Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
As financial markets gyrated this week, Federal Reserve chairman Jerome Powell touted the U.S. dollar as a form of “sound money.” More on that incredible take in a moment.
But first, let’s review this week’s market action.
Inflation fears helped drive another spike in long-term bond yields, and by Thursday that began to spook Wall Street. The Treasury market is now off to one of its roughest starts to a year on record. As a result, calls are mounting for the Fed to up its bond purchases.
A steepening yield curve is helping to depress precious metals prices. Rising real interest rates tend to be negative for the gold market.
But with short-term rates remaining locked near zero and inflation pressures rising, the case for rising real rates as a major trend remains tenuous at best. If central bankers begin deploying yield curve control measures to bring down long-term bond yields, that could serve as a catalyst for the next up-leg in gold and silver.
Gold prices currently come in at $1,736 an ounce and are posting a weekly decline of 3.2%. Silver, is also down by the same 3.2% mark since last Friday’s close to trade at $26.67. It was showing a slight weekly gain through Thursday but is selling off pretty hard here today.
Turning to the PGMs, platinum is cooling off – down and even $100 or 7.8% on the week to come in at $1,188. The thinly traded rhodium market spiked to over $26,000 an ounce. Hard to believe rhodium prices traded under $1,000 just four years ago. And finally, palladium currently commands $2,356 per ounce price after falling 2.6% in this week’s trading.
In other alternative asset markets, Bitcoin prices plunged more than 25%. The cryptocurrency had been gaining increasingly widespread adoption by some large corporations and financial institutions. At the same time, Bitcoin has come under increasing scrutiny by regulators and central bankers.
Treasury Secretary Janet Yellen recently derided cryptocurrencies for supposedly facilitating illegal activity. Yellen along with some members of Congress are threatening to crack down on crypto markets.
Meanwhile, Fed chairman Powell along with other central bankers and the International Monetary Fund are vowing to roll out official digital currencies in the near future. As the globalist Great Reset agenda proceeds, a more globally coordinated, centralized currency regime may be coming – one that seeks to eliminate free-market digital currencies as well as paper cash.
Powell told Congress on Tuesday that developing a digital currency is a “high priority project” for the Fed. But he admitted there are still significant technical and legal issues that need to be worked out.
For now, he continues to cheerlead for higher inflation while at the same time insisting the U.S. dollar’s value is stable and everyone should have confidence in holding it. In an exchange with Republican Congressman Warren Davidson, Powell laughably claimed that depreciating Federal Reserve notes are “sound money”:
Warren Davidson: What would you say constitutes sound money?
Jerome Powell: Well, the public has confidence in the currency, which they do, which the world does. That’s really what it comes down to that people believe that the United States currency is perfectly reliable and stable in value.
Warren Davidson: Is it diluted as a store of value when M2 goes up by more than 25% in one year. Does the printing of more U.S. dollars somehow diminish the value of the dollars that others hold?
Jerome Powell: There was a time when monetary aggregates were important determinants of inflation and that has not been the case for a long time. So, you’ll see, if you look back, the correlation between movements in different aggregates, you mentioned M2 and inflation is just very, very low. And you see that now where inflation is at 1.4% for this year.
Surging food, energy, housing, and healthcare costs this year would suggest that real-world inflation is running at a much higher rate than 1.4%. But even that rate of currency depreciation means that long-term savers of dollars are guaranteed to lose significant purchasing power as that rate of depreciation compounds.
That is a far cry from sound money. A truly sound currency would be backed by more than mere expressions of confidence. It would be backed by something solid, timeless, and universally recognized. It would retain value over years, decades, and centuries – not depreciate at an arbitrarily prescribed pace.
Physical precious metals are the basis of sound money. Although in theory a currency could attain soundness through other mechanisms, only gold and silver have a consistent historical track record worldwide of serving as the ultimate money.
The era of unbacked fiat money may be heading toward a ruinous end. The M2 money supply has been exploding over the past several months. Even as Powell expresses nonchalance at the prospect of an inflation problem, the risks of spiraling adverse consequences to all his money printing are growing.
It’s true that the rate of money supply growth doesn’t necessarily cause corresponding price increases in the economy immediately. Cash can sit on the sidelines or be cycled through financial markets without generating any noticeable uptick in conventional inflation gauges.
And as long as inflation expectations remain well “anchored” as Fed head Powell often puts it, money velocity tends to be slow. But when business owners and consumers begin to worry about higher costs ahead, they tend to accelerate their spending. That in turn causes price levels to rise more rapidly and inflation expectations to no longer be anchored at the Fed’s desired rate.
An inflationary spiral that develops slowly at first does not mean that inflation is therefore contained. As long as the currency supply isn’t contained, then neither is inflation risk.
There is at all times a limited supply of physical precious metals. Although supply and demand dynamics will cause price fluctuations, what makes gold and silver sound investments is that they retain intrinsic value regardless of inflation rates or other threats particular to paper and digital assets.
As for what we are seeing in the retail markets right now, demand continues to be unrelenting. More Americans are clearly waking up to the investment merits of silver – and taking action.
There is some indication that silver buyers have begun to focus more on the physical metal and less on Wall Street’s paper silver instruments.
That’s a good thing.
While other precious metals dealers continue to struggle with inventory issues and massive shipping delays, Money Metals is operating at FULL TILT and remains relatively flush with silver coins, bars, and rounds for immediate purchase – at least for now.
To be fair, the overwhelming public demand for silver over the past month has put unprecedented pressure on dealers, mints, and refineries. No question about it.
And even though Money Metals has been able to meet the silver demand so far – there’s no guarantee our rapid re-stocking of inventory will continue to go so well.
As always, keep your eye on your email inbox for updates on this situation – and other market developments.
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.