A big week for precious metals markets as inflation pressures push consumer prices to painful new heights.
On Thursday, the U.S. Labor Department reported that inflation at the wholesale level is up 8.6% from a year ago. That’s the steepest annual advance since the data started being reported.
Of course, Americans who have shopped at a grocery store recently or tried to rent or buy a car don’t need to read a government report to discover that prices are surging. In many respects, inflation is even worse than reported officially.
The economy was supposed to get back to normal this year. But instead, supply disruptions are spreading and driving shortages of various consumer products from office furniture to computer chips.
News Report #1: Massive supply chain disruptions, empty shelves in stores all across the country and rising prices for what's in stock.
News Report #2: The supply shortages and the consequent shortage of goods delivered everywhere has caused prices to spike up.
News Report #3: Annual inflation now at a 13-year high. Prices for beef and bacon, used cars, gas, even furniture, all up double digits.
News Report #4: This year has seen record-breaking price jumps for children's shoes, up nearly 12% furniture, up more than 11%.
News Report #5: All these things are going up too: car rentals, they're up already almost 43%, if you can even find one. Gas, that's true. Gas up 42%. Steak is up 22%. Lodging is up almost 20%.
Bloomberg Commentor: Unless you embrace the analytically meaningless phase of persistently transitory, which I've heard, persistently transitory, this inflation round is not transitory.
Things will likely get even worse for Americans struggling with costs of living heading into the winter. The U.S. Energy Information Administration projects households will see a jump of over 50% on their heating bills compared to last winter.
Those who use propane, heating oil, or natural gas to keep their homes warm will likely see the sharpest increases. Prices for energy commodities have been rising relentlessly over the past few months.
Precious metals markets may now be ready to play catch-up, although they are taking a breather here on Friday.
This week gold is up 1.0% to bring spot prices to $1,780 per ounce, despite it pulling back a good bit here today. Silver shows a weekly gain of 3.1% trade at $23.46 an ounce. Platinum prices are pushing higher by 2.9% to check in at $1,069. And finally, palladium is essentially unchanged now since last Friday’s close to command $2,113 an ounce.
Metals markets reacted positively to minutes released Wednesday from the Federal Reserve’s latest meeting. Officials signaled they may begin tapering back their $120 billion in monthly bond purchases as soon as November.
They will have to start making at least some gestures toward reducing monetary stimulus if they want to retain whatever credibility they have left when it comes to inflation.
Although some investors fear Fed tapering will crash the markets, the early stages of a Fed tightening campaign tend to be favorable. Metals markets in particular often rally as the Fed begins hiking rates – contrary to what many expect to be the case.
Of course, right now central bankers are merely contemplating pulling back on bond purchases. Rate hikes aren’t even on the table yet.
The time for metals investors to be fearful of the Fed is when it may be getting ready to push interest rates above the inflation rate. If that ever occurred, rates would turn positive in real terms.
Dollar-denominated debt instruments would be viable, at least theoretically, as a place to preserve wealth. Hard assets as alternative stores of value would be vulnerable to being dumped by investors who could get compensated for holding paper instead.
But at the moment low-yielding debt instruments are more like certificates of confiscation. They are virtually guaranteed to take away purchasing power from holders when measured against current inflation realities.
Inflation risks and other risks face holders of deposit accounts at banks. For one. the IRS is pushing a sweeping plan to track all funds over $600 flowing into and out of bank accounts.
The agency’s supposed objective is to identify wealthy tax cheats. But IRS snooping at this level could lead to harassment of millions of Americans who have committed no tax fraud.
That’s just the beginning of the Biden administration’s plans for a “Great Reset” of the banking system. President Joe Biden’s nomination to the head the Office of the Comptroller of the Currency, Saule Omarova, wants to “end banking as we know it.”
She advocates a form of socialized banking in which private bank deposits would be brought under the direct control of the central bank.
She calls her radical new banking regime “the People’s Ledger.”
Also dubbed “FedAccounts,” they would presumably be denominated in "FedCoin" – the central bank digital currency being developed behind the scenes at the Federal Reserve to enable greater tracking of and control over citizens’ financial transactions.
Although socialized banking may seem like a remote possibility in the United States of America, a financial crisis could quickly turn a central planner’s pipe dream into reality.
For example, a cascading series of bank failures that threatens to bankrupt the FDIC and wipe out millions of depositors could give the Fed all the impetus it needs to take over the entire banking system.
Holding hard assets outside the banking system may be the best form of insurance against risks within the banking system. And precious metals, being tangible forms of money, are at the foundation of any strategy to protect against risks inherent in the fiat currency regime.
Long before the Federal Reserve System came into being in 1913, gold and silver backed the U.S. dollar. And if at some point the Fed and its unlimited supplies of unbacked dollars lose all credibility with the public, precious metals will again provide people with ledgers of real value.
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 weekend everybody.