New record highs in multiple components cannot be written off as a temporary quirk in the data.

Fundamentally, there has perhaps never been such a concerted effort at weakening the dollar. Politicians have begun dropping cash on Americans from helicopters.

The Fed reduced the funds rate to zero more than a year ago. It looks to be only a matter of time before the central bank ratchets up bond purchases and debt monetization.

Somebody has to buy the trillions of dollars in debt being issued to finance record federal deficits. Our wager is on Jerome Powell and the FOMC.

Many expected massive price inflation before now, given the extraordinary easy-money policy in recent decades. But, regardless of the timing, the table has been set.

What lies ahead could make the price inflation of the late 1970s and early 80s look tame.

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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Precious metals markets are struggling to breakout this week. Through Thursday it appeared that a breakout was in place but we’ve seen a bit of pullback here on Friday to throw a bit of water on the breakout idea.

On Thursday, gold prices advanced to their highest level since February, breaking through resistance at the $1,750 level. Spot gold currently checks in at $1,749 an ounce and sports a gain of 0.7% on the week.

Turning to silver, traders are pushing the market up by 0.9% this week to $25.39 an ounce. Platinum is down 1.1% since last Friday’s close to trade at $1,217. And finally, palladium shows a weekly loss of 0.9% to come in at $2,682 per ounce as of this Friday morning recording.

Metals markets were aided by a declining U.S. Dollar Index. After rallying to a five-month high versus other fiat currencies last week, the Greenback slipped while top U.S. officials spouted off on inflation and the economy.

Federal Reserve chairman Jerome Powell and Treasury Secretary Janet Yellen delivered remarks Thursday to their globalist colleagues at the International Monetary Fund and World Bank.

Yellen touted the Biden administration’s multi-trillion-dollar COVID relief and infrastructure plans. She urged other countries to also go big on fiscal spending.

Secretary Yellen is also pushing for globally coordinated tax hikes. If the U.S. raises its corporate tax rate as the Biden administration proposes, then low-tax countries would enjoy a competitive advantage in attracting business and investment inflows.

To prevent this sort of tax competition, Yellen proposes a global minimum corporate tax rate to be set and enforced by global agreements. Any countries that dare to cut their own tax rates would be punished by a cartel of high-tax countries.

Yellen and her globalist allies apparently can’t conceive of the possibility that high taxation itself is detrimental. If all countries adopted higher taxes, they wouldn’t necessarily benefit by discouraging productive work and investment in tandem.

The Biden administration’s aggressive pursuit of tax and spend policies represents something of a repudiation of the Bill Clinton era. By today’s standards, Clinton was essentially a fiscal conservative. He signed balanced budgets, supported welfare reform, and famously declared “the era of big government is over.”

Since then, both Democrats and Republicans have abandoned fiscal discipline. They have increasingly leaned on the Federal Reserve to facilitate their big government spending programs.

It’s no coincidence that President Biden picked a former Fed chair – and longtime colleague of the current Fed chair – to be his Treasury Secretary. The Treasury and the Fed are effectively operating in tandem, even though the central bank is supposed to be an independent organization.

This week Biden insisted that he hasn’t even talked with Fed chairman Powell. But even though he has been less engaged on monetary policy than President Donald Trump was, that doesn’t mean his administration is taking a hands-off approach – not with Janet Yellen in charge of the government’s checkbook.

News Reporter: Have you spoken to the Federal Reserve Chairman, Jay Powell, yet?

President Joe Biden: I have not.

News Reporter: Can you say why? Do you plan to speak to him soon, Sir?

President Joe Biden: I am not … Look, I think The Federal Reserve is an independent operation, and starting off my presidency, I want to be real clear that I’m not going to do the kinds of things that have been done in the last administration: either talking to the Attorney General about who he’s going to prosecute or not prosecute, and under what circumstances; or the Fed telling them what they should and shouldn’t do. Even though that wouldn’t be the basis upon which I’d be talking to them. So I’ve been very fastidious about not talking to them, but I do talk to the Secretary of Treasury.

Thank you all very much.

President Biden can afford to be aloof when it comes to monetary policy. He knows the Fed will accommodate whatever deficit spending he and Congress manage to push through.

The current political and economic forces in play harken back to the late 1970s under Presidents Gerald Ford and Jimmy Carter. It was a period when economic stagnation coupled with inflation to produce stagflation.

Failed big government solutions gave rise to Ronald Reagan, who declared government to be the problem.

Some political pundits see Joe Biden’s presidency likely playing out like Carter’s.

Meanwhile, Americans appear to be growing more concerned about the skyrocketing national debt level – officially $28.1 trillion and counting.

The Peter G. Peterson Foundation’s monthly Fiscal Confidence Index recently shed five points, dropping to a level of 47, in the wake of the Biden Administration’s latest $2 trillion stimulus package.

That $2 trillion bill is simply piled on top of already massive budget deficits.

And it adds furthers to concerns over the country’s currency, the Federal Reserve Note “dollar.”

Federal debt is currently the largest as a percentage of the economy since World War II. Given that no amount of tax hikes will yield enough capital to cover the debt, the nation now finds itself on an unsustainable trajectory towards bankruptcy.

The only viable way for the government to dig itself out of its debt predicament is by leaning on its banker, the Federal Reserve.

The Fed now buys $120 billion in bonds every month, artificially suppresses interest rates, and intentionally targets higher inflation. These maneuvers make issuing and servicing government debt cheaper in real terms.

The national debt went seemingly unnoticed, for years. The consequences of massive overspending are becoming increasingly clear, however. Among them are a weaker dollar and decline in national credibility.

As the U.S. dollar loses value, it could also lose its preeminent spot on the international stage.

Other countries, such as China, continue to move away from the dollar as the global reserve currency of choice by reducing their holdings of U.S. Treasuries, holding larger allocations of other currencies, and establishing bi-lateral trade deals denominated in those other currencies.

The addition of China’s currency, the Yuan, to the IMF’s special drawing rights (SDR) basket also puts increasing pressure on the dollar’s status.

As faith in the greenback erodes, more and more nations will diversify away from it.

As more nations abandon the dollar, more dollars will flow back into the U.S. And as the supply of dollars climbs, the value of the dollar is likely to fall substantially – not just against real goods, but against other depreciating currencies.

A weaker dollar may be good for the government (and other borrowers too), because it makes debt payments more manageable.

But it’s bad for cash savers, consumers, wage earners, and retirees on a fixed income. Currency weakness makes everything more expensive.

As the cost of everyday goods and services goes up, disposable incomes go down.

As disposable incomes decline, so does economic activity. The reluctance to spend by Americans could, in turn, force the U.S. economy back into recession, or even a depression.

Debt-driven dollar weakness could become the ultimate economic driver in the decades ahead. Not only does debt lower the value of the dollar, it can also cause U.S. borrowing rates to rise.

Higher borrowing costs can further dent economic output while also causing a higher likelihood of default. As the cost of loans rises and economic activity declines, the risk of recession or worse also rises in a cycle that fuels ever more Fed “stimulus” (aka currency debasement).

That makes now a good time to diversify into asset classes that can potentially benefit from a weaker dollar.

Regardless of whether you think Biden’s weak dollar policies are good for the economy or the country overall, they could be great for precious metals markets.

Gold and silver prices exploded during the Carter years. Even though we haven’t seen a huge pop in metals thus far in Biden’s presidency, we have seen a massive surge in bullion buying.

If investment demand for gold and silver is a precursor to price movements, then a price explosion could be coming. Bullion dealers haven’t seen anything like this recent wave of buying in years, if ever.

After pulling back from its all-time high at $2,100 last August, gold is basing out and could be gearing up for a fresh, significant leg higher that could see it reach $3,000 or higher within a couple years.

At the same time, investment demand for silver has been outpacing industrial demand in recent months – something which ordinally never happens. These aren’t ordinary times.

Those who insist silver is just an industrial metal with no monetary properties are dead wrong. The fact that silver coins have circulated as money throughout the ages has something to do with why so many people are now turning to silver as a fungible store of value, as an inflation-resistant alternative to paper cash.

The case for sheltering wealth in gold and silver is made every time Joe Biden or Janet Yellen or Jerome Powell open their mouths. Everything they are talking about doing involves more spending, more borrowing, and higher inflation.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.