First the Gain, Then the Pain…

Inflation Punishes Savers while Squeezing Consumers, Businesses

Mike Gleason Mike Gleason
Interview with: Mike Gleason
April 16th, 2021 Comments

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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Gold and silver markets are exhibiting more signs of breaking out into a rally.

On Thursday, bond yields pulled back sharply. That helped fuel a new record in the Dow Jones Industrials. But the precious metals sector was an outperformer on the day, with mining stocks leading gold prices to a fresh multi-week high.

As of this Friday recording the upward momentum has continued and gold spot sports a weekly gain of 2.0% to come in at $1,786 an ounce. Silver is up 3.2% since last Friday’s close to trade at $26.23 per ounce. Platinum is unchanged for the week to trade at $1,223. And finally, palladium is trading up near a record high at $2,807 an ounce after advancing 4.7% so far this week.

With the exception of palladium, precious metals markets have lagged behind other asset classes in 2021. That may be in the process of changing here in the second quarter.

Meanwhile, industrial commodities, cryptocurrencies, equities, and housing continue to gain ground. They are benefiting from inflationary policies being enacted by the Joe Biden administration in conjunction with the Federal Reserve.

Of course, rising inflation pressures are ultimately bullish for gold and silver markets. But for the time being artificial economic stimulus is combining with reopening optimism to jolt the more economically sensitive sectors.

In the wake of $1,400 stimulus checks sent to millions of Americans, consumer spending surged. The Commerce Department reported Thursday that retail sales spiked 9.8% in March.

Home prices are also surging. The median sales price of existing homes is up 16% over the past 12 months. That’s the fastest pace in 15 years. Housing is becoming more expensive in large part due to massive increases in the costs of lumber and other building materials.

Inflation is also beginning to show up at the gas pump and grocery store. With the Fed vowing to target a higher official inflation rate, more price pain is likely coming.

In the early stages of inflationary cycles, rising currency supply is typically greeted with celebration. Cash-strapped consumers and businesses see an immediate windfall. Rising demand for goods and services stimulates business revenues and lifts stock values on Wall Street.

First comes the gain, then the pain.

History suggests that periods of rising inflation are not especially kind to investors. And the current investing environment is wrought with peril.

Yields on cash savings and money markets are near zero thanks to the Fed. Bonds yield a bit more, but a 10-year Treasury coupon of about 1.5% is still well below the central bank’s own inflation objective. Fed chairman Jerome Powell wants to see inflation run above 2% over a sustained timeframe. And the official measure of consumer price increases tends to understate the real-world effects.

What all this means is that holders of U.S. dollars and dollar-denominated IOUs can look forward to real losses on their holdings.

As for stocks, valuations are currently sky high. A rising inflation rate will tend to eat into risk premiums and force price to earnings ratios to adjust downward.

When investors begin to feel the pain of underperforming paper assets, they may seek gains in tangible assets. Gold and silver are classic safe havens in an environment of rising inflation and other risks. They show virtually no correlation with conventional financial assets, making them ideal portfolio diversifiers.

Trying to pick bottoms or time the market is difficult. It can also be disastrous if you’re on the wrong side of the market ahead of a big move. Gold and silver prices could move sharply at any time for reasons that nobody would predict. They could also move sideways first for a long while, frustrating those with short time horizons.

One of the best ways to take the guesswork and worry out of precious metals buying while ensuring you stick to a long-term discipline is to accumulate ounces on a regular monthly schedule. Some months you’ll buy at cheaper market prices than others, but the end result is that you’ll average your way into a bigger stake.

Money Metals Exchange President Stefan Gleason discussed the Monthly Savings Plan in a recent interview with Palisade Gold Radio.

Stefan Gleason: So, this has been something we've had in place since the very beginning at Money Metals, is a monthly savings plan and it's very popular. We have, I think there's about 5,000 or 6,000 people currently in the plan. And these are folks that have basically enrolled to have a scheduled monthly purchase of a certain amount or a certain number of ounces. And just like dollar-cost averaging into your stock account, this is a way to put it on autopilot to stop the guesswork around timing the market. Just get into a disciplined program that just happens automatically.

Most people have us automatically debit their bank account. No charge for that. It just happens automatically. We send you the invoice. Your bank account is debited. And then you've acquired another $300 worth of gold at whatever price it was, or $300 worth of silver. The minimum is a $100 a month. And you can change products. You can switch that around. You can have both the gold and silver plan at the same time. You can have us store it, you can have a ship it, and most of the products that we have, at least all the popular products, are available in our monthly savings plan.

Tom Bodrovics: Yeah. I think that's a great way to, like you say, automate it and take it out of your own hands, and it provides a great way to dollar-cost average as well.

The interview also delves into inflation and how it acts as a tax. Income taxes that are imposed at the federal and state level as well as sales taxes in some areas unfairly punish gold and silver investors. Nevertheless, some legislative progress at the state level has been made in recent years and continues to be made by the Sound Money Defense League. We intend to play Stefan’s full interview in our next few podcasts.

Well, that will do it for this week. Be sure to check back 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.

Mike Gleason

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.