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Stock Market Volatility Rises as Precious Metals Stabilize
Fed Hints at Low Interest Rates for Longer
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, the run up in the dollar finally ran into a wall of resistance this week. The U.S. Dollar Index turned down, enabling gold and silver prices to post gains even as the stock market took a pounding.
The Dow Jones fell more than 330 points on Thursday, and the flight from stocks drove some safe haven gold buying. Gold showed a slight gain on the day, adding to more significant gains posted earlier in the week. As of Friday morning, gold is up 2.4% for the week to trade at $1,221 per ounce.
Silver also bounced this week off deeply oversold levels. The weekly silver quote is also higher by 2.4% to $17.31 an ounce. The other white metals – platinum and palladium – caught fire from Monday through Wednesday and are holding onto significant gains. Platinum prices now trade at $1,259 an ounce – good for a 2.4% weekly gain. Palladium comes in at $783, up 3.2% since last Friday’s close.
On Tuesday, the International Monetary Fund cut its forecast for global economic growth and warned of "financial excess.” The IMF says financial markets may be under-pricing risk, leaving them vulnerable to “widespread disruption.”
We are certainly starting to see volatility return to equity markets. They experienced their largest daily swings of the year this week. The risk of more downside volatility in the stock market remains. A sell-off of 10% or more is long overdue from a cyclical standpoint, and we aren’t there yet in the Dow.
On the flip side, precious metals markets are overdue for a seasonal rally. These are the times when diversification into physical precious metals pays off.
One of the drivers of price action in both stocks and precious metals was Wednesday’s release of minutes from the Federal Open Market Committee's last meeting. Members of the Committee expressed concern that the U.S. economy could weaken along with slowing economies in Europe and Asia. Some Fed policy makers also expressed displeasure with the recently strengthening U.S. dollar. They worry a stronger dollar will hurt export sectors of the economy and cause inflation expectations to fall.
The Fed aims to engineer a positive inflation rate of around 2% per annum. If that goal is threatened, the Fed will move to depreciate the dollar by any means at its disposal.
The composition of the Federal Reserve’s Board of Governors is set to change in January. Inflation hawks will be out, leaving the Board’s easy money advocates virtually unopposed.
For now, investors are interpreting the Fed officials’ recent comments as meaning the central bank will keep short-term interest rates near zero for a longer period. Investors will look for clearer indications on when rate hikes could come after the FOMC meets on the 28th and 29th of October. The Fed has held its benchmark overnight borrowing rate near zero since December 2008.
Since then, the stock, bond, and mortgage markets have gotten inflated by trillions of dollars. The precious metals markets are tiny by comparison. Of the 26,000 tons of silver mined in a year, silver coin demand accounts for just 2,500 tons. At least as of now. But investment demand is the wild card that can be a game changer for silver prices.
As we reported earlier this week, despite the paper market selloff, physical investment demand for silver has been brisk, including in the ETFs that hold physical silver. It would take only a fraction of a percent of all the wealth parked in paper assets to essentially corner the market for silver.
If such an event were to occur, it would likely be in a panic. It’s happened before in the silver market. Think back to 1980, when the Hunt Brothers infamously tried to corner the market. We’d rather see ordinary investors in larger numbers drive the physical market. That’s part of our mission at Money Metals Exchange – to get more ounces into the hands of more people. And we do that by offering physical bullion products only. No paper derivatives. No graded numismatics or supposedly rare coins.
We also want to apologize in advance if it takes our precious metals specialists a few extra rings to answer your phone call. Of course, you can always order online in seconds, but if you wish to speak to someone at 1-800-800-1865, we guarantee we will get to every call.
With silver prices near $17 right now, Money Metals Exchange has been besieged with orders from customers who are taking no chances about missing this bargain-basement, low-price window.
Money Metals management is in close contact with our mints, refineries, and other precious metals suppliers to ensure a more-than-adequate supply is available for our 30,000+ customers.
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 your depreciating dollar… with speed, with accuracy and with top notch service. Have a great weekend everybody.