Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Another set of troubling inflation reports are generating political shockwaves and roiling financial markets.
On Tuesday, the Bureau of Labor Statistics released the latest Consumer Price Index report. The CPI topped last month’s reading to come in at an annual rate of 8.5%.
The Biden administration has been deflecting blame for the dramatic surge in costs, branding them the “Putin price hikes.” But not even the administration’s allies in the mainstream media are buying the narrative that it’s all Russia’s fault.
CBS News Anchor #1: The U.S. is at its highest level of inflation in over four decades as prices on everyday consumer goods surged in March.
CBS News Anchor #1: That's right. The labor department says gasoline, housing and food prices are the biggest contributors to last month's spike. According to the latest consumer price index, inflation rose 1.2% in March. That's an 8.5% increase from the same time last year. It is the fastest annual rate of inflation since December of 1981.
CBS White House Correspondent: These prices started spiking on all sorts of goods and services before February 24th, when the Russian invasion of Ukraine began. And yet in the week since, the White House has tried to shift blame to the Russian leader saying, "Take it up with him, if you got an issue with these high gas prices."
The truth is that America’s inflation problem didn’t originate with Russia’s invasion of Ukraine. Nor did it begin when Joe Biden was sworn into office.
A good case can be made than Biden’s big spending agenda along with his restrictions on domestic energy production have exacerbated price level increases in the economy. But inflation pressures have been building for years thanks to monetary policy that enjoys the support of the entire Washington, D.C. establishment.
Let’s not forget that it was Republicans who first installed Jerome Powell as Federal Reserve chairman. When they were in power, they cheered on loose monetary policy.
It seemed like a safe political calculation at the time. Inflation pressures had not yet produced sticker shock at grocery stores and gas stations.
But a few lone voices were warning that running up huge budget deficits, suppressing interest rates, and growing the currency supply faster than the economy would ultimately have consequences. Now those consequences are being felt by everyone.
The 8.5% reading on the CPI is only part of the story. Wholesale prices as measured by the Producer Price Index are rising at an even faster pace. On Wednesday, the PPI came in at an 11.2% annual rate.
That means higher prices are almost certain to continue moving through supply chains down to the consumer. And the real rate of inflation experienced at the consumer level is already higher than what’s being reported officially.
The CRB commodity index surged again this week and is up 35% for the year. Precious metals markets are also staging a rally here.
As of this Friday recording, gold prices are up 1.3% for the week and will close there to come in at $1,981 per ounce. The markets are closed here today for Good Friday. The silver market gained a healthy 3.6% to trade at $25.92 an ounce. Platinum is up 0.4% to trade at $1,010. And finally, palladium will end the week down 2.3% to bring prices to $2,421 per ounce.
More investors are waking up to the need to seek inflation protection through hard assets. Demand for physical bullion continues to run strong as the threats of war and currency depreciation hit conventional financial assets, although demand is down slightly from the record-breaking pace we saw in March.
The U.S. bond market is suffering its worst dip in decades. Not only are bondholders losing out to inflation, but they are also getting stuck with huge capital losses as dollar-denominated debt instruments lose market value.
Many investors had wrongly assumed that Treasuries were essentially risk-free. That’s what most financial advisors preach.
The thinking is that the government will never default with the Fed serving as the buyer of last resort. Plus, the Fed’s massive bond buying campaign had been keeping interest rates suppressed and bond values elevated.
That thinking worked out well for investors – until suddenly it didn’t anymore. The risks in owning assets that are artificially propped up is that they can come crashing down to meet reality. That’s what is happening now as the Fed plots further rate hikes and a significant reduction in bond purchases.
Treasuries are not a viable safe haven in an environment of high inflation and rising rates. Gold and silver are.
The U.S. Mint reported sales of more than 426,000 ounces in gold coins during the first quarter of 2022. That’s the highest in 23 years!
And despite the dysfunctional Mint’s failure to secure enough blanks to meet demand for silver coins, sales of silver products overall remain strong. Many investors are avoiding U.S. Mint coins such as Silver Eagles at this time due to high premiums caused by production shortages. They are opting for coins produced by other mints, privately minted rounds, or bullion bars instead.
In other news, your Money Metals legislative team helped to secure an expansion of the Alabama sales tax exemption involving gold and silver.
In 2019, Alabama originally removed sales taxes from most gold, silver, platinum, and palladium coins and bars. Legislation signed by Governor Kay Ivey now clarifies that the exemption covers all common forms of bullion, removes burdensome reporting requirements, and extends the sales tax exemption until 2028.
Alabama follows Virginia, where just days earlier Money Metals had helped secure an expansion of a sales tax exemption in that state. In Virginia, the exemption previously did not apply to transactions under $1,000, thereby singling out smaller investors for the discriminatory tax. That $1,000 threshold will vanish on July 1st, making all precious metals purchases non-taxable going forward in the Old Dominion.
Working through its Sound Money Defense League project, Money Metals Exchange backs sound money reforms like these across the United States. 41 states now fully or partially exempt gold and silver from sales taxes. That leaves 9 states and the District of Columbia that still harshly penalize citizens seeking to protect their savings against the serial devaluation of the Federal Reserve Note. Our joint efforts are seeking to reduce the number even further.
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 Easter 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.