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Rebound in Inflation, Global Conflict, Natural Resources Set Up an Exciting 2020
Money Metals President Stefan Gleason Reveals the Good AND the Bad in the Precious Metals Industry
Don't want to listen? Read the podcast below!
Happy New Year, and welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll here part two of an interview Money Metals president Stefan Gleason did with Alan James on the Sustainable Money Podcast. Stefan gives some more advice on what to look for when choosing a precious metals dealer, when and how to sell when the times comes, and also talks about some of the ins and outs of gold and silver IRAs.
Don’t miss the conclusion of this informative interview, coming up after this week’s market update.
Precious metals markets have opened the New Year with some nice gains. Metals prices rose across the board yesterday and are adding to them today after U.S. drone strikes in Iraq killed Iran's top military leader.
Concerns about a wider military conflict with Iran and the potential for disruptions in global oil supplies are weighing on global equity markets and boosting oil and gold prices.
Gold is now building on the solid returns recorded in 2019. Last year, gold gained 19%. Silver was up over 15%. Platinum emerged from deeply depressed levels to post a 22% yearly advance. And palladium led the pack in 2019 with a gain of nearly 60%.
The prospects for precious metals to match or possibly exceed those numbers in 2020 look promising. More on what will drive hard assets this year in a bit. But first, let’s review this week’s action.
Gold prices are up 2.4% this week to bring spot prices to $1,549 per ounce. Silver checks in at $18.14 an ounce after rising 1.7% since last Friday’s close. Platinum is powering ahead by 4.0% for the week to trade at $988. And finally, palladium is packing on another 4.3% to trade at a lofty $1,993 per ounce as of this Friday morning recording.
Well, speaking of lofty, the S&P 500 traded at a new record high to ring in the New Year before selling off here on Friday. The biggest component of the blue-chip index is Apple. It now sports a market capitalization of an astonishing $1.3 trillion. That’s more than the entire GDP of Mexico. It’s more than the entire GDP of Israel, Ireland, and South Africa combined!
Apple’s market cap is now bigger than the entire energy sector of the S&P 500 and dwarfs the mining sector. At some point, investors will have to ask themselves whether the natural resources that make technology possible are being undervalued.
Could the world as we know it continue if Apple suddenly folded and stopped making iPhones? Probably. An Apple-free world would be an inconvenience for a lot of folks, but they’d quickly flock to other device makers eager to fill the void.
If the entire mining sector or energy sector went under, the world economy simply could not function.
Last year saw a wave of bankruptcies in the oil patch. Marginal players laden with debt couldn’t make it in a brutal environment for the industry. The fracking boom is slowly going bust, and that will likely mean a drop off in domestic production in 2020.
A similar problem afflicts the beaten and battered mining industry. Mines have been depleting their reserves. They haven’t had the incentive to develop new projects given low spot prices and geological challenges due to declining ore grades.
Silver in particular is likely to face a fall off in mining supply perhaps lasting for years. Most so-called silver miners are primarily in the business of mining other metals such as lead, copper, nickel, zinc, or gold. They only mine silver as a byproduct.
The lack of a healthy primary silver mining industry can work to the advantage of physical silver investors. It means that supply will be tight, and even a slight uptick in demand could exert enormous upward pressure on prices.
Silver bulls will be eyeing the $20-$21 overhead resistance zone. The market made a move toward $20 an ounce last summer before getting slammed down. Once silver breaks through that multi-year line in the sand, the technical path could be clear for a run toward its old record high.
Broader inflationary pressures are building. Wages will be on the rise thanks in part to a host of minimum wage hikes going into effect at the state level. And the Federal Reserve will keep pumping fresh liquidity into the financial system with reckless abandon.
In 2019, the Federal Reserve did a dramatic about-face on interest rates. Instead of hiking, as was widely expected by mainstream forecasters, the Fed paused… then cut rates three times.
By the fall, it was engaging in massive interventions to prop up the repo market and launching what is effectively a new Quantitative Easing program.
The Fed is dropping helicopter money into the Treasury bill market, monetizing government debt through its network of dealers.
The central bank’s net asset purchases are up by more than $400 billion already and its balance sheet will likely rise to an all-time record by this spring, further cheapening the real value of the Federal Reserve Note in the process.
Fed Chairman Jerome Powell isn’t even trying to hide the fact that his goal is to engineer higher rates of inflation. During his last press conference, he said he would like to a see a significant and sustained rise in inflation before hiking rates again.
He wouldn’t dare hike in the midst of the election campaign season, barring some extraordinary circumstances.
So, the potential for a major acceleration in inflation this year certainly exists. Higher inflation coupled with accommodative monetary policy would potentially be rocket fuel for precious metals markets. Moreover, rising geopolitical risks could serve as a catalyst for safe-haven buying.
Will it be the “roaring 2020s” for hard assets investors? Time will tell. But for now, anyway, the outlook does look bullish on multiple fronts.
Well now, without further delay, here’s the conclusion of Money Metals president Stefan Gleason’s recent interview with Alan James on Sustainable Money. And we’ll pick up the conversation with Stefan giving some incredibly important advice on what to look for when choosing a precious metals dealer and talks about the dangers of what can and has happened to those who don’t do the proper due diligence.
Stefan Gleason: It is quite rare, but there have been a few horror stories, Tulving being an example of that. We are very competitive, I’m not going to say that on every product at every moment we’re the lowest price, that's definitely not the case. However, I guarantee you that with our company, you're going to get delivery, you're going to get it fast, you're going to get added value of content and we always over deliver on our promises, not under deliver and that is extremely important. Particularly when you're asking somebody to send money somewhere else with the expectation that they're going to receive their gold and silver.
Now some people will go to local dealers and I don't want to discount that because that's certainly something that people are able to do successfully. I would say that a lot of times the local dealers are at a disadvantage because they're not as sophisticated as a company like ours or some of our competitors. They may not be hedging. They may be exposed to market more than they should be and they may not have access to the lowest cost inventory, so the pricing may not be the best.
Alan Stroup: Stefan, I know there are some consumers that are concerned about several thousand dollars let's say worth of gold and silver being shipped to them in one by one either UPS or the United States Postal Service or Fed Ex or whatever. How does your company ship and how reliable is it?
Stefan Gleason: We ship virtually everything by the US Postal Service. And of course these are boxes that are not marked with their contents. You can't source it. It'd be very difficult to determine where it was coming from exactly. The return address isn't tied directly to our name. So, there's some anonymity there and I think most wholesalers and retailers also are pretty smart about their shipping practices. Most do use US Postal Service. Some use FedEx or UPS. That's not the most cost effective and it's also not even the most secure. Believe it or not, US Postal Service has been extremely reliable when it comes to delivering precious metals. We've shipped tens of thousands of orders every year and had very few losses.
Now I'll also say in our case and I think our competitors are similar. We ensure everything we ship and so we have a big insurance policy. If anything gets lost, and it isn't received and signed for by the recipient, then there's an insurance claim and we've had some of those of course. But it's remarkably reliable and I hate to say that because it's a quasi-government enterprise. It kind of rubs me the wrong way to say that the Postal Service does a good job. I don't think they do in general but when it comes to our success and getting things successfully shipped quickly and cost effectively, the US Postal Service has done very well.
The other options are UPS and FedEx and they're not bad either but they are more expensive and not necessarily faster. And fast delivery is actually quite important to people and important to us. We don't like people to wait for their precious metals. I think people are already a little bit anxious particularly on the first purchase. As one of the reasons is that they're buying previous metals is they're concerned about what's happening, they're concerned about the dollar, they're concerned about our country and if it's their first experience buying precious metals, they're probably nervous about that too. So, we are really trying very hard to not only delivery quickly but hold the person's hand, make sure the communication is very clear, very frequent so that they understand where their order is and when it's arriving.
Alan Stroup: How does the average person learn to trust the dealer or organization that supplied the coin or bullion? And doesn't that have something to do with the conversations that take place during the purchase? In other words, the phone consultation?
Stefan Gleason: Yeah. Well, our company and we're not the only ones, but again I think we're one of the best when it comes to this is that we're not trying to make a sale. Our sales associates are really just they're people there to educate and guide the person. There's no pressure. It's not a commissioned situation where they're trying to sell something to you. They're there to help you understand the choices and make the best decision for you. So, I think that tone is definitely one thing that has done, has been a very important part of our growth as a business. We are not into making a sale, selling somebody something they don't want and of course we don't even deal with and actively really crusade against this whole rare coin thing. This bait and switch thing that's been giving our industry a bad name and has been ripping a lot of people off. We won't even sell those types of items. We don't stock them. The only time that you'll see any kind of rare or numismatic coin being sold by us is when the price on that has fallen to basically its melt value, at which time it's actually a pretty good deal to buy.
So I think education, content, communication, no pressure, meeting your commitments… just developing that relationship so look for companies that do that.
Alan Stroup: Okay. So, people have invested, they've got their gold and silver or gold or silver or both, insurance policy if you will, the big question is when do you liquidate? When do you know when to sell?
Stefan Gleason: Right. Well first of all if you're buying this because it's financial insurance, I think you'll probably always own some of it. Now, it just so happens as priced in dollars, still we think that precious metals are way undervalued to what they will be at in the coming years as things unfold. But I would think that you know people will always own, once they understand why they own it, they'll always own some. Now that doesn't mean that they may want to liquidate some of it if the price rises or if they need access to cash. Some might even you know at some point in a really bad situation, you might even instead of selling it, you might be spending it. It's certainly possible. It's happened in other countries.
Alan Stroup: Failure of the dollar, yeah.
Stefan Gleason: Venezuela has got a gigantic implosion going on right now. Argentina's had it. Zimbabwe. So, in that kind of situation, you know that could actually become your money. But at the end of the day, you do want to have the ability to sell it. You want to be able to know when and how and where to sell it. Right now, I don't think you should be selling precious metals. You should be buying it but the bottom line, unless you have a specific reason that you need access to cash. The bottom line is that our business and most dealers like us will both buy and sell. And I mean we're a dealer. We're not just a retailer. We're a dealer. We buy and we sell. All day long. Whenever sell something, we replace our inventory. We always have a positive amount of precious metals available and as we sell whatever we sell, we replace it.
And we wouldn't be selling if we couldn't be buying because we don't want to be out precious metals either. So, if you were to sell your precious metals, it's really quite straight forward. It's much like buying them. You lock a price...
Alan Stroup:Over the phone, right?
Stefan Gleason: Over the phone or on our website you can actually sell on our website back to us and then you ship us the metals and then we wire or send you a check or ACH credit funds to you as soon as we receive them. So, it's a pretty straight forward process. You can also go down to your local coin dealer and sell there. There are other ways to sell but you know hopefully people are not looking to sell unless they really have to because we probably are going to see some pretty big gains in precious metals as we've seen over the last fifteen years, but you need to have that liquidity and we provide that and so do our competitors.
In fact, we'd rather buy from our customers than from mints because this is a very, very small margin business to begin with if you're selling the right kind of stuff, like bullion as opposed to the rare coins which is you know has huge margins for the sellers but it's not a good deal for the investor. So, that extra one or two percent that we can make on buying a product back from our customer instead of having a new one minted is great. So, we would love to be buying more metal from our customers even though we quite frankly don't think it's a good time for them to be selling but we will absolutely buy and we'll offer them a good price. Usually at or above the spot price depending on the product and we pay quickly.
Alan Stroup: Stefan, briefly, I want you talk about the types of events that might precipitate liquidating all or just some of your gold and/or silver product.
Stefan Gleason: Well, if you see huge gain in dollar terms, then it doesn't hurt to sell a little bit and take some money off the table. Depends on how much you own. I mean if you own a hundred percent of your first of all, nobody should have all their money in gold and silver, just like they shouldn't have it in anything else. But ten or twenty percent is a very reasonable allocation and we recommend that people do look at having at least that much or in that range I should say. But there may be a point where gold has gone to five thousand dollars an ounce and your ability to turn that into some other asset maybe a piece of real estate or pay off a loan or whatever, there are reasons to do that but I would never let go of your full position because part of it is insurance and you never know what's going to happen.
If we have a total collapse or breakdown, you're going to be happy that you have gold and silver, I can guarantee it. And if we don't have it, I think you're going to be happy as well as you would be if you'd owned it over the last fifteen years.
Alan Stroup: Earlier we discussed this but is there a best place to liquidate gold and silver or a list of the best places to liquidate gold and silver?
Stefan Gleason: I don't think there is a list unless if you do a search sell silver or sell gold, you'll probably find again some of our competitors and us. You'll probably find the “we buy gold” type people, I would steer away from those because they're going to offer you a huge discount to the spot price.
You want to sell to somebody like us or to one of our competitors who are able to offer you probably close to spot if not more than spot for that thing. So, stay away from the “we buy gold” type places. You might get eighty percent, seventy percent, sometimes jewelry they give you forty, thirty percent of its melt value. Don't sell to places like that. Sell to somebody like us. Now we don't buy jewelry so you'll have to find other options for that. But you want to sell to somebody like us who makes a market in these things.
Alan Stroup: I've seen a lot of TV ads about owning precious metals in your IRA. How does that work?
Stefan Gleason: Well it's a great option for people who have most of their money. Most of the money tied up in IRAs. First of all, I think it's important for everybody to own some precious metals outside of their IRA. But if a lot of your money is in IRAs then by all means, make sure you get some precious metals and that's a great way to do that. The way that works is that you cannot take physical possession of the metals without jeopardizing the IRS considering it to be a distribution and causing your entire IRA to be subjected to taxation. And there are some people out there who have been talking about home storage IRAs and that is a very risk approach and we do not recommend it.
We have some customers that want to do that because they want to have it in their house but I think it's not worth the risk considering the IRS is starting to pay attention to that. There was an article recently, in the last few days I believe, in the Wall Street Journal which referenced this that the IRS is starting to pay a little more attention to this concept of a home storage IRA so let's just assume that you don't that.
The way it works then is that you would set up a IRA with a self-directed IRA provider and then you would roll IRA funds over to that self-directed IRA and there are several options. We have them on our website. They're independent companies of us. So, you have your money in your IRA, in a self-directed IRA account and then you line up a with a dealer like us to purchase precious metal on behalf of your IRA and then you have it stored at a depository or other facility and we have recommended storage facilities that we can provide people. And so, your IRA pays for the order and then the metals are shipped to your IRA's depository account where they are stored securely. And then in reverse, when you want to liquidate, you sell back to us or whoever. You don't have to sell back to us if you bought it from us, you can sell it to anyone else and the metals get sent to them or us and then you're paid, your IRA is paid back and then you move on to whatever you're doing. Maybe distribute the funds or buy some other asset.
The nice thing about owning precious metals in an IRA is that capital gains are sheltered. So, unfortunately precious metals are taxed under federal law at a discriminatory high twenty-eight percent long term capital gains tax rate.
Alan Stroup: Any chance of that changing?
Stefan Gleason: There is a chance. We have a project, a side project, called the Sound Money Defense League, which is looking at public policies at the state and federal level. There has been talk about introducing a federal bill to repeal that. There isn't one pending but I would say don't plan on it but it's certainly unjust. First of all, this is money. It's not even, it's not property. It's money and the gains that you have to the extent you have gains, a lot of them are not real gains, they're nominal gains. They're gains in the terms of dollars but remember the dollar is being devalued by the day so the whole idea of having to pay taxes on gains on precious metals is an infringement to your financial freedom and the concept that gold is money because you know taxing you for holding money, for buying and selling money... for exchanging your gold which is money for Federal Reserve notes, which really isn't money but they call it money and that that's somehow a taxable event.
When a lot of that gain is really just a result of the devaluation of the Federal Reserve note in proportion or relation to the gold. So, it's really an unjust system but I wouldn't plan on it but the IRAs are a great way to shelter yourself from that taxation.
Alan Stroup: We're about out of time and I have two more questions I want to get in here quickly. Should you own physical metal or shares of money backed exchanged rated funds?
Stefan Gleason: Now if you're a trader, then maybe the ETFs aren't a bad idea for you because of the transaction cost but there is significant counter-party risk involved in the exchange traded funds. Even if they are gold backed, where they supposedly own the bars or the physical metals somewhere but you don't own direct title to those things. When you own it in your IRA or you own it personally, you own direct title and that's one of the main reasons that you own previous metals is to eliminate risks. So, introducing risk into your insurance investment is not probably a great idea. So we definitely don't think that you should be putting significant amounts of money into gold or silver ETFs. And the fees every year end up being similar if not higher to just owning the metal outright and storing it if that's what you want to do.
So, ETFs are a proxy for gold. They are in many cases supposedly backed by gold but you don't have direct title and there are risks involved in that. And you can't get your hands on it.
Alan Stroup: I think that we've given, had a very good educational seminar here but what sorts of additional things besides listening to this, what sorts of education can the average person do for themselves to be better prepared to consider precious metals investing?
Stefan Gleason: Well first of all, I'd encourage people to get on the Money Metals Exchange email list by going to MoneyMetals.com. We publish several articles a week of original content and commentary on the markets, on the Federal Reserve, things that are impacting your money and your investments. We do a weekly podcast. We have a lot of great guests. So that's one thing, get educated. Start looking at some of the websites including ours. Get up to speed, but most importantly start by owning a little bit of precious metals. If you don't own them already, get started as soon as possible. You really can't afford to wait and I've found that just putting a piece of silver in somebody's hand, it kind of gets a process started in their mind. You start thinking about what is value, what is money, what gives money its value. What is the system of the Federal Reserve that we have? How does this all work?
That's how it started for me about eighteen years ago so I think just getting into the market and start paying attention and you're going to make lots of progress.
Alan Stroup: Stefan Gleason, president of Money Metals Exchange that's at MoneyMetals.com. This has been another edition on our Sustainable Community Summit, entitled Gold and Silver Buying Made Easy and I hope that we were able to make it easier for you. I'm Alan James, thanks for joining us.
Hope you've enjoyed that interview, and that will do it for this week. Be sure to check back here next Friday for our next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend everybody.