Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, let’s get right to this week’s news. On Wednesday, Russian President Vladimir Putin visited China to seal a $400 billion natural gas export deal with the energy-hungry nation. The agreement will give Russia an outlet for bypassing sanctions imposed by the U.S. It will also give both Russia and China greater independence from the U.S. dollar, as the two powers move to increase trade in their own national currencies.
We’ve reported on this developing situation in recent market updates, and its significance should NOT be underestimated. It’s becoming more and more dangerous for our country’s leaders to use financial weaponry to pressure other nations. An anti-dollar axis is slowly but surely forming, as rising nations look for ways to conduct trade without using the dollar-based global payments system which the U.S. controls.
But news of Putin’s natural gas deal didn’t move markets much, perhaps because it was widely anticipated and already factored in. The U.S. Dollar Index shows a small gain for the week.
Meanwhile, the gold and silver markets remain remarkably quiet. In fact, they have not been more quiet in years when looking at measures of volatility and trading volumes in futures contracts and exchange-traded funds. Trading activity in the leading silver paper price-tracking ETF is down an incredible 97% from its peak in 2011.
So, what does this all mean? It means that speculators have been almost completely washed out of the silver market. When speculators were exiting the precious metals markets from late 2011 through 2013, they provided a drag on prices. Even though demand for physical silver set records in 2013, there remained more overhead supply in the derivative markets to be unloaded.
But today, it’s difficult to see where more liquidation will come from. The ETFs have already been hollowed out. Meanwhile, industry needs silver now more than ever. Holders of physical bullion aren’t about to let go of their holdings at these levels. And any attempts to drive spot prices lower from here would be met with resistance from the people who actually dig silver out of the ground. Most miners can’t stay in business for long if they have to sell their product for less than it costs them to produce it. But that’s what many mines will be facing if silver prices go any lower. And some are actually facing this already with silver in the $19s.
It’s the realities of the physical market that will ultimately determine the spot price handle. And it is precious metals in bullion form, obtained near spot prices, that is the only pure play on the fundamentals of the physical market. Putting aside the problem of counterparty risk, there is no guarantee that ETFs or futures contracts will perform as expected in a bull market for physical precious metals. And as financial assets, they certainly offer none of the other benefits of tangible wealth.
Of course, not all forms of tangible wealth are practical to hold. And some may be priced well above their actual intrinsic value. A prime example is overpriced numismatic coins that may not even be rare at all. They are largely speculations on the direction of collectible premiums, not pure plays on physical precious metals.
Smart investors who diversify into precious metals for wealth protection look to accumulate as many ounces as they can. That means buying when markets are depressed and insisting on low-premium product. Successful investor and best-selling author Robert Kiyosaki (of “Rich Dad, Poor Dad” fame) explained how he personally approaches buying bullion in a recent interview with GoldSeek Radio:
I wouldn't touch rare coins because that's what you call a loss leader. They'll buy gold. You see Pat Boone advertising “buy gold and silver”, but when you call up, they're going to sell you a St Gaudens or whatever it is, something you have no idea of its true value. But that's where they make their money. They don't make their money with you buying gold and silver coins ... I mean spot price is $20, they're going to make about 2 bucks.
I understand they have to stay in business, and they're going to try and sell you a rare coin. I understand that, but if you don't know what a rare coin is, don't buy it. I don't buy diamonds, because I can't tell a diamond from glass. The reason I love regular [things], like Krugerrands, Maple Leafs and Eagles, is there's a daily market for [them]. It's called Spot. You know what it is that day. You don't have to go and guess and negotiate and wonder. It's worldwide.
Well, as previously indicated, the metals markets remain in something of a spring slumber. Gold continues oscillating around the $1,300 level. In fact, this is the ninth straight week that spot prices have seen ticks both above and below $1,300 per ounce during the week. Gold’s narrow trading range has been capped at around $1,320 per ounce. A solid weekly close above that would suggest an upside breakout in progress. As of this recording, prices sit at $1,292, down just a couple of bucks for the week. Turning to silver, it’s essentially unchanged as well and trades at $19.42 an ounce.
The only precious metal that is trending higher right now is palladium. Prices for the scarce metal have advanced almost another 2% this week. At $832 per ounce, palladium is now only about $20 away from its 2011 high of $855. We’ll be watching that level closely as well key levels for gold and silver in the days ahead.
Well, before we sign off, we want to remind you that you only have a few short hours left to take advantage of our weekly special on 1-ounce silver rounds. Many of you have already snatched up these popular products at the reduced premium of only $1.17 over spot, regardless of how many you buy. And orders of 100 ounces or more get the added benefit of free shipping & insurance. Our newly released Buffalo silver round, modeled after the old Buffalo nickel, has been a real favorite so far. But you can also get our iconic Walking Liberty or Don’t Tread on Me designs on these same advantageous terms.
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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 the most value for your depreciating dollar… with speed, with accuracy and with top notch service. Have a great Memorial Day weekend everybody.
About the Author:
Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.