Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, gold and silver prices drifted lower this week as the U.S. dollar strengthened. The Dollar Index broke out to an 11 and a half year high against other fiat currencies on Thursday. And has advanced again this morning. As we’ve noted before, the dollar’s apparent strength is primarily a reflection of euro weakness.
The European Central Bank met on Thursday. Although the ECB didn’t offer up any major policy changes, ECB officials did announce their already planned for quantitative easing program would begin taking effect next Monday. The currency markets didn’t move a whole lot on the announcement, but the euro continued on its path lower, driving inflows into the dollar.
Gold and silver prices have struggled this week, especially today. On Thursday, gold closed slightly below the $1,200 level. As of this Friday morning, gold prices are selling off and are now hovering right around a key support level at $1,175 an ounce, down 3.2% for the week. Silver, which is also getting slammed today, currently trades at $15.88, registering a weekly loss of 4.5%.
Metals markets may continue to face headwinds until something breaks the uptrend in the dollar. The real question is, how much dollar strength will the Federal Reserve Board tolerate? The Fed has created a significant bid in the dollar by telegraphing interest rate hikes to come later this year. But it’s far from clear that the economic data will justify a rate hike.
On Wednesday, Kansas City Fed President Esther George said that the central bank should raise rates by this summer based on strong employment data. Of course, the employment numbers aren’t as strong as some in the media are reporting them to be. The official unemployment rate is more propaganda than reality for the millions of people who are unable to find work but for various reasons aren’t counted as officially unemployed.
Some Fed officials are saying that rate hikes may not be yet warranted at all this year. Chicago Federal Reserve Bank President Charles Evans said this week that the Fed should stand pat until next year. Evans cited "uncomfortably low inflation,” a shaky global economic environment, and risks to the recovery in the U.S. as reasons not to tighten prematurely.
Despite the uncertainties ahead, the stock market is partying like it’s 1999. This week, the Nasdaq composite approached the 5,000 mark, a level last seen in early 2000. Lofty stock market valuations have some analysts concerned that a bubble may be forming. Following the bursting of the technology bubble from 2000 to 2002, precious metals embarked on a new bull market.
But since 2011, gold and silver have behaved erratically. Some say suspiciously. On Tuesday, Barclays Bank reported that it has been providing information to the U.S. Department of Justice as part of an investigation into gold and silver price manipulation. According to the Wall Street Journal, the Justice Department and the Commodity Futures Trading Commission are probing at least 10 banks for possible involvement in rigging precious metals markets.
European regulators have already found that UBS and other banks were complicit in manipulating precious metals prices. For years, U.S. officials resisted taking any action on the problem of precious metals market rigging, despite a number of lawsuits and documentation presented before Congress by watchdog groups such as the Gold Antitrust Action Committee.
Of course, the biggest manipulators of precious metals prices – indeed all asset prices – appear to be the U.S. government and the Federal Reserve. And no investigations are being conducted into these activities through formal channels.
Market manipulation can be ruinous if you’re a short-term trader using leverage. But if you have a long-term perspective and own physical metal, then chicanery by banks, governments, and other large players doesn’t really matter. It doesn’t really matter because paper markets cannot by themselves create new mining supply or destroy demand for physical metal. The supply and demand fundamentals for gold and silver will ultimately drive the major, multi-year price trends.
It’s an economic truth -- artificially low prices create shortages over time. They distort market signals. Investment doesn’t flow into projects to bring out more supply.
Because it takes years and years of investment to find resources and bring them out of the earth, when actual shortages crop up, it’s too late. A buying panic develops, as businesses, investors, and consumers snap up all available supply. The shortage intensifies. Prices shoot up. But the higher prices are slow to bring out new supply.
So don’t worry too much about short-term price movements… owning precious metals is both financial insurance and a long-term investment. In the meantime, if you want to make the paper trading markets less relevant, then don’t play their games. Don’t risk your precious investment capital on futures, options, or exchange-traded instruments. Buy physical metal only, and hold it outside the banking and brokerage systems. That way your metal can never be compromised by bankers or Wall Street traders. You can rest comfortably knowing the gold and silver ounces you own will be beyond the reach of market manipulators.
Speaking of shady people... this week brought news of the second largest gold heist in U.S. history. Robbers jumped two armored truck drivers after they stopped briefly along a North Carolina highway – and made off with nearly $5 million in gold bars. It could have been an inside job.
No one was killed, but the situation is a good reminder of something we’ve talked with you about over time: Buy precious metals to protect your wealth, and then keep your mouth shut to protect your safety.
Well that will do it for this week, thanks for listening. Tune in next Friday for our next weekly Market Wrap Podcast. Until then 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. Thanks and have a great weekend.
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.