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Wall Street Roiled by Hot Inflation Data: Is This REALLY “Transitory”?

Precious metals markets overshadowed by recent cryptocurrency craze


Don't want to listen? Read the podcast below!

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

Coming up we’ll hear part 2 of a recent interview Money Metals President Stefan Gleason gave with Palisades Gold Radio. Stefan discusses dealer and investor harassment laws maintained by certain states, talks additional sound money initiatives at the state and federal level, including legislation requiring a true audit of America’s gold. So, stick around for the conclusion of this fantastic interview, coming up after this week’s market update.

In this special Thursday release of our weekly podcast, we’ll go over the inflation bombshell that hit markets on Wednesday.

The Labor Department reported yesterday that the Consumer Price Index jumped 4.2% from the prior year. Although a big rise in the CPI had been expected, the actual number came in even higher than economists had forecast.

According to the CPI data, inflation in April accelerated at its fastest pace in more than 12 years. Higher prices showed up in everything from used cars to lumber to energy to food.

If April’s rate of price increases were to persist for another 11 months, the annual CPI growth rate would be 10.3%. And that wouldn’t even account for items that the CPI excludes or understates.

Jerome Powell and other Federal Reserve officials have repeatedly insisted than any rise in inflation this year will be “transitory.” They cite base effects from last year’s economic lockdown and supply bottlenecks they expect to be temporary.

But investors appear to be concerned that inflation is now becoming a much bigger problem than the Fed acknowledges.

Emergency government benefits pumped into pocketbooks and a record-high budget deficit that shows no signs of narrowing will have lasting effects. The cycle of spending, borrowing, and printing by the trillions looks to be more of a permanent than a transitory practice in Washington.

Stocks, bonds, and even precious metals got hit with selling following the CPI report. However, gold did show relative strength versus the S&P 500, which lost 4% for the week through Wednesday’s close. Gold was down a mere 0.5% over that period.

The monetary metal continues to hold above its $1,800 breakout level and currently comes in at $1,830 an ounce.

The silver market also succumbed to some modest selling pressure through Wednesday – though it, too, held up better than the stock market. Silver prices now trade at $27.05 per ounce, off a little less than 2% since last Friday’s close as of this Thursday morning recording.

Naturally, many precious metals bulls were disappointed that gold and silver didn’t scream higher on the inflation news. The reason they didn’t has a lot to do with interest rates. Bond yields moved up and futures markets began pricing in higher probabilities for a Fed rate hike by the end of the year.

When it becomes clear that central bankers won’t get out in front of inflation with a sufficient number of rate hikes anytime soon, that’s when precious metals markets can be expected to take off. Gold and silver thrive during periods of negative-trending real interest rates – and that includes rate-hiking cycles where the Fed is almost always behind the curve.

Although bullion buying has been strong in 2021, precious metals markets have continued to be overshadowed by the cryptocurrency craze. Bitcoin and more recently Dogecoin have been all the rage among digital speculators.

Last weekend, billionaire Tesla CEO and cryptocurrency aficionado Elon Musk hosted Saturday Night Live. During the “Weekend Update” segment, Musk’s character was repeatedly asked to explain what Dogecoin is. He retorted that it’s just as real as the U.S. dollar, which isn’t far from the truth.

SNL Weekend Update Anchor #1: So, what is Dogecoin?

Elon Musk: Yeah, like I said, it's a digital currency.

SNL Weekend Update Anchor #1: Like, okay, for instance, this is a dollar, right? It's real. See?

Elon Musk: Sort of. Sort of real. Yeah.

SNL Weekend Update Anchor #1: So, what is Dogecoin?

Elon Musk: About as real as that dollar.

SNL Weekend Update Anchor #1: Now Colin, are you making any sense of this?

SNL Weekend Update Anchor #2: I've actually been reading a lot about it, yeah. I'm trying to diversify my investment portfolio. My question is what is Dogecoin?

Elon Musk: I'm glad you asked.

SNL Weekend Update Anchor #1: It's a good question.

Elon Musk: Well, it's the future of currency. It's an unstoppable financial vehicle that's going to take over the world.

SNL Weekend Update Anchor #1: I get that, but what is it, man?

Elon Musk: I keep telling you. It's a cryptocurrency you can trade for conventional money.

SNL Weekend Update Anchor #1: Oh, so it's a hustle.

Elon Musk: Yeah, it's a hustle.

Musk has been accused of using his platforms to manipulate crypto markets. Some say he single-handedly caused the recent price explosion in Dogecoin with his constant tweeting about it. But after confessing on SNL that it’s a “hustle,” the cryptocurrency promptly sold off.

Dogecoin began as a joke based on an internet meme and it may well have peaked as a result of jokes made by Elon Musk.

Bitcoin is regarded as a more serious cryptocurrency by way of gaining wider acceptance by the public and businesses.

But Musk shocked Bitcoin enthusiasts on Wednesday when he announced that Tesla would no longer accept the cryptocurrency as payment. He cited Bitcoin’s hefty energy use as being environmentally unfriendly.

Bitcoin prices plunged as much as 17% on the news.

Pressure from social activists and government regulators who have long opposed cryptocurrency could force other major corporations and financial institutions to blacklist Bitcoin.

All this goes to show that despite their massive run-ups to market capitalizations that rival top blue-chip stocks, cryptocurrencies remain fragile. They rest entirely on confidence that can erode in an instant.

By contrast, precious metals don’t derive their value from any celebrity’s comments and don’t depend on the approval of big corporations.

Gold and silver are valuable based on their history, their aesthetic properties, their scarcity, and their utility. These fundamentals will never go away regardless of where precious metals ultimately fit in the universe of alternative currencies.

Well now, without further delay, let’s get right to part 2 of Stefan’s recent interview with Palisades Gold Radio, and we start with his response to a question about laws that are in place in many jurisdictions to harass local coin dealers and invade the privacy of precious metals buyers.

Stefan Gleason

Stefan Gleason: It has a lot to do with second-hand dealer laws and these laws that police think that, "We could solve every crime if we made everybody report everything they bought that anyone would ever want to steal."

And so, the idea is that a local coin shop, when they buy something from the public, so let's say they buy jewelry. You go in and you sell a gold brooch. Well, maybe it was stolen. Maybe it's being fenced. A lot of states and localities have passed ordinances and laws that require the dealer, who makes the purchase, to hold it for at least seven days or 14 days, don't resell it, don't melt it, take photos of it, upload those photos nightly to the county sheriff's office along with the ID of the person who sold it to you.

And so basically, they want all of these transactions to be reported when a dealer buys something from the public. And so, that's probably the main concept around that. Now, I'm not going to argue on the... I mean, I have ideological problems with that for anything, but jewelry, okay, maybe there's some uniqueness. Theoretically, it's some unique brooch, grandma's brooch. There's only one like it, whatever. But a gold bar, a Gold Eagle. It's ridiculous. These are all fungible. There's no, no rationale to say that that could be identifiable, even if you thought it was a good idea, which I don't.

A lot of states are dealers who buy from the public are forced to hold those bullion bars and coins for long periods of time before they can sell them, take tremendous amounts of information from the people that sell them to them, upload that to the police, which probably sits in some database they never look at.

Tom Bodrovics: I can't imagine how inefficient that system could be, even if you had bars with serial numbers on them.

Stefan Gleason: Right. It's ridiculous. But it's basically a huge cost to those dealers because for one, I mean, when you're in the bullion business with tiny margins, you can't necessarily tie something up for two to three weeks. What if somebody comes in the next day and says, "I want to buy 10 ounces of gold." Well, you might have huge amounts of gold, but you can't sell any of it because you bought it all from somebody in the last 14 days. And then you have more in your coin shop safe. I've talked to dealers who have been robbed at gunpoint. There's more metal probably on their premises as a result of these kinds of laws.

Now, in Arizona, it goes even further, and it literally, makes it illegal to use cash to buy precious metals. So, you have to make an electronic transaction, but I have never heard something where it's illegal to use a five dollar bill to buy a certain type of good, but in Arizona, the statute says you cannot use cash, you have to do an electronic transfer, it has to be an electronic documented transaction.

It's literally a ban on cash for one type of purpose. And so, all of these things, we call dealer and investor harassment laws. Investor harassment, because the privacy intrusion, dealer harassment, because of tying up capital, becoming more susceptible to thefts, having a huge administrative burden, and then just the idea that you can't even use cash is just beyond the pale. But there are a couple dozen states that have these kinds of things on the books, and there's many cities.

Our main business is in Idaho. So, Idaho doesn't have such a law, but several of the cities around the city we're in has such a law or ordinance. So, we've been documenting that and added that to the index last year, because I thought it was important to put that on the radar. We have not introduced any bills yet to address those, but we're looking for opportunities.

Tom Bodrovics: So Stefan, you were telling me, before we hit record here, that your highest real score on the index is about 61, 62%. How does that provide, basically, an incentive for these states to keep getting better?

Stefan Gleason: I had a political background before I launched Money Metals. About 12 years ago, I was in public policy and we learned over many years that you got to be careful about giving out a lot of credit when you're dealing with politicians, because sometimes that's used against you. If we were to say certain states are the best states by far on these things. They have a 90%, 100%. There's very little incentive to... To the extent people are looking at the Sound Money Index and saying, “We like this state. Is there anything more to do on the state?" We don't want to give the impression that there isn't anything more to do.

I mean, Wyoming is number one on the index, and they have a 61%. So the top 10, go down. Nevada is number 10, has a 40%. So, there's a long way to go. They may have no income tax on precious metals. They may have no sales tax on precious metals. They may have a lower income tax rate, which we score, than the average state. They may own gold in a pension fund like Texas, but there's many things they haven't done. They may have dealer harassment laws. They may not have a depository. They may not have protection for gold clause contracts, which is the idea that if somebody has an arrangement with some other person to be paid in gold over time, which used to be common, and back when the money was gold, essentially, and silver, every contract was essentially a gold clause contract because when you were being paid and in dollar bills, you were being paid in silver.

And that's an important idea for long-term protection, so both parties know what they're getting paid in the future. Right now, if you have an agreement to receive dollars over the next 20 years, what are you getting? You don't know. It's probably going to go down in value. Your wealth is being transferred to the other person over time.

So, the idea of a gold clause contract, I think, can come back in a way that people can opt out of the dollar-based or Federal Reserve Note-based system and say, "We're going to have a contract that's denominated in silver ounces, or Gold Eagles, or whatever." And so, that idea of a gold clause contract is... There aren't many of them out there.

There's a paper by Edwin Vieira, which we could, if somebody wants to contact us, we can send to you, that talks about how these can be used. But the idea is that a state could... If you have a dispute under a contract, and you go to the court and say, "Enforce this contract," we don't want the judge to say, "Well, he doesn't have gold, so he can pay you in dollars." And that would be what would happen if you don't have greater protections for gold clause contract enforcement. And so, and it's kind of a sort of a narrow issue, maybe, to the listeners, but it's something that we think is important enough to put on the indexes. Does the state have special, or I should say, strict enforcement of these contracts, where you cannot substitute Federal Reserve Notes for gold, if that's what the contract requires? There are states considering legislation on that.

Tom Bodrovics: Excellent. So, are there, or what kind of progress can you share with us that's happening at the federal level?

Stefan Gleason: So, the federal level... most of it's negative, as people know. I mean, you've got debt expanding dramatically, you have Federal Reserve bailouts in the trillions of dollars, even this year. And you have a Gold and Silver Eagle program. They mint Gold and Silver Eagles, they can't mint enough. That's another issue. It's one of the reasons premiums are so high right now. But there are some things that are on the radar. Obviously, there was the Audit the Fed bill, which Rand Paul had and, it even passed one of the houses a few years ago. That's kind of going back and forth as an issue that would be valuable, more transparency in the Federal Reserve System.

Of course, the real problem is the Federal Reserve system itself, which should be eliminated. But some feel that auditing the Fed would kind of be a step in that direction, because then you'd realize, "Oh, here's what they're doing behind closed doors. This is all manipulation. This whole system is rotten. Let's get rid of the Fed."

Congressman Mooney has two bills that we're working with him on, and one is the one I mentioned earlier, which is the Monetary Metals Tax Neutrality Act that would end gold and silver as something that can be taxed under the income tax. And then, the other is the Gold Reserves Transparency Act, and that's the audit the gold bill. That's kind of what we're calling it. The idea that United States, theoretically, has large, I think, 8,000 tons of gold, somewhere in that neighborhood, on the books, but it has not been audited for 70, almost 70 years. And even that audit was not a complete audit, or wasn't a complete inventory.

So, there has been no serious review of US gold reserves for almost 70 years. And Congressman Ron Paul had a bill along these lines seven or eight years ago, and it was not complete. It was good. There was actually a little hearing on it, didn't pass. The Treasury came in and said, "Hey, we do check. Here's some of the things we're doing to make sure." But the issue with US gold reserves is not just whether it's all physically there. Obviously, that's important. Is it all physically there, where is it, how much of it is Good Delivery bars, how much of it is melt, stuff that was collected back in 1933, coins and things that maybe are not pure, and that kind of stuff. But are all the ounces there and are they properly secured? That's one layer of what should be audited and inventoried and then assay.

So, this bill by Mooney would do those things but it also goes a step further, and this is the part, I think, of the bill that is even more important, and that is a full review of any encumbrances that have been placed against the United States gold. So, just because it's in Fort Knox, or in the New York Fed building, or at West Point, does not mean that it's, somebody else doesn't think they own it. I mean, it could have been pledged. It could have been pledged to the International Monetary Fund as part of a gold swap arrangement. It could have been leased. It could belong to China.

Just because the gold is actually there, it doesn't mean that it belongs to the United States, and doesn't mean that other people don't think they own it. Now, I guess if you're the United States, and China says, "Hey, we want your gold," or maybe that's not a good example. Germany says, "We want your gold," and they did say that, and it took them seven years to get it. I think they may have gotten it a little bit faster, but theoretically, the US could say, "Well, too bad. It's in our country. You can't come and get it. It's our gold now." Of course, maybe that's what they fall back on.

But there needs to be a full examination of all of these transactions that may have occurred involving the United States taxpayers' gold. And so, Mooney's bill does all of the physical stuff, but then it looks at this accounting stuff, which could be the most revealing part of any audit that's done. And so, he introduced that bill last year for the first time, and then in the last session, I should say, and then that's going to be reintroduced in the next month or so.

So, beyond that, I mean, there's commissions to have a study going back on a gold standard. That's been discussed. There's some things that can be done at the US Treasury, too. I think I mentioned earlier that there's no statutory basis for this 28% income tax. So, the US Mint mints gold legal tender coins and silver legal tender coins. It could itself, the US Treasury, could say, "These are not going to be taxed." They could do that without legislation. There were some groups that we were working with and talking to that were pressing the Secretary of the Treasury in the last administration to do that.

But I think it's a pretty bad scenario right now. I think in a crisis, some of these things could come very quickly to the forefront, but at the current time with the Biden administration, not that this is a partisan issue, but they need this system to perpetuate money printing and the Fed stepping in and monetizing the debt. So, I don't think we have much chance of doing anything at the federal level. That doesn't mean we shouldn't keep pushing.

But I'm very optimistic at the state level, because we have had progress there. We've only gone, and other than the loss in Ohio, which I mentioned, we've really only gone in one direction, and that is towards more protection for sound money and lower taxes or elimination of taxes on gold and silver.

Tom Bodrovics: Absolutely, Stefan. That's... It's very interesting, the way that all those things are developing. And I just had a discussion with Chris Powell of GATA, and talking about how many times the, let's say, the US' gold could possibly be rehypothecated. It's just crazy to think about.

Stefan Gleason: And they do a very good job there at GATA. I really appreciate them and I think they're doing a tremendous service to the entire gold ownership community.

Tom Bodrovics: So Stefan, I want to be respectful of your time. Why don't you tell us quick about one interesting program that you have, and it is the contribution every month to, basically, a savings account.

Stefan Gleason: Oh, okay. Thank you for asking about that. I didn't realize you'd seen that. 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 about five 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 this is a way to put it on autopilot to stop sort of the guesswork around timing the market, just get into a disciplined program that just happens automatically.

It's sort of like taxes. So, one of the big problems with the income tax is that a lot of people don't realize how much they're paying, unless you're a small business owner and you have to write a check, because it comes right out of your paycheck before you even see the money. And so, at the end of the year, people get excited. They, "Oh, I got a $2,000 tax refund. I beat the system," They loaned money interest-free to the government throughout the year and got a little bit of it back.

So, but the idea of this is harnessing that principle of automation and default. And so, the default with the monthly plan is, every month, regardless of what happens with gold and silver prices, regardless of what you're doing, unless you pull out of the program, you have an automatic purchase that just happens, and then we, typically people will have us ship it to them every three months, or they will store it in the depository.

And 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 $100 a month. And you can change products. You can switch that around. You can have both a gold and silver plan at the same time. You can have us store it, you can have us ship it. And most of the products that we have, at least all of 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 kind of take it out of your own hands and it provides a great way to dollar cost average, as well. I encourage all of our listeners to go check out your website. You have the Sound Money Index on there, the modern Money Metals Insider quarterly report, the savings account. Why don't you tell us what it is and where we can find more about you and the company, Stefan?

Stefan Gleason: Thanks again. I appreciate the opportunity to talk about the public policy stuff because it's not something that... I haven't heard it covered on your podcast and it's an important aspect, so I really appreciate the opportunity. Money Metals, we're one of the largest dealers in the country. Moneymetals.com is our website and there's lots of content on the site. We're also a publisher, if you will. We have a free print newsletter that goes out quarterly to all of our customers. We send out content almost daily, news articles, or certain topical articles about the precious metals markets, about the public policy stuff, about any topic related to precious metals and gold ownership. So, we're also a pretty good sized publisher in our space, if you will.

So, we're not just about selling. We're about educating, guiding people on pitfalls. One of the things I should mention, one of the early things about our company, was we were founded in part because of these rare coin dealers that were doing the bait and switch, and I was in publishing before I launched Money Metals, I had a publishing company for a short period. And the only advertisers that could afford to publish or advertise in our publication were the rare coin dealers that had 50% markups and generally, the people you see on TV with their celebrity spokespeople, Charlton Heston, or, and he's not around anymore, but folks like that.

So, they're still a major force in our industry. Unfortunately, a lot of folks are being taken for a ride, paying huge markups, finding out they lost half their money on day one because of the premium. And so, we've always been focused on education. And so, one of the early things we focused on was, hey, here's why this is bad. Here's how you avoid the pitfalls. Here are some of the phony stories they tell you to try to get you to buy their overpriced, rare coins. And no knock on collectors. There are true rarities out there, if you know what you're doing, but for the vast majority of people, they're not trying to buy a piece of artwork. They're trying to buy a piece of gold. And, focusing on melt value and things like that are what you want to do.

So, we've always had an educational component, and then we also have a depository. We have a program you can borrow against your gold for business purposes, like a line of credit, like a home equity loan. And we have the monthly plan. So, and we work with IRA companies and that kind of thing. We love to help people on any of those fronts, and you can go to our website, moneymetals.com, get on our free email newsletter, and if you become a customer, you'll start getting the print newsletter. We'd love to help anyone, especially in these times. One thing that we've noticed is a lot of our competitors are having trouble with inventory, not that it's easy. We're not flush with inventory on a lot of stuff, but we pretty much have every popular item in stock for gold and silver and I think that differentiates us also. It seems that we're doing really well on the sourcing side. You can find probably what you want at Money Metals, right now.

Tom Bodrovics: Excellent, Stefan, and I appreciate you bringing up the, let's say, the taxation issue and that index, I will agree it's not necessarily the sexiest topic, but it is something that we haven't covered yet on the podcast. Stefan, I really appreciate your time and hopefully we'll hear more from you in the future.

Stefan Gleason: Thank you very much, Tom. I appreciate it, also.

Well, I hope you enjoyed the conclusion of that Palisades Gold Radio interview with our company’s president. And that’s a wrap for this week’s show. 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.

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