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Gold, Silver, & S&P 500 All Heading for Banner Year
Jp Cortez: Sound Money State Index Identifies Friends & Enemies of Precious Metals Investors
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up Jp Cortez of the Sound Money Defense League joins us to discuss the latest on the state legislative front when it comes to taxation of gold and silver, an issue that is becoming more and more important for precious metals investors, many of whom are now facing the prospects of having to pay sales tax when they buy precious metals.
Jp also gives a rundown on the 2019 Sound Money Index – a rating of which states are friendly towards precious metals, and which states are the enemies of sound money. So be sure to stick around for a fascinating and informative conversation with Jp Cortez of the Sound Money Defense League, coming up after this week’s market update.
Well, as Democrats in Congress impeached the President of the United States, investors yawned. U.S. stock market averages quietly advanced to new record highs in low volume trading. Meanwhile, gold and silver markets made advances within their narrow trading ranges.
As of this Friday recording, gold prices are up a slight 0.2% for the week to trade at $1,481 per ounce. Silver shows a weekly gain of 1.5% to come in at $17.28 an ounce. The Platinum Group Metals are slumping today and are now down for the week with platinum off 1.0% to check in at $924. And finally, the leader of the pack palladium sports a spot price of $1,898 after falling by 2.2% this week.
The big question is, when will the other metals catch up to palladium? They could start on that path soon. Gold, silver and platinum are each now tantalizingly close to breaking above trading range resistance.
Precious metals have played second fiddle to the stock market this fall. Perhaps the winter solstice, which arrives on Saturday, will usher in a seasonal change of character in these markets when they open next Christmas week.
Stocks could get a Santa Claus extension to their rally. Christmas week gains are typical but not guaranteed. With the S&P 500 having gone essentially straight up for the past 11 weeks, the market is overdue for a correction.
Gold and silver, on the other hand, are overdue to break out from their sideways consolidation phase one way or the other.
The longer-term outlook for precious metals will depend largely on where interest rates and inflation head. We’ve heard in previous podcasts trends forecaster Gerald Celente say that negative interest rates are coming to the U.S. That would certainly bolster the appeal of hard money as a superior form of cash.
Other analysts believe the global negative yield bubble is an unsustainable aberration that is about to burst. On Thursday, Sweden's central bank ended its five-year experiment with negative rates. The Swedish Riksbank raised its benchmark interest rate from slightly below zero to zero.
Other central banks may follow suit. There is little evidence that negative rates spur economic growth, but Sweden and other countries are finally seeing a slight uptick in inflation.
Other central banks, including the European Central Bank and the Bank of Japan, are still holding rates below zero. But that could change next year. If Europe and Japan are hiking rates while the U.S. Federal Reserve holds its benchmark rate steady, that would be dollar bearish.
If the Fed gets the rise in inflation it has repeatedly called for, that would be a huge potential catalyst for precious metals markets. The inflation trade has been quiet for several years, but we are seeing some signs of it picking back up late this year in commodity markets.
If inflation and interest rates instead hold steady where they’re at with the stock market continuing to advance, then we wouldn’t expect gold and silver markets to do much.
Perhaps the Trump rally has enough gas left in the tank to carry the president to re-election next November. President Trump seems to be enjoying an impeachment boost in the polls right now, but momentum will probably swing back and forth between him and his Democrat rivals multiple times in the months ahead.
The bullish dynamics for the stock market will eventually swing to the bearish side, whether before or after the election.
In the meantime, patient precious metals investors are still being rewarded with decent gains this year. And from a technical perspective, gold has quietly been in a bull market since bottoming four years ago around $1,050 an ounce.
Silver also put in a major bottom then, though its chart looks messier as it has lagged behind gold. Silver has yet to trade above its 2016 high at $21 per ounce.
However, the white metal is notorious for spiking higher rather than trending higher. When it is ready to spike again, it can be expected to deliver spectacular returns in a matter of weeks.
It’s certainly a good idea to be well positioned in silver before then. Investors will also need to be prepared to hang on for the ride. It won’t be a smooth one. But it will ultimately be rewarding when it’s silver’s time to shine and reach for new all-time highs at multiples of today’s prices.
Well now, for a look at a topic that many gold and silver investors don’t even want to think about, that being sales and income taxes, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome in Jp Cortez with the Sound Money Defense League, a nonpartisan national public policy organization working to restore sound money at the state and federal level. Jp is a proponent of and has studied in the Austrian school of economics and his role at SMDL as Policy Director has him regularly testifying at legislative hearings and speaking at various events around the country. His articles and analysis have appeared in many national news publications including the Washington Examiner, Huffington Post, Mises Institute, Foundation For Economic Education and many more, and he's a frequent guest on various podcasts and national radio shows to talk about the importance of sound money legislation. And it's a real pleasure to have him back on here with us on the Money Metals Podcast.
Jp, thanks for the time today. Welcome and how are you?
Jp Cortez: Mike. Thanks for having me on. I'm doing great. How are things over there?
Mike Gleason: Well we're doing well, excited to talk about this topic and as many of our regular listeners know, we had you on several months back to talk about this issue and we figured it was time to have you on again and talk about it and get an update from you on the state of the state, if you will, when it comes to sound money here in the U.S… as things are continuing to develop on that front, some of which is good and some of which is not what we would term as positive. And then we'll also get into your group's latest release of the Sound Money Index for 2019. But first let's begin with having you lay out for us what your group does. What is the mission and why is there a Sound Money Defense League to begin with? Let's start there.
Jp Cortez: Well, like you mentioned earlier, we're a nonpartisan national public policy group and we work to restore sound money and that mostly happens on the state level, but we work on the federal level as well. So, primarily what we're doing here is re-monetizing gold and silver by removing the taxes that surround its use, its sale, its purchase, because that's most of the reason why people don't use gold or silver today. It has nothing to do with its legal tender status or anything like that. It's just that you would practically need a CPA by your side every time if you had to calculate your cost basis every time you wanted to buy a gallon of milk at the store and you'd have to go through this onerous process. So, by removing the taxes on precious metals, we hope to have the metals naturally find their way back into the system.
Mike Gleason: Talk about the successes that you've had there, Jp, because I know it's been a busy couple of years at the state legislative level on the sound money front. Now there's obviously a lot more work to be done there. We'll get into that, but talk about some of the achievements of the Sound Money Defense League thus far, Jp.
Jp Cortez: The Sound Money Defense League was started in 2015 and since then it's grown as a real leader on this issue we've been a part of and we've led efforts to introduce and pass legislation to remove sales tax on gold and silver in Alabama, Georgia, West Virginia, Wyoming and Louisiana, Wisconsin. In Arizona and Wyoming we've also worked to eliminate capital gains taxes from the sale of precious metals and we've also defended a couple existing exemptions this past session in Washington and Nebraska. In Washington's case this was an exemption that was passed back in the mid-eighties that revenue hungry politicians were trying to appeal or were trying to repeal, but thankfully we were able to get that stopped and we hope this year to pick up a couple more victories in states like Tennessee and Mississippi on the sales tax issue.
Mike Gleason: Okay, so let's get into the 2019 Sound Money Index, which you just released first. Why don't you give us an overview of how the index was created and what it tells us about the various States about their friendliness or lack thereof towards sound money?
Jp Cortez: Yeah, the Sound Money Index is the first index of its kind where we've ranked all 50 states using a variety of criteria to kind of determine which states offer the most pro and anti-sound money climate. This was a project that we started last year, so this is our second annual report. In the first iteration of the Index, we used nine criteria, but and this year we've expanded that to 12 different indicators. We did that because we think that this gives us a more robust picture of where each state is at, where each state stands on sound money. And so the index evaluates each state's sales and income tax policies involving precious metals. Whether a state has holds any precious metals in its pension funds or reserve funds, whether a state has passed or imposed any of these very onerous, very restrictive precious metals dealers or investor harassment laws is what we call them. And some more.
Mike Gleason: Yeah. So I wanted to dive into some of that criteria and so forth. But what did the top rank states do, right that led to their high scores on the index. And then what were those States who scored well?
Jp Cortez: This year, Wyoming, Texas and Utah kind of rounded out our top three. And these are three states that are all excellent on the issue of sales tax on precious metals. They've each got a full sales tax exemption on all gold and silver coins and bullion, that is Wyoming, Texas and Utah. They've also taken steps to exempt the gold and silver from the income tax. Utah was the first to do so, I believe. Texas has no income tax. And Wyoming, while it does not have a state income tax passed legislation two years ago now that does not allow for a capital gains tax on precious metals if an income tax were ever to be introduced.
Mike Gleason: So, what states are the worst on sound money, Jp?
Jp Cortez: So Arkansas, New Jersey, Maine, Ohio, Tennessee, Vermont. Unfortunately there are a couple of kind of a real baddies here. And these are the worst states in the country. These are states that levy sales tax on precious metals. They hammer you with income tax on the sale of sound money. They hold no metals in any of their reserve funds, any of their pension funds. They restrict dealers and investors with some of these crazy regulations regarding collecting personal data, reporting, regular submission to police. And these states, the ones I just mentioned are rife with these kinds of onerous laws and just generally they have high rates of taxation compared to the rest of the country. Ohio here kind of stands out last year in the first annual Sound Money Index, Ohio ranked 17th. This past year, unfortunately, Ohio voted to repeal its sound money sales tax exemption and it fell, talk about a fall from grace, all the way from 17th to tied for 49th place.
Mike Gleason: Yeah, ouch. We're of course well familiar with that here at Money Metals Exchange, we are now collecting sales tax in a half dozen States. Ohio is one of those, this all happens in the wake of the Wayfair Supreme Court decision that forces out of state companies to charge tax and submit it to the states where there is no sales tax exemption for precious metals. Wayfair obviously was dealing with this not necessarily precious metals related, but we're now sort of falling under law. So, there's about 15 to 20 states that don't have a sales tax exemption for precious metals and we and other national dealers are having to charge sales tax now and collect those in those jurisdictions even though we don't have a physical business presence in those states. That's what Wayfair a addressed kind of hitting those online retailers. So, this is a very important issue and passing laws in the remaining states that haven't passed a bill exempting sales tax on precious metals yet would be huge for the citizens in those states.
But yet sales tax is not the only thing we have to deal with when it comes to taxes, Jp. You alluded to this a moment ago with some of those states that don't have this, but we also have the income tax in most states and certainly at the federal level that are owed when there is a gain, and I say the word gain in quotes because it's really just an illusory gain as we know because it's not that the price of gold and silver has risen necessarily, it's more a matter of the fact that the dollar has lost value, but yet the governments both at the state and federal level wants to tax you on the inflation that they've created, that's caused that nominal gain. Talk about that Jp.
Jp Cortez: That's right. Like you just said that this gain many times isn't an actual gain. It's not a real gain. It's just a nominal gain that results from the inflation caused by the Federal Reserve. An ounce of gold is still an ounce of gold. The value of the ounce of gold hasn't changed. It just takes more individual Federal Reserve notes to purchase the same ounce of gold. The Federal Reserve note is losing value. It's not the gold is gaining value and yet, like you mentioned, this gain is taxed at the federal level and then again at the state level. To make things worse in states with no sales tax exemption then you're hit with a nefarious kind of double taxation here where you're taxed on the purchase of your metals and then taxed again on the sale.
Mike Gleason: Not to mention that the gain is at the 28% a collectibles rate to begin with, and in many cases, this isn't collectible, this is bullion and yet it's still taxed at an onerous 28% rate.
Jp Cortez: Yeah, that's right. Long-term capital gains rate, discriminatorily high 28%. So, that's taxed just as if you were talking about beanie babies or baseball cards or art. The IRS unilaterally decided that precious metals are collectibles and so now here we are.
Mike Gleason: Yeah, it's the height of ridiculousness. I know at the federal level our good friend Alex Mooney, a Congressman from West Virginia has I believe, introduced a bill in Congress to repeal that tax at the federal level at anything you can tell us there. Do I have that right?
Jp Cortez: Yeah, that is correct. Congressman Mooney from West Virginia has introduced a couple of laws to remove these capital gains that we see here and hopefully these get passed. There are a couple of these laws that are coming down the pipes and hopefully we can kind of gain some traction and get some or one or maybe some of these passed.
Mike Gleason: Yeah, obviously many things happen at the state level and that sort of builds the momentum nationally and I know that's where you're focusing most of your efforts and it's very important to do that. That's where things often get started when it comes to change at a federal level as well.
Well, what other kinds of owner's restrictions do states place on dealers and investors? Is there anything else that we haven't covered aside from the tax issue that your group is focusing on, fighting and bringing to light?
Jp Cortez: Yeah, this is a new criteria that we've included this year on the Sound Money Index. We call it a dealer harassment laws, investor harassment laws, and some of these are really quite ridiculous. Some states require collecting your fingerprints, your physical measurements, your height, your weight, your hair color, your eye color, your social security number, other forms of identification, all of these things that the state requires precious metals dealers or sellers to collect. And then you couple that with the requirements to submit all of the sensitive information to law enforcement in some cases daily and some cases weekly. So, it's really quite restrictive and quite pervasive. Some states have made it to where you can't sell any gold or silver purchased from the public for a specified amount of time. In an industry like precious metals where prices are regularly changing, asking dealers to hold on to inventory for days or weeks could make a huge difference and could cause huge harm.
Additionally, if you consider that now dealers have to hold more inventory maybe than they would feel comfortable with otherwise by law, now it's a liability. Now the dealer has to provide security, has to provide insurance to adequately safeguard these now these precious metals that they're being forced to hold. And then I think the worst of all probably in my opinion is that a few states prohibit cash transactions when buying gold or silver. The argument being of course that sales are better tracked. Safety is a priority and so we need digital records of every transaction. But this is nearly unprecedented in American commerce. To restrict metals purchases to digitally tracked credit purchases or checks only is quite invasive.
Mike Gleason: Yeah, I couldn't agree more. Obviously we've got the $10,000 cash payments money laundering, sort of restriction Form 8300 that people have to fill out. If you're buying a over $10,000 in cash in anything where there's gold and silver, a vehicle or what have you, you're supposed to submit that form if you're taking payment that way in that amount. But yeah extending it beyond that. And lower thresholds is pretty ridiculous. There is a nearby cities here, and we're in Idaho, which is a pretty friendly state when it comes to precious metals, but there's a nearby city that has a lot of those laws in place. And as it stands, there's zero precious metals dealers. There's zero local coin shops because they don't want to have to fingerprint everybody, submit it to the local police. Just completely ridiculous. They've driven several businesses out of the city completely. It's a real shame.
Jp, it also looks like there's zero states that have at least 10% of their reserve funds held in in gold and silver. I know you're trying to work to change that, talk about that.
Jp Cortez: Well, frankly, the financial powers that be simply haven't allowed for it. An allocation of gold and silver provides many helpful things to investors, and to states if they choose to invest in gold and silver, that is a hedge against inflation debt, default risks, stock market declines volatility. And yet there isn't a single state that's holding at least 10% of its reserves in the metals. And of course, that it is more egregious when it's coupled with the fact that their portfolios are full of nothing but risky assets. A considerable amount of emerging market debt, risky bonds, ETFs, different trading instruments, people chasing returns rather than protecting and taking prudent care of money that retirees and savers and pensioners rely on.
Mike Gleason: Yeah, they certainly should not be risking that money and of course, gold and silver and the ultimate safe havens, gold specifically. And you would think that there would be at least some appetite for some of those states to put some of those reserves in in some kind of a gold fund or physical gold better yet. None has really done yet. I guess Texas has, is it the state teacher's pension funds that that has some physical gold? Is that the only one that's done that?
Jp Cortez: Yeah, Mike. That's correct. The Texas Teacher Pension Fund, they're holding about a billion dollars’ worth of physical gold. Wyoming considered a few measures this past year to protect some of their reserve funds, their rainy day funds, their pension funds with physical metals held within the state or near the state. And believe it or not, these measures were not received warmly by different constituencies, by the pension fund managers, the reserve fund managers, banking. There were several constituencies that were not too keen on this idea.
Mike Gleason: Imagine that, the financial elites or wall street types, not wanting to see money leave the system and go into gold and silver. I can't say, I can't imagine why they wouldn't like that.
Well, before we let you go here, is there anything else you would like to share with our listeners today maybe that we haven't covered yet? Or certain things that you see in movements of sound money that you think people should be keeping in mind?
Jp Cortez: Yeah. I think just one more note on the Sound Money Index. We've taken the time this year to kind of extend out what we're doing and so we've scored different states on a number of interesting criteria. Some of the stuff we didn't get to hear in this conversation, like the enforcement of gold cost contracts for example, or holding metals in state reserve funds like we mentioned, whether a state has established an in-state depository, of course Texas. And then this year we've included a section on whether or not a state has issued a gold bond. So, it's really interesting stuff. We encourage everyone to check out the Sound Money Index.
Mike Gleason: Yeah, they can do that either at SoundMoneyDefense.org or on the MoneyMetals.com site as well, that information will be available there. Keep up the great work Jp in our industry, the sales tax issue has become quite a big one. So, the work you're doing there is vitally important and we appreciate all you're doing to defend sound money. We appreciate the time today and look forward to having you on again in the future to update us on a lot of these legislative fronts, because I know you'll have your finger on that pulse as much as anyone and we wish you continued success in those efforts. Take care and thanks for coming on.
Jp Cortez: Great. Thanks a lot, Mike.
Mike Gleason: Well, that will do it for this week. Thanks again to Jp Cortez Policy Director at the Sound Money Defense league. For more information or to follow these ongoing sound money efforts or even to make a donation to help support the mission of sound money advancement, please visit SoundMoneyDefense.org.