Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.
Volatility returned to financial markets this week. After creeping higher week after week all summer long, the Dow Jones Industrials dropped more than 300 points on Thursday. The magnitude of the move caught many investors off guard.
Yet as we noted on this program just last week, the quiet, gradually rising equity markets of late aren't a new and permanent normal. Low volatility doesn't persist forever, even in markets supported by the Fed. Investor complacency has been running high, which is typically what we see at market peaks. It's too early to tell whether stocks have just hit a bump on the road or whether this is the beginning of a bear market.
But this is certainly a time for investors to make sure they are sufficiently diversified, especially into the under-owned asset class of physical precious metals. The metals may succumb to selling pressure on any given big drawdown in stocks. That's what happened yesterday. Gold fell by 1% and silver lost 1.1%. – less severe than the declines seen in the major stock market averages. Today, both metals are rebounding.
Over the course of a longer-duration downturn in stocks, precious metals are likely to outperform. They did so during the late 1970s, the tech stock bust of 2000 to 2002, and the financial crisis of 2008. In fact, gold finished 2008 with a positive gain.
Gold is quietly outperforming the stock market in 2014. Through yesterday's close, the Dow is now up less than 1% for the year. It's gone virtually nowhere since January 1st. This, despite all the headlines and commentary the financial media has put out most of the year about stocks going higher. On the flip side, gold has been mostly ignored or derided in the media. Even holders of gold have been frustrated that the yellow metal hasn't been able to rally with vigor and hold above major breakout levels.
Bearish expectations still rule the gold market, while bullish expectations still permeate the stock market. So it may come as a surprise that while the Dow is up less than 1% for the year, gold prices are up 7%. And that's after the recent pullback we've seen. All the precious metals are in positive territory for the year, led by palladium with a gain of better than 22%.
The metals can't seem to get any respect. But from a contrarian standpoint, the fact that the mainstream isn't paying attention to precious metals is a good thing. These bombed out sentiment conditions are the stuff market bottoms are made of. Gold and silver prices just need to finally break through some stubborn upside resistance levels to confirm a major trend change.
The opportunity for that looms as we enter the seasonally favorable period for gold. There is also potential for volatility in financial markets to increase as we head into the fall. The world is coming unglued in some ways – defaults on sovereign bonds in Argentina and probably elsewhere to come, turmoil in Iraq, inflamed Arab opposition to Israel and U.S. financial support of its military, and new rounds of sanctions imposed by the Obama administration on a defiant nuclear-armed Russia.
Closer to home, the Federal Reserve is expected to announce the end of Quantitative Easing later this year. Fed-dependent financial markets could start going through withdrawals and gyrating more sharply in response.
Wednesday's Federal Open Market Committee announcement trimmed another $10 billion off the Fed's monthly asset purchases and kept short-term rates near zero as expected. The Fed also noted a slight uptick in its preferred measure of inflation to 1.6% and indicated inflation is now close to its target of 2%. This week's subject-to-revision GDP release may also give the Fed some impetus to become less stimulative. According to the government, GDP in the second quarter rebounded to 4% growth.
Investors this week took good news in the economy to be bad news for asset values. Gold prices look lower by 1% for the week and currently trade at $1,295 an ounce. Silver comes in at $20.49, lower by 1.3% compared to last Friday's close. Platinum and palladium also show weekly declines of just around 1 to 1.5%.
You can turn these losses into your gain by obtaining more ounces of bullion while it's available at discount prices. Money Metals stands ready to help you choose the right bullion for your budget and objectives whenever you are ready to give us a call or place an order directly on our website.
Before we go today, we have decided to issue an alert about the growing problem of unscrupulous companies selling “Ripoff Gold” and “Ripoff Silver” to the general public. Ripoff Gold and Ripoff Silver include so-called “Proof” and “First Strike” coins and other so-called collectibles encased in plastic slabs. These coins are usually only worth their melt value, yet they are typically sold for 50%, 100%, or even higher prices above the spot price.
We're seeing more and more internet and television ads out there from companies offering free investor kits and precious metals IRA kits. They usually require you to provide a phone number. If you do, you can expect to be hit with a campaign of phone calls from a high-pressure salesman selling Ripoff Gold and Ripoff Silver. If anyone attempts to sell you a so-called rare and “proof” coin, we respectfully suggest you hang up the phone immediately. We have seen too many customers get ripped off by the rare and proof coin scam.
Proof Gold Eagles are also a form of Ripoff Gold. And Proof Silver Eagles are a form of Ripoff Silver. Please don't let anyone sell you a “proof” Eagle, they are generally worth no more than a standard bullion Eagle, yet they cost much more. When you go to sell, you'll be paid little more than their melt value.
The Proof American Eagle scam is particularly insidious, because it's the only form of Ripoff Gold and Ripoff Silver that the IRS allows to be held in a standard precious metals IRA. That's why unscrupulous dealers try to get owners of Precious Metal IRA accounts to purchase Proof Eagle coins – rather than encouraging them to invest in the other forms of bullion coins, bars, and rounds that can be held in IRAs.
There is lots of great content on Money Metals's website about the tactics that these shady and opportunistic dealers use to sell Ripoff Gold and Ripoff Silver which we encourage you to read carefully. Go to the Resources tab and look under Buying Guides. The rule of thumb is to look at the melt value of what you're buying and don't buy items that are priced tens or hundreds of percentage points higher. Paying sky-high premiums for precious metals is pouring your hard-earned money down a rat hole.
Well that will do it for this week's Market Wrap Podcast, 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.
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.