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G7 Leaders Scramble for 11th Hour Greece Bailout Package
Will Gold and Silver Finally Rebound on Debt and Inflation Concerns?
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Will the final trading day of the month finally give metals markets a spark to break out of their sideways-ranging spring? It’s too early to tell what the long-term significance of today’s trading action will be. Perhaps when trading commences for June next Monday, more of a summer mindset will take hold – and with it more of a decipherable trend.
Meantime, gold and silver prices retreated toward the lower end of their trading ranges ahead of Friday’s key GDP report. Metals markets pulled back for the second straight week as the U.S. dollar rallied for a second consecutive week. The dollar recorded fresh multi-year highs versus the beleaguered Japanese yen. Against a broader basket of foreign currencies, however, the dollar remains below its high mark from March.
As of this Friday morning recording gold prices come in at $1,192 an ounce, down 1.2% on the week. Silver meanwhile trades at $16.80 an ounce, for a weekly loss of 2.1%.
Turning to platinum, the alternative to gold dipped to its biggest discount versus the yellow metal since late 2012. Platinum now trades at $1,120 an ounce after falling 2.5% on the week. Although the near-term momentum remains negative for platinum, some precious metals aficionados are attracted to the superior long-term value proposition. Platinum normally costs more per ounce than gold and almost certainly will again at some point in the future. And like gold, platinum is a hard asset that provides protection against financial disasters.
Speaking of financial disasters, concerns over a potential Greek debt default weighed on markets this week as G7 leaders scrambled to try to come up with an 11th hour bailout package. Greek officials said they remain hopeful an agreement with lenders can be reached by Sunday. If no deal is reached, then Greece will seemingly be left with no option but to default on its debt next week.
Greece isn’t the only nation facing a solvency crisis. In a way, Greece is the least of the world’s debt problems. The Greek economy represents less than 0.4% of world GDP. If Greece goes under, the world economy won’t be mortally wounded.
No, the real risk is that Greece is the first domino to fall in a cascading sovereign debt crisis that spreads from one country to another. Greece is but the smallest of the so-called PIGS countries. The others – Portugal, Italy, and Spain – are larger dominos that could potentially fall. Down the line, the world’s third largest economy, Japan, has a debt to GDP ratio that is as large as Greece’s. The United States isn’t far behind. Total U.S. government debt recently came in at 100% of GDP – which makes it more leveraged than most Third World countries.
Even if the U.S. is capable of shouldering its current debt burden, the problem is that debt isn’t static. It will only get worse over time. Even the optimistic projections by the Congressional Budget Office show trillion dollar deficits returning in the next decade and the debt to GDP ratio accelerating to the upside.
More than $200 trillion in total unfunded liabilities loom for the U.S. taxpayer as of 2015. These obligations can’t be paid in 2015 dollars. It’s mathematically impossible. But that doesn’t necessarily mean default is inevitable. The U.S., unlike Greece, controls its own currency. If the dollars needed to pay the U.S. government’s bills don’t exist, the Treasury Department can always issue more debt and sell it to the Federal Reserve. The Fed simply creates an electronic entry showing the U.S. Treasury has new digital dollars that didn’t exist before. It’s the magic of fiat currency.
It’s a bleak picture and one that has inspired a song by Steve Dore…
“Headed for Disaster" By Steve Dore
The government is libel and out of control,
for millions and billions and trillions and more
The rich get richer, the rest don’t know
Their standard of living’s gonna fall through the floor
You better be ready by making a plan
then trusting what you’re told with your head in the sand
And grow your own food, get ready, get some gold
Build up your bunker before you get too old
We’re headed for disaster, faster and faster
We’re headed for disaster, faster and faster
Billions, trillions, and more…there’s no upper limit to how much the Fed can digitally print. So while default is a very real risk for holders of Greek bonds, the real risk facing holders of U.S. bonds may be that of inflation.
Nobody in the mainstream media is talking about an inflation problem right now. But by the time inflation becomes enough of a problem to command the attention of CNBC, precious metals prices very likely be will be trading at significantly higher levels. Put another way, inflation insurance in the form of hard money will be more expensive. Gold and silver today are cheap relative to the long-term financial disaster protection they provide.
Before we sign off for this week, I want to remind you that you have only a couple of days left now to take advantage of Money Metals’ May special on all fractional gold and silver products. Buy $1,000 or more of any gold or silver item which is less than one ounce in size, and we’ll throw in a free roll of 20 pure copper rounds. Order $3,000 or more of these items, and your order also ships for free!
And just to highlight a couple of the qualifying items in our extensive product lineup, we still have a limited supply of the $10 Liberty coins containing just less than half an ounce of gold. These 100 year old coins can be had at bullion like premiums of about 9% over the melt value.
Also in gold we have two Valcambi CombiBar options to choose from. The 50-gram bar that breaks into 50 individual 1-gram sections, plus the 1-ounce CombiBar that separates into ten 1/10-oz gold pieces.
In terms of the poor man’s gold, the ultimate fractional silver bullion product is our 1/10-ounce Walking Liberty silver round. A tenth of an ounce of silver is nearly 1/20th the value of a single gram of gold. Packaged in tubes of 50, or five ounces, these tenth-ounce Walking Libertys, like all of our other silver rounds are stamped with their weight and purity. We also have a two 1/2-ounce pure silver rounds to choose from, the classic Walking Liberty and the Paul Revere’s Midnight Ride design.
For more information, or to place an order for these or any other products we carry just visit our website at www.MoneyMetals.com -- or give us a call and talk to one of the most knowledgeable precious metals specialists in the entire industry by dialing 1-800-800-1865 during normal business hours. Our team is simply here to guide you and you will never experience pressure of any kind.
Well, that will wrap it up for this week, thanks for listening. Be sure to check back each week in June as we have a fabulous lineup of guest interviews scheduled, including Dr. Pippa Malmgren, David Morgan and David Smith among others. Well 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. Have a great weekend everybody.