Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
The gold market tested a key level this week. On Wednesday, prices rallied up to $1,800 an ounce. The following day, sellers came in to prevent gold from breaking out. As of this Friday recording, the monetary metal trades at $1,782 an ounce and is unchanged now for the week.
Turning to the white metals, silver shows a very slight weekly gain of 0.2% to come in at $26.18 an ounce. Platinum is up 1.8% since last Friday’s close to trade at $1,247. And finally, palladium is powering higher by 2.6% this week to command a lofty $2,889 per ounce.
As for the stock market, it was riding high until mid-day Thursday when tax hike fears triggered a rare selloff.
President Joe Biden indicated he wants to raise the capital gains tax to a top nominal rate of 39.6%. That would be combined with a surtax on investment income to produce an effective rate of 43.4% for some taxpayers. And investors who are unfortunate enough to live in a high-tax state like New York, Illinois, or California would face a total tax on investments of well over 50%.
Punishingly high tax rates represent a big disincentive for wealth holders to continue putting capital at risk in the stock market. And some may now be inclined to sell before higher rates kick in.
Given the 50/50 split in the U.S. Senate, the Biden administration would likely be unable to ram through its tax hike proposal as is. At least one moderate Democrat, Joe Manchin of West Virginia, has indicated he would prefer a smaller tax increase.
But political risks on the tax front could increase after the 2022 mid-term election, depending on how that goes. With a record-high budget deficit projected for the current year, Congress will likely grow hungrier for revenues.
Against this backdrop, prospects for making federal taxation of precious metals fairer seem dim. The IRS has arbitrarily determined that gains on bullion investments fall under the “collectibles” category and are ineligible for the more favorable long-term capital gains treatment applied to stocks.
Clearly, Wall Street has more political sway on Capitol Hill than the sound money movement. But sound money advocates are making progress at the state level.
The Arkansas Senate just overwhelmingly approved a bill to remove sales and use tax on purchases of gold, silver, platinum, and palladium coins and bullion products. Arkansas Senators voted 30-1 to pass this measure onto the Arkansas House of Representatives.
This measure is one of many sound money bills being introduced across the country this year. Bills to remove taxation on sound, constitutional money are also being, or have been, introduced in Alabama, Hawaii, Iowa, South Carolina, Tennessee, and Ohio.
The Ohio House of Representatives has approved a bill which helps Buckeye State citizens protect themselves from the loss of monetary purchasing power caused by federal money printing. The bill includes a provision to eliminate the sales and use tax on purchases of bullion products in Ohio.
It would reverse Ohio’s recent repeal of a longstanding sales tax exemption on the sale of precious metals. Seeing the harm caused to in-state businesses, tourism dollars, and Ohio investors, lawmakers now seek to reinstate the exemption.
This is no surprise. In 2016, Louisiana politicians experimented briefly with slapping sales taxes on precious metals purchases. They quickly reversed course only one year later – and reinstated the exemption on precious metals – because businesses, coin conventions, and state tax revenues were leaving the state.
Sales taxes are typically levied on final consumer goods. Computers, shirts, and shoes carry sales taxes because the consumer is "consuming" the good. Gold and silver are held as forms of savings and investment.
Many who buy precious metals do so in small increments as a way of holding some wealth outside the financial system and protecting it from inflation. For the same reasons, gold and silver are also held by billionaires and large institutions.
Even those among the wealthy who aren’t gold bugs at heart see the wisdom of including tangible assets in their portfolios.
Businessman Kevin O’Leary of “Shark Tank” fame is known for investing in up-and-coming enterprises. But he revealed in a recent interview with Stansberry Research that he also owns old.
Kevin O'Leary: The long-term continuity of gold as a hedge against inflation is undeniable. There is no question that other trends have come and gone, but gold has been a constant since the times of the Romans, when they were mining it on the island of Cyprus. Those mines still exist. And so, at the end of the day, you have to hand it to gold for being a long-term glean of value.
The other issue, if you're really concerned about hyperinflation and the ability to have an asset that is a solid asset, and the trouble with crypto, you can't really see it. You have to hold it in a wallet. It exists in the ether, the digital ether. Gold, you can actually physically hold a bar of gold. Now, that could be a pro or a con depending on the way you think about it. Now, I own gold. I have a 5% weighting in gold. To be specific, two and a half percent of it is in physical gold. I pay the storage.
The reasons for owning gold and silver seem to grow by the day with everything that is going on in Washington and all the accumulating negatives for the U.S. dollar.
This week, the Biden administration aggressively pushed its version of a Green New Deal. Their plans for dealing with the perceived climate crisis entail a radical transformation of the entire U.S. economy.
In remarks Wednesday, Treasury Secretary Janet Yellen vowed to take a “whole-of-economy approach” to moving the U.S. toward net-zero emissions. That would entail a massive reduction in conventional energy usage and massive government-directed reallocation of resources.
Switching from gasoline-burning engines to battery-powered motors on an increasingly large scale will have profound implications for investors. The electrification thesis depends crucially on metals including copper, nickel, lithium, and silver remaining plentiful and affordable.
Over the past year, many of these metals have skyrocketed in price. They could skyrocket further on rising demand and diminishing reserves – not to mention the inflationary policies of the Biden administration and the Federal Reserve.
Silver is both a monetary metal and a Green energy metal – used in everything from solar panels to electric vehicle motors to battery charging stations. It could prove to be one of the best investments for the times ahead.
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.
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.