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Gold & Silver Rising on Geopolitical and Inflation Fears
States Eye Gold and Silver to Hedge State Funds
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, what a week for the gold market!
The monetary metal gained $30 on Thursday to close at $1,900 for the first time since last spring. As of this Friday recording, gold prices are coming in at $1,899 per ounce -- good for a weekly gain of 1.8%.
Gold’s uptrend is being confirmed by the mining stocks. On Thursday, the HUI gold miners index surged to its highest level since last June. The mining sector’s performance was particularly impressive given it occurred on the worst down day of the year for the broad equity market averages.
Bitcoin also succumbed to selling pressure. The cryptocurrency sector is turning out to be much more strongly correlated with the technology sector than to gold or inflation. Whatever the merits of cryptos as an alternative asset class – and there are certainly some – no digital currency will ever substitute for hard assets like gold and silver within a diversified portfolio.
And turning to the silver market, prices are up 1.4% this week to trade at an even $24.00 per ounce. Platinum is putting together a weekly advance of 3.8% to trade at $1,079. And finally, palladium checks in at $2,339 an ounce – essentially unchanged since last Friday’s close.
Metals markets jumped on inflation data and geopolitical concerns centering on Russia. It’s possible that the latest bout of Russia fearmongering will once again turn out to be overblown. The Russian invasion of Ukraine said likely to take place this week by Biden administration officials hasn’t happened as of this recording.
The mainstream media aggressively pushed the idea that an invasion was imminent. Biased Associated Press reporters were also fed intelligence by Biden administration officials suggesting that a prominent alternative financial media site is secretly spreading “Russian propaganda.”
The AP ran a hit piece against ZeroHedge for its supposed Russia ties. Unlike mainstream financial media, ZeroHedge regularly reports on issues like gold market manipulation. It also critiques U.S. dollar hegemony, U.S. interventionism, and the authoritarian forces behind “great reset” globalism at the World Economic Forum.
Whoever speaks out on issues like these risks being branded a “conspiracy theorist” or a puppet of Vladimir Putin.
Obviously, Putin is no particular ally of the American sound money movement. But it’s worth paying attention to the Russian central bank’s steady accumulation of gold and its reasons for doing so.
Since 2014, Russia’s central bank has been switching out Federal Reserve Notes for gold. According to the latest reports, the Bank of Russia now holds 23% of its foreign reserves in gold and just 22% in U.S. dollars.
Russia is turning to gold in part because it faces the threat of severe new economic sanctions imposed by the United States and its allies. Some are suggesting the Federal Reserve should freeze all U.S. dollar assets held by the Russian central bank in accounts at the Fed.
Such actions would call into question the trust and safety of holding U.S. dollars. If U.S. officials can simply decide to cancel the accounts of foreign central banks, then a lot of foreign countries will think twice about continuing to hold them as reserves.
In trying to punish Russia, U.S. officials risk accelerating de-dollarization around the world. And that, ultimately, may play right into Putin’s hands.
It isn’t the Kremlin or Russian propaganda campaigns that are behind the U.S. currency’s declining credibility. It is losing value and prestige rapidly as a result of the aggressive debt growth and currency creation policies undertaken by Washington, D.C.
This month, we’ve seen Consumer Price Index readings come it at their highest levels in 40 years. We’ve seen producer price increases surge to record levels. And this week import and export prices came in – you guessed it – much higher than expected.
As we’ve noted before, geopolitical flare-ups rarely trigger major trends in markets. They drive volatility in the short run, but in the long run investors would be wise to focus on more persistent drivers of major trends.
Currency debasement is certainly one of them.
Needless to say, neither Fed officials nor establishment media outlets anticipated the inflation problem that currently plagues the U.S. economy. But some alternative and independent sources did.
We will continue to do our part here at Money Metals Exchange to help inform the public about precious metals markets and sound money. And we won’t be afraid to shed light on issues that are either dismissed, denounced, or ignored by conventional financial news sites.
Speaking of sound money, Money Metals’ national project to promote legislation reinforcing the importance of the monetary metals has a couple positive developments to report this week.
On the tax front, the Mississippi bill to void that state’s unjust sales tax on gold and silver passed the state house on Thursday -- only one vote shy of unanimously. It now heads over to the senate side.
Meanwhile, the Idaho house overwhelmingly passed a bill yesterday to permit the Idaho state treasurer to hold physical gold and silver in order to protect taxpayer funds from inflation. Here’s a short clip from Rep. Ron Nate on the Idaho house floor:
Rep. Ron Nate: Last week the headlines from CNBC was that inflation surges 7.5%, highest since 1982. On Reuters, US consumer prices, largest gain in 40 years, inflation becomes widespread. It was the 7.5% inflation that was calculated last week, but it's even higher in the Intermountain West. It's more like 9% here. Throughout the so-called pandemic we've heard the phrase, in these uncertain times, too many times than is comfortable. Inflation's out of control. And we all know, well, I hope we all know. I'm an economics teacher, so I hope we all know this. Inflation destroys the purchasing power of your wealth. Inflation hurts lenders because they get paid back in dollars that are worth less in real value than the dollars they lent out.
Currently our state treasurer is charged with the responsibility and stewardship to hold onto Idaho's idle funds. Included in that are local governments who can have their money invested by the state treasurer in idle funds in two different options for the localities and one for the state.
The state treasurer is controlled by statute that the state treasurer can only invest in certain types of items, but all of those items in the list are short term debt instruments, or maybe a few long term debt instruments, but they're all debt instruments. All of these idle funds invested in this way makes the state a lender and makes us susceptible to the dangers of inflation. Holding cash is not much better. So, Idaho's investment options give us risk to inflation and risk to default if those bonds happen to fail. They have a low nominal return, less than 2% over the last few years. And because inflation is much higher than 2%, that means we're getting a negative real rate of return, about 5.5% negative real rate of return in the last year. This is risk without reward.
Real assets like gold and silver are two modest options to mitigate risk. They mitigate risk in two ways. Number one, their prices often move in the same direction as inflation. So, they mitigate the risk of losing real value. And this would be the only asset in the mix that does not make us a lender. It makes us an owner. There is no counterparty risk relying on the future stream of some debtor to pay us back.
House bill 522 is a bill to expand the state treasurer's office investment options. It's not a mandate. The state treasurer may or may not choose to exercise the authority to invest in gold and silver, just like they choose to invest or not invest in some different types of bonds out there. This will give us a more favorable balance between risk and reward in Idaho's idle fund investments. Thank you.
Again, that was Ron Nate from Idaho before his bill sailed through the Idaho house on a 55-14 vote. Eyes are now focused on the Idaho senate which has yet to act on the bill. We’ll be sure to keep you updated on this and many other important sound money policy battles across the nation.
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 President’s Day weekend everybody.