Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.
Precious metals prices are slumping this week, but that isn't taking away from the rising prominence of sound money issues. Monetary reform has ascended into the national political discussion as a centerpiece issue for some of the leading candidates for president.
Republican presidential hopefuls debated each other on Tuesday, sparring mainly on economic issues. It was the most substantive of the debates so far. Previous debates have been overshadowed by the petty questions and provocations hurled at candidates by the moderators. These supposedly professional journalists have nearly made a farce out of the whole debate format. But the moderators for this week's debate hosted by Fox Business managed to keep most of their questions focused on actual issues that matter.
One of the issues that matters most for the future of the economy and the prospects for reining in government spending is that of monetary reform. The Federal Reserve has been the great enabler of excesses in the financial sector – as well as in government.
During the undercard debate, New Jersey Governor Chris Christie accused the Fed of playing politics with the money supply and called for an audit of the central bank. Mike Huckabee chimed in, calling for Fed chair Janet Yellen to be given the boot and the dollar to be put on a gold or commodity-based standard.
In the primetime debate, Senator Ted Cruz again tried to distinguish himself from the field as a champion of a sound economy tied to a gold-backed dollar. Here are some of his remarks concerning the Federal Reserve:
Ted Cruz: What the Fed is doing now is it is a series of philosopher kings trying to guess what's happening with the economy. You look at the Fed, one of the reasons we had the financial crashes throughout the 2000s, we had loose money, we had an asset bubble, it drove up the price of real estate, drove up the price of commodities, and then, in the 3rd quarter of 2008, the Fed tightened the money and crashed those asset prices which caused a cascading collapse. That's why I'm supporting getting back to a rules-based monetary system, not with a bunch of philosopher kings deciding but tied ideally to gold, instead of adjusting monetary policy according to whims and getting it wrong over and over again and causing booms and busts. What the Fed should be doing is, number 1, keeping our money tied to a stable level of gold and, number 2, serving as a lender of last resort
Senator Rand Paul also launched a critique of the Fed. He blamed income disparities created by the Fed's easy money policies that artificially pump up the financial sector of the economy:
Rand Paul: I think the Federal Reserve has made this problem worse. By artificially keeping interest rates below the market rate, average ordinary citizens have a tough time earning interest, have a tough time actually making money. They're actually talking now about negative interest. The money, as it's created through Quantitative Easing or other means, tends to start out in the big banks in New York. Because we're now paying interest for them to keep the money there, much of that money has not filtered out into the economy.
Those of us hoping to hear Donald Trump offer specifics on how he'd approach monetary reform were left disappointed once again. Mr. Trump seems most comfortable talking about immigration policy and trade deals, but he risks being outshined by other candidates who demonstrate a stronger commitment to sound money principles and reforming the Fed.
For now, though, the Fed and its interventions are a terrible reality investors must deal with - and face the consequences of. As Fed officials pour over the economic data, they will continue to have a tough time justifying a rate hike based on their own stated criteria. They want to engineer an inflation rate of around 2%. But weakness in oil and other commodities is translating into downward pressures on price inflation.
This week, the Bureau of Labor Statistics reported import prices fell by 0.5% in October, while our export prices declined by 0.2% for the month. On a year-over-year basis the declines are much more dramatic. Export prices are down 6.7% from last year, while import prices show a 10.5% decline. These kinds of indicators point to the potential for deflation, at least in the near term. We'll only know in retrospect when price levels have bottomed out.
As noted by both John Rubino and Frank Holmes in recent podcast interviews with Money Metals, a strong dollar versus the other unbacked paper currencies of the world has already begun weighing heavily on the profitability of many of the larger U.S. companies. That's because they face difficulty exporting goods onto the international market given the greenback's relative strength compared with the currencies of other consuming nations. It makes our products more expensive when priced in the other currencies.
An interest rate hike in the coming month or months by the Fed would make it even tougher for the viability of U.S. exports, because the dollar would likely strengthen even further than it already has.
Meanwhile, if commodity and precious metals prices break to new lows ahead of the Fed's next meeting in December that would signal that deflationary pressures are mounting. Central bankers can tolerate bouts of high inflation, but they absolutely can't stand deflation. Deflation scares them to death, especially at a time like now with aggregate debt levels rising into the stratosphere - and everyone relying on rising asset prices to stay solvent.
Fed officials may not admit it publicly, but they DO follow the gold market. Prices for gold are now at multi-year lows, with gold registering its lowest figure since early 2010 this week. The monetary metal currently trades at $1,083 an ounce, up slightly from its lows of a couple days ago but still down 0.6% on the week. Silver is also trading to the downside this week, with prices falling 3.8% to trade at $14.25 per ounce, holding just above the low for the year as of this Friday morning recording.
Platinum and palladium are each down for the fifth consecutive week. Platinum is off a whopping 8.2% week-over-week to trade at $866, its lowest total since 2009. Meanwhile the carnage in palladium continues with the metal off a staggering 13.3% since last Friday's close and currently comes in at $541 an ounce.
These discounted spot prices are attracting bargain hunters, and the inventory re-stocking across the industry that took place in late October and early November after a breather in retail demand following intense buying during the summer could be at risk of becoming stressed once again.
But as of now things are still looking good in terms of retail product availability. And as a reminder, throughout the month of November, Money Metals Exchange is offering free shipping on any order of $500 or more. That's free shipping on any gold, silver, platinum, or palladium bullion products that total at least $500. Invest at least $5,000, and you'll also get a free Silver Eagle! This special promotion is good for the entire month of November.
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.