Welcome to this week’s Market Wrap Podcast. I'm Mike Gleason.
Wild stock market swings, panic over Ebola, and plunging crude oil prices. Against this volatile backdrop, gold and silver markets are acting remarkably calm.
For the second straight week, gold prices are advancing on safe-haven buying. The yellow metal is up 0.9% for the week as of this Friday morning and currently trades at $1,235 per ounce.
The silver market finished Thursday basically flat for the week. Prices are drifting modestly lower this morning to bring silver to $17.33 an ounce, good for a weekly decline of 0.5%.
Silver traders can’t seem to decide whether to treat silver like a precious metal or an industrial metal. It’s both, of course, as we explained this week in our special bulletin about silver’s broad and growing use in industry.
But silver has been lagging behind gold of late due to concerns about a slowing economy. Those concerns have put severe downward pressure on most commodities, led by crude oil. Oil prices tested $80 per barrel on Wednesday after seeing prices as high as $107 a barrel this summer.
Following the energy market lower over the past few weeks have been platinum and palladium. This week was no exception. Platinum, rallying a bit this morning is down only a fraction of a percent on the week now to trade at $1,261 an ounce. Platinum nearly reached parity with gold yesterday before finding some seperation. Palladium however is down nearly 4% to $756 an ounce as of this Friday morning recording.
So how low can oil prices go? Just about anything is possible during a selling spree on the futures markets. But the fundamental reality is that many of the fracking operations now supplying the U.S. with domestic sources of oil are only viable at prices north of $80 a barrel. If prices dip much further – whether due to a softening economy or OPEC temporarily flooding the market to try to win back market share – our domestic shale oil production boom will be threatened.
Low silver prices are already threatening the few primary silver mines in existence. Their all-in production costs per ounce are higher than the current silver spot price in many cases.
With downward pressure hitting commodities, stocks, and the economy, some are calling for the Federal Reserve to introduce more stimulus. Wednesday’s retail sales figures show consumers are pulling back from spending. The Commerce Department reported retail sales fell 0.3% in September. In addition, we’re seeing weakening consumer confidence numbers, stagnant wages, and persistently low workforce participation rates.
Dallas Federal Reserve President Richard Fisher said in an interview this week, “It’s way too premature to talk about another QE.” Fisher has often expressed contrary opinions, so it’s not clear whether he speaks for the rest of the Fed’s policymakers, especially since he’ll be on his way out at the end of the year.
If things start getting uglier in the economy, it’s just a question of when the Fed will feel compelled to try to come to the rescue. It’s pretty amusing to hear a Fed governor hinting at a new round of Quantitative Easing! After all, over the past year, those clowns at the Fed have made such a big deal about their plans to scale back QE.
As the saying goes, if all you have is a hammer, everything starts to look like a nail. Similarly, if all you have is a printing press, you start to think the solution to every problem is printing money!
The question, then, for investors is: which asset classes will benefit from the Fed backing away from plans to withdraw stimulus? Up until recently it’s been stocks.
Many investors are now piling into bonds. On Wednesday, the yield on the 10-year Treasury note briefly dipped below 2%. Not much value there.
What about precious metals? Well, Jim Rickards, author of the book The Death of Money, thinks gold could be the premiere asset to own going forward.
James Rickards – speaking at the San Antonio Casey Research Summit
If this meltdown comes, that I'm describing, and all these other things start crashing 20, 30, 40% or more, gold is likely to be the thing that's going up 200, 300, 400%. I would expect it to get to $7,000 an ounce or more. Again, some analyses, $10,000 or higher, some even higher than that. That's where I think gold is going to end up. Again, not all at once. Well, that happens, you may be losing over here, but you're making a lot of money over here.
It's a little bit like fire insurance on your house: You don't want your house to burn down, but, heaven forbid, if it does, you're sure glad to have the insurance. When you write that premium check to the insurance company every month, you don't think you're throwing your money away, you think you're doing a smart thing. Get some gold. It's volatile, don't get too upset with the day-to-day price action. Don't get too much, but institutional allocations are at about 1.5%. I'm recommending 10, so it's a long way to go there. People, you need to get a lot more gold.
I would see it chugging along with a lot of volatility, and then we're getting close to the stage where it's just going to gap up, meaning one day it will go up $100 an ounce and that will make a lot of headlines. The next day it will go up another $100 an ounce and that will make headlines and all the talking heads on TV will go, "Oh, it's a bubble. Don't be a fool," et cetera, but then, the next day, boom, it keeps going.
Then what happens is then people wake up and say, "Oh, gee, I'd better get some gold." What they'll find is they can't get it. They'll call the dealer, "Sorry, sold out." They'll go to a coin shop, "Sorry, we're back-ordered." They'll call the mint, "We're not taking new orders." The big guys will get it, the sovereign wealth funds, the central banks, the hedge funds, but every-day investors, you'll actually find that you won't be able to get it at any price.
There might be COMEX price on television, but you won't be able to transact at that price because it won't be around. In that world, the people who have it are holding onto it. The big guys are getting what they need, if they can. The price is going up, and the little guy gets left out. You need to do it today, would be my advice.
Well, the good news is that you can still obtain gold and silver in physical form without having to stand in long lines or pay exorbitant premiums. But if some day a buying panic does cause retail shortages and a spike in premiums, you may be able to sell your coins, rounds, and bars back to Money Metals Exchange or any other large national dealer at prices well above spot. And in such an environment, there’s no telling how high spot prices will go.
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 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.