Precious Metals Seek Footing as Global Turmoil Rises

Fed Chair says stock valuations "substantially stretched..."

Mike Gleason Mike Gleason
New Radio Release
July 18th, 2014 Comments

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

The world is waking up this morning to the prospect of a broadening war after a passenger jet was apparently downed by a missile strike near the Ukrainian/Russian border earlier this week. News of the incident on Thursday sent the Russian stock market tumbling by more than 7%, while crude oil and precious metals moved to the upside.

After suffering losses earlier in the week, the gold spot price rallied off support at its 50-day moving average, gaining about $19 on Thursday but gave back a portion of that on Friday to close the week at $1,311 per ounce. Gold ended the week in negative territory, down about 2.1% week over week.

Similar price action is being displayed in the silver market. It gained 1.8% on Thursday but gave almost all of it back on Friday to close the week with a 2.6% loss, with prices coming in at $20.90 an ounce.

Turning to the other white metals, platinum shows a modest loss for the week, as it closed on Friday at $1,492 an ounce. Meanwhile, palladium continues to exhibit strong momentum, with prices notching a new 13-year high this week. Palladium closed Friday at $883 an ounce, a weekly gain of nearly 1.5%.

Palladium supplies have been under pressure this year due to strikes in South Africa and rising geopolitical tensions between Russia and the West. Those tensions could intensify if it's found that Russia played a role in the Malaysian Airlines plane crash that killed nearly 300 people.

Russia and South Africa are the two primary sources of world palladium supplies. If palladium availability gets squeezed, then automakers and other industrial users may be forced to switch to platinum. Platinum currently trades at its smallest premium to palladium since 2002. Platinum's premium over gold is also relatively low compared to where it's been in recent history. From mid 2000 to mid 2008, platinum traded at double the gold price on average. At present platinum is only 14% pricier than gold.

Value-oriented contrarian investors should definitely consider adding some platinum to their holdings while this market remains quiet and off the radar for most investors. Money Metalsoffers platinum bullion bars and coins from the Australian, Canadian, and U.S. Mints. Supplies of 1-ounce American Platinum Eagles are scarce, as they weren't minted at all from the years 2008 through 2013. But at present we are able to offer Platinum Eagles for reasonable premiums. However, with demand waning for the newly released 2014 Platinum Eagles, it wouldn't be a surprise if the U.S. Mint ceased production of this coin before year's end.

Of course, silver is much more affordable on an actual cost-per-ounce basis and is the most popular metal withMoney Metalscustomers. Silver also appears to have more upside potential in percentage terms than all the higher-priced metals.

As long as the Federal Reserve persists in keeping interest rates artificially low, the monetary environment for all of the precious metals will remain favorable. Fed chair Janet Yellen delivered the central bank's semi-annual report to Congress this week. Yellen indicated that the economic recovery still isn't satisfactory, which means accommodative monetary policy will continue to be pursued.

The Fed seems focused on trying to stimulate job growth and unmoved to try to prevent excesses in the housing and stock markets from building. And yet Yellen this week went on record stating that “valuation metrics in some sectors do appear substantially stretched.”

You may recall that former Fed head Alan Greenspan coined the term "irrational exuberance” in late 1996, warning of the potential for investors to bid up stocks to unreasonable valuations. But Chairman Greenspan didn't heed his own warning. He proceeded to help inflate the housing market to irrationally exuberant extremes, which precipitated a financial crisis.

The question now before investors is, what will Janet Yellen do about “substantially stretched” stock valuations? Will she rein in the Fed's substantially stretched balance sheet in order to remove liquidity from financial markets? Probably not – at least until inflation rates are running much higher and force the Fed to burst the bubble.

The Fed has a dual mandate of full employment and price stability, but it considers price stability to mean an inflation rate of around 2% using the government's understated figures. Yellen and company have expressed the view that they don't yet think inflation is high enough. So they will keep stimulating.

That doesn't necessarily mean the stock market will keep going up. If the economy worsens, investors may rotate out of stocks and into safe haven assets that aren't substantially stretched. For those seeking positive real returns in an environment of ongoing Fed stimulus, gold and silver are in the top tier of alternatives to overpriced stocks.

Also, before we go, don't forget about Money Metals ‘s July special on all fractional gold and silver products. Buy $1,000 or more of any gold or silver product which is less than one ounce in size, and we'll throw in a free roll of 20 pure copper rounds. Order $5,000 or more, and your order also ships for free!

And on that note we have a good supply of qualifying fractional products in stock, including a new shipment of the pre-1933 $10 Liberty gold coins. And as we've mentioned before you will never hear us offering these historic products unless we can get them at bullion prices, and you can grab these “jewelry grade” coins for only 8 to 9% over the gold melt value. That's less than a lot of modern-day fractionals – such as the 1/4 oz Gold American Eagle. The $10 Liberty, minted between 1849 to 1907 has just less than ½ an ounce of gold content. We do also have some of the $20 St. Gaudens coins as well. Its gold content is just less than a full ounce or .9675 ounces.

These historic U.S. coins are likely to go quickly, so check out our website to see pricing or order online 24 hours a day, 7 days a week.

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

Mike Gleason

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.