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Will Shortages in the Economy Extend to Precious Metals?

For the first time in most Americans’ lifetimes, they are having to navigate chronic shortages. From bare shelves at discount stores to contract labor being unavailable, the supply of goods and services is seemingly unable to keep up with demand.

Examples continue to mount:

  • A shortage of bicycles and component parts is expected to persist through 2022.
  • Used and new cars are in such short supply that “fair value” pricing is impossible for buyers to negotiate.
  • Nike warned in a recent earnings call that production and delivery shortfalls would persist through at least next spring.
  • Disposable medical gloves are so difficult to come by that used ones are being superficially cleaned and repackaged for export in substandard facilities in Thailand.
  • The American Society of Health-System Pharmacists lists 192 drugs in short supply.
  • Hotels are curtailing basic services such as housekeeping due to staffing shortages.
  • Businesses and home-office workers are struggling to obtain desks, chairs, and paper.

Biden administration officials blame shipping container backlogs for driving supply chain disruptions.

Shortage

But something bigger is bigger is to blame. Widespread shortages are a symptom of central planning gone awry.

Shortages are a feature of socialist economies, which inherently lack the ability to respond to changing supply and demand dynamics. In a properly functioning market economy, price signals cause supply to respond quickly to fluctuations in demand.

Those crucial price signals have been distorted, and nearly obliterated in many cases, by massive interventions into the economy by the government and Federal Reserve.

Record numbers of people are effectively being paid not to work. No wonder there’s a “labor shortage” – and calls by large corporations to import more low-wage immigrant labor.

At the same time, the Fed is artificially suppressing interest rates. That has the effect of artificially stimulating asset market speculation as well as consumer demand – and exacerbating inflation.

While the Fed insists that recent high inflation readings are “transitory” and that long-term inflation expectations remain “anchored” at 2%, investors can’t afford to take central planners’ word for it.

We must all be prepared to navigate unpredictable and erratic markets amid the potential for rising inflation risk.

If investor psychology begins to shift toward inflation protection and hunkering down financially, the bullion market could quickly see demand overwhelm supply. Shortages of retail gold and silver products would mean premium spikes and possible carryover into surging spot prices as well.

Over the past couple years, the perpetually dysfunctional U.S. Mint – a government bureaucracy – has consistently failed to produce adequate quantities of its gold and silver American Eagle coins. Demand continues to strain available inventories.

After selling around 15 million Silver Eagles in 2019, demand for the coins more than doubled in 2020. This year is on track to exceed that total, with 27 million Silver Eagles sold so far in 2021.

Demand for Gold Eagles has also soared since last year. After selling only 108,000 in 2019, the U.S. Mint got hit with 747,000 orders in 2020. And it has already sold 928,000 of its iconic gold coins in 2021 year to date.

Scarcity of Eagles along with other bullion products is keeping premiums elevated.

Many of Money Metals’ poorly capitalized competitors are struggling with long delays in order fulfillment and delivery. (Caveat emptor.)

Money Metals Exchange is operating with only minor delays on a few items. But the day may come when some types of bullion products are fully sold out and unavailable anywhere.

The good news is that those who hold hard-to-get precious metals will be in the driver’s seat. They can choose to sell whenever they believe prices, including potential buyback premiums over spot, are high enough.

If government-induced inflation and supply disruptions continue to get worse, chances are today’s bullion prices will look low compared to where they’re headed.


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