Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, as expected, Janet Yellen and company passed on the opportunity to raise rates. At its Wednesday meeting, the Federal Open Market Committee left benchmark interest rates unchanged near zero. Facing the realities of a still sluggish job market and deteriorating economic data on some fronts, Fed chair Yellen said the Fed would wait until the numbers showed a more sustainable recovery.
As long as official inflation rates remain below target, the Fed won’t perceive any urgent need to hike. But after months of preparing markets for rate hikes this year, the Fed’s credibility is at stake. Fed officials would like to see jobs numbers and inflation rates tick up in order to give them cover. They may well get their wish, at least on the inflation front.
Some signs are emerging of price increases making their way through the economy. Gasoline prices rose sharply this spring. Meanwhile, data from the Labor Department show the Consumer Price Index rose 0.4% in the month of May. That’s the largest monthly jump in the CPI since February 2013.
If the U.S. dollar continues to weaken, prices for commodities in terms of dollars can be expected to rise. The U.S. Dollar Index fell following the Fed’s announcement Wednesday. That helped give a boost to gold and silver markets.
Gold closed Thursday slightly above $1,200 an ounce, while silver cleared the $16 level on Wednesday. As of this Friday recording, gold trades at $1,203 good for a weekly gain of 1.8%. Silver prices currently come in at $16.19, up 1.2% on the week.
Platinum and palladium, on the other hand, broke lower toward new lows for the year. That has to be concerning to precious metals bulls. Are the platinum group metals pointing lower for the entire precious metals complex? Or will gold and silver break out to lead a precious metals rally? We won’t know until gold and silver prices break decisively through their months-long sideways price channels one way or the other.
Low silver prices are leading to a large supply deficit in the making. Spot silver and base metal prices below production costs threaten to hamper mining output for some time to come. Meanwhile, global demand is on the rise, especially out of India. According to a recent report by metals analyst Steve St. Angelo of the SRSRocco Report, India imported 25% of world mined silver last year. This year India is on course to consume about 300 million ounces, or nearly one third of global silver production.
Closer to home, a lot of ounces of precious metals will soon be making their way to Texas. As we reported in recent email News Alerts, which can sign up for on our MoneyMetals.com website, the state of Texas moved to establish its own bullion depository.
When Governor Greg Abbott signed the bill last week, it was a major PR blow to the New York Fed and HSBC Bank – the two entities responsible for holding the Lone Stare State’s gold.
The state of Texas joins countries like the Netherlands and Germany who are trying to claw their gold out of Wall Street’s grubby hands. These governments are rightly worried that there are way more claims on physical gold than there is actual gold.
The financial sector likes to engage in activities like gold leasing, swaps, options, and many other forms of financial alchemy. When gold is leased by its owner, the borrower of the gold can then sell the gold they borrowed and replace it with a paper contract to buy gold in the futures market.
So gold is lent out, then sold by the borrower to someone else! The new "owner" can start the cycle all over again. That's one way multiple "owners" can have a claim to the same gold bar. It's akin to fractional reserve banking. Everything seems to go fine… until there is a run on the bank.
It's this kind of risk that Texas wants to avoid by taking direct physical possession of its $1 billion in state-pension-fund-owned gold. After all, why take so much risk with something that is supposed to be financial insurance?
There’s a lesson here for everyone. Get the physical stuff. Either hold it yourself, or hold it in secure vaults managed by people you trust.
If you’re looking for a low-cost, highly secure facility where you can store your bullion, you have a great new option: our all-new Money Metals Depository.
We’re raising the bar in the industry – offering you affordable, convenient, maximum security, and fully segregated storage so you can have total peace of mind.
On top of all that, your metals are insured by Lloyds of London, and you avoid all shipping costs whenever you buy or sell.
So if you own $5,000 or more in precious metals and prefer not to store them in your home or bank, call our team at 1-800-800-1865 for more information.
Even if you elect not to store your bullion with Money Metals Depository, we still urge you to find a secure place to keep your metal. Not all storage services are what they appear. Some are affiliated with banks. Some will co-mingle your precious metals with those of other clients and those of the firm. At some depositories, you won’t be able to deposit particular bars or coins and take delivery of the exact same ones later. You just own an interest in some quantity of metal. And with so-called pooled or unallocated accounts, the counterparty risk – and the higher risk of fraud – cannot be ignored.
By contrast, in fully segregated storage your metal belongs to you and only you. This is something called bailment. Your metal is stored in an area of the vault specifically dedicated to your holdings.
Fully segregated storage can cost a little more than pooled or unallocated storage, but it’s a small price to pay for much greater peace of mind. The whole point of holding a portion of your wealth in physical precious metals is to escape the financial system and avoid empty IOUs. So don’t turn your precious metals investment into a third-party IOU on precious metals – or a Wall Street financial instrument such as an exchange-traded fund.
Stick with direct ownership of physical metal. You’ll want to hold some of your gold and silver bullion in a safe place at home for immediate emergency access. But secure storage facilities such as Money Metals Depository are more resilient to external threats such as burglary and are more convenient for storing large quantities of metal.
Well that will do it for this week, thanks for listening. Tune in next Friday for our next Weekly Market Wrap Podcast. Until then his 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.