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Strong 2021 Demand for Physical Precious Metals, Despite Paper Prices

Stock investor complacency is a sign of elevated risk in markets


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Merry Christmas and welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Even as Omicron casts a smidge of doom over markets and upcoming Christmas celebrations, precious metals investors are feeling at least some holiday cheer this week.

The gold market put in a modest rally on Wednesday to erase earlier losses. As of this Thursday recording, gold prices are little changed for the holiday-shortened week to come in at $1,814 an ounce – up about 0.5% since last Friday.

The white metals, meanwhile, are outperforming. Silver shows a weekly advance of 2.3% to trade at $22.97 per ounce. Platinum is up 3.4% to check in at $977. And finally, palladium is posting a gain of $150 or 8.3% this week to hit $1,965 per ounce.

Demand for physical precious metals has been strong in 2021 even though you wouldn’t know it from following paper prices. In addition to robust bullion buying from investors, jewelry demand is also strengthening.

The world’s biggest jewelry market is in India, where wedding season in the second half of the year tends to drive buying. Jewelry demand dipped last year as the pandemic caused many weddings to be cancelled or postponed.

But a lot of pent-up demand is now being released, with Indian gold imports surging to a 6-year high.

The world isn’t going to stay masked up and locked down forever, despite the decrees of some public officials.

The likes of President Joe Biden, Dr. Anthony Fauci, and Bill Gates are warning of a winter of death.

It’s not yet clear how deadly the new Omicron variant will turn out to be. But there are some encouraging signs that patients are recovering more quickly from hospitalizations.

The vaccine and the boosters aren’t necessarily stopping people from getting and transmitting COVID. This week a number of high-profile politicians and celebrities revealed they have tested positive despite being double and in some cases triple vaccinated.

Earlier this year, we were told by public health officials that vaccines were the key to achieving herd immunity. Now suddenly there’s no longer talk of vaccines providing immunity from the virus. Vaccination has been redefined to mean being less likely to die after becoming infected.

A leading proponent of the vaccines has been Bill Gates. He warned this week that we “could be entering the worst part of the pandemic.” He also cancelled his Christmas plans over Omicron worries.

Cancellations, mandates, and restrictions are spreading rapidly again around the world. But so is frustration with COVID decrees and the ever-changing rationales behind them.

If the economy goes back into lockdown, that could spoil the Federal Reserve’s plans to withdraw stimulus. The Fed recently announced that it would begin tapering early next year and aim to hike its benchmark interest rate three times in 2022.

Fiscal stimulus was also set to be dialed back. President Biden’s massive “Build Back Better” spending agenda lacks enough votes in the Senate to be passed as is.

But the moment the economy shows signs of contracting, new stimulus measures will be readied.

For now, investors in the stock and bond markets seem relatively unconcerned about threats to the economy or risks of higher inflation.

But complacency is itself a sign of elevated risk in markets. It means investors may be overexposed to financial assets that are being priced for favorable outcomes.

On the flip side, gold and silver are under-owned. Precious metals currently comprise less than 1% of total investment assets – well below historical norms.

It’s unlikely that Wall Street, pension funds, or other large institutional investors will ever embrace gold in a big way. But they don’t need to in order for metals to gain market share.

It only takes a small increase in demand at the margins to move prices in a big way.

Well, that will do it for this week. Be sure to check back next week for our final Weekly Market Wrap Podcast of the year. And until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a have a very Merry Christmas everyone.

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