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Weekly Market Wrap

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Betrayal! Politicians' Pact Means Inflation

Speaker Boehner Agrees to Massive Debt, Calls Himself "Conservative"

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Announcer:

Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.

Mike Gleason:

Welcome to this week's market wrap podcast, I'm Mike Gleason.

Well, the precious metals markets ran into some volatility this week as Congress reached a bipartisan budget deal. Silver had notched gains of 4% early in the week, but those gains were all given back on Thursday, when the establishment wings of the Republican and Democratic parties came together to agree on a two-year budget framework.

The deal takes another government shutdown off the table and prevents sequester cuts from kicking in. In short, it keeps the deficit spending going and spares Washington from being under the threat of having to suffer any pain. Congress will continue to avoid making the hard decisions needed to get the federal budget under control and will continue adding to the estimated $200 trillion in long-term federal debts and unfunded obligations.

Republican House Speaker John Boehner hailed this approach as "conservative." And in a press conference this week, Speaker Boehner aggressively pushed back against his Tea Party critics, charging that it is they who lack credibility.

John Boehner:

I'm as conservative as anybody around this place. All the things that we've done over the three years that I've been speaker, have not violated any conservative principle, not once.

New Reporter:

As this year comes to a close, you've had a number of run in's with the; I don't know what you want to call it, the tea-party conservative whatever, wing of your party. You started the year with attempts to challenge your speakership. There's been various times where they've pushed you into areas you clearly didn't want to go.

John Boehner:

Some people step over the line. When you criticize something and you have no idea what you're criticizing, it undermines your credibility.

So apparently, it's back to business as usual in Washington. The establishment wants absolutely nothing more to do with those pesky budget and debt ceiling arguments that the Tea Party insurgents forced Congress to engage in over the past few years.

Now that major budget and debt ceiling showdowns appear to be out of the question, at least until a new Congress is sworn in, safe haven assets such as gold and silver appear to have lost some of their appeal. But does it really make sense to dump gold and silver in this environment?

Consider the alternative scenario. If the Tea Party had the clout in Congress to force dramatic spending cuts and deficit reductions, the case for precious metals as an inflation hedge would actually weaken.

And if the worst-case scenario that the Obama Administration repeatedly warned us about earlier this year – an actual debt default – were to take place, such an event would actually be bullish for the dollar. Dollar-denominated instruments could even evaporate in a deflationary event. All else being equal, the money supply would contract, making remaining dollars more valuable.

But now that all these scenarios are off the table, all political roads lead to more inflation. Congress can be counted on to spend more than it takes in. The Treasury department then issues bonds to cover the difference. And the Federal Reserve creates new currency to buy the bonds to help keep the government's borrowing costs down.

That, in a nutshell, is how federal finances work – deficit spend, then borrow, then print more money to buy the debt.

Federal Reserve officials would be digging their own political graves if they turned off the money spigots to Congress. The Fed meets next week, and some analysts think a modest tapering of its $85 billion a month Quantitative Easing program is possible. But so far the Fed has proven itself to be all bark and no bite when it comes to tapering.

Precious metals prices may get a boost next week from the Fed's announcement. We shall see.

In the meantime, the metals are trading slightly higher on Friday morning as this broadcast is being recorded. Gold trades at $1,233 per – little changed overall on the week. Silver has been oscillating around the $20 level for most of the past three weeks now. Prices rose above $20 earlier in the week, then broke back below $20 on Thursday and currently come in at $19.60 an ounce. The white metal is also flat week over week.

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Well that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for depreciating dollar... with speed, with accuracy and with top notch service. Have a great weekend everybody.

Announcer:

Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.

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