Fed to Keep Interest Rates Low, Prop Up Markets?

Gold, Silver Fall to Buy Zone, as Copper and Palladium Surge

Mike Gleason Mike Gleason
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August 22nd, 2014 Comments

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

All eyes are on Jackson Hole, Wyoming, this Friday morning as Federal Reserve chairwoman gives her keynote speech to a gathering of global central bankers. Investors will be looking for potential signposts in Yellen's talk pointing toward when the Fed might start raising rates.

For now, the Fed seems intent on keeping short-term rates at ultra-low levels. A plunge in crude oil over the past few weeks – taking prices back to the mid 90s per barrel – gives the Fed cover to keep stimulating without raising any immediate alarm bells about inflation.

The recent pullback in oil and other commodities has been accompanied by a rise in the U.S. Dollar Index to new highs for the year. Dollar strength, plus a rebound in the stock market, combined to put downward pressure on precious metals prices this week.

Gold led the way down, showing a weekly decline of 2% through Thursday's close. As of this Friday morning recording, the yellow metal is up slightly and currently trades at $1,279 per ounce.

If there's any silver lining to gold's decline, it's that silver prices aren't confirming it. Silver normally moves in the same direction as gold but in an amplified manner. Silver has certainly seen a more severe pullback this summer than gold has. But this week silver showed only a modest 0.7% loss through Thursday's market action. Prices currently trade at $19.47 an ounce.

After declining for now the sixth consecutive week, the silver market has become oversold. It appears due for at least a short-term bounce. Whether an oversold bounce turns into a seasonal rally of greater significance remains to be seen.

But silver is approaching a price zone that has repeatedly attracted buyers. The $18.50 to $19.50 area has acted as a floor for the market over the past couple years as this long, grinding consolidation continues to play out.

Turning to the other metals, palladium backed off from its recent 13-year high. Spot prices briefly touched $900 an ounce on Monday before dipping to as low as $865 on Wednesday. Palladium has since recovered a good part of those midweek losses and currently trades at $887. Its sister metal platinum suffered a decline this week. Platinum, the biggest loser among the four precious metals this week has moved lower by 2.8% since last Friday's close to trade at $1,421 an ounce as of this recording. We expect palladium and platinum to lead the precious metals complex higher, and our predictions over the past year that palladium would outperform continue to be confirmed.

Bucking the trend of lower precious metals and commodity prices this week was copper. The economically sensitive industrial metal shows a weekly gain of about 2%. Copper got a boost Wednesday after the release of minutes from the Federal Open Market Committee's latest meeting. The Fed remarked on an improving employment picture, suggesting the potential for better economic growth in the months ahead.

Even as copper benefited from the Fed's rosier economic outlook, gold prices suffered. Gold is a metal that tends to thrive on bad news. That's why physical gold is essential for investors to hold as a counterweight to other assets. But putting everything into gold based on the expectation that the economy will crash isn't an approach that helps you weather other economic scenarios that could unfold. Diversifying into silver, into the platinum group metals, even into copper will help make you more resilient.

Money Metals currently offers 1-ounce copper bullion rounds as well as bags of copper pennies minted before 1983. As to the pennies, you can purchase those for below their actual melt value. In a worst-case currency collapse scenario, copper prices along with gold and other precious metals prices will skyrocket in nominal terms. And as the barter economy grows, copper may come in handy for making small purchases and avoiding having to overpay.

The smallest junk silver denomination is the pre-1965 dime, which is currently worth $1.50 due to its 90% silver content. The great value of these coins will make you want to buy silver dimes right now. While silver dimes, along with quarters, are must-haves for bartering, there is also a practical need to have money with less intrinsic value per unit. That's where copper comes in.

You don't need to own huge dollar amounts of copper in order to gain a great deal more bartering flexibility and overall economic resilience. Gold and the other precious metals will always be more suitable for piling large amounts of wealth into. But diversification is key to becoming more resilient during the unpredictable times ahead, and that includes diversification into many different sizes and types of metals. Money Metals is pleased to offer our customers everything they need to become fully diversified in metals – from 10-ounce pure gold bars all the way down to the aforementioned copper pennies.

We have lots of experienced investors, but buying and selling physical precious metals sometimes doesn't appear as straightforward to first-timers.

Gold and silver are still out of the mainstream and unfamiliar to most investors. They know brokers who can help buy or sell stocks, rental property, and just about any asset they talk about on CNBC. But bullion somehow seems quite different.

It really isn't. A purchase of physical metal is an investment -- and it should be approached the same way. Do your research, buy, and hold. Sell when you think the time is right. Know that when you wish to buy or sell there is a large market you can instantly access and a roster of reputable firms who can help. Of course, we hope you will choose our company!

Profit and/or preservation of wealth are the purpose of any investment -- including metals. That said, when evaluating whether or not gold and silver can help you achieve your financial objectives, it is vital to understand and incorporate the unique characteristics of physical gold and silver in your decision making.

Physical metal offers maximum privacy, insulation from the financial system and counterparty risk, liquidity, and portability.

On a final note, many prospective investors want to know how and if they will be able to use their coins, rounds, and bars specifically in the event of a major crisis. Food, shelter, and a gun for self defense would be useful, but will folks really be able to buy things with gold and silver? We think the answer is absolutely yes, for reasons we discussed in a column we published earlier this week.

But whether or not the dollar completely breaks down and you end up needing to use your gold and silver as currency, precious metals should perform as well as or better than other investments in a wide variety of crisis scenarios.

Well that will do it for this week, thanks for listening. This has been Mike Gleason withMoney Metalsreminding 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.

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.