As investors weigh conflicting economic data and the prospects for a Fed pivot, precious metals markets are quietly basing out.
This week gold made a small move to the upside before pulling back here today. As of this Friday recording the monetary metal is registering a weekly loss now of 0.8% to bring spot prices to $1,651 per ounce.
Turning to the white metals, silver is down by a slight 0.7% for the week to trade at $19.47 an ounce. Platinum is outperforming with a 0.5% advance since last Friday’s close to come in at $955. And finally, palladium prices are off a little over $100 or 5.3% this week to trade at $1,974 per ounce.
Thursday’s Gross Domestic Product report showed the economy growing at a better than expected 2.6% annual rate in the third quarter. That’s a major improvement from the negative GDP growth seen during the first two quarters.
The Biden administration is trying to spin the news as a sign of a resilient economy – just as they have been touting the recent $1.6 trillion budget deficit as a huge success when compared to the federal government’s $3 trillion deficit in the prior fiscal year.
However, skeptics point to some troubling indicators that suggest not all is well.
For one thing, rising consumer prices continue to outpace wage growth. As a result, consumer spending remains depressed and is failing to confirm the reported 2.6% gain in GDP. Much of that superficial economic growth rise came as a result of trade deficit narrowing amid an unusually strong Federal Reserve note on foreign exchange markets.
The real economy faced by consumers is characterized by depleted savings and rising debt levels just to stay afloat. Millions are struggling to afford groceries and other essentials that are skyrocketing in cost.
Another warning sign for the economy comes from the housing market. Sales volumes are plummeting amid spiking mortgage rates.
Economist Ian Shepherdson is forecasting that housing prices could plunge by up to 20% over the next year. That would likely coincide with a double-dip recession.
Legendary real estate investor Sam Zell announced recently that he is investing in gold for the first time in his career. The billionaire sees precious metals as a way to protect against inflation and the risks he sees facing the U.S. fiat dollar regime. He warned on Bloomberg Television that a currency crisis is building.
Sam Zell: We're dealing with a crisis in the fiat currency world. Ever since Bretton Woods, the whole idea was to create stability in the currency markets. And to a large extent, we've done that. And then COVID came and we lost all of our discipline. And the net effect of which is that we've created staggering new obligations that are going to have to be paid for in the future. Part of it is being paid for with very significant inflation. I think the dollar is in great jeopardy, and that's what I've been worried about and, frankly, more than anything else. And we need discipline, and it starts in Washington, DC, where there has been very little of it.
Perhaps the people currently presiding over the Washington, D.C. establishment will get a big rebuke from voters in the upcoming election. But even if Republicans sweep into power, there’s little prospect for them being able or willing to tackle the massive fiscal gap they will face.
Even if the next Congress stops deficits from expanding, the existing debt will become increasingly costly to service thanks to the recent surge in interest rates.
The big question facing investors is how quickly the Federal Reserve will pivot back toward monetary easing. The apparent uptick in third quarter GDP may prove to be a blip ahead of another round of economic declines. For now, though, the Fed is likely to perceive some leeway to continue with additional hikes next month.
That could mean further pressure on precious metals markets – and on stock markets for that matter. But not necessarily.
Other central banks, including the European Central Bank, are also now engaging in large scale rate hikes. That should help blunt the dollar’s strength versus foreign currencies.
The U.S. Dollar Index is down for a second consecutive week, increasing the odds that it peaked for the year last month.
Meanwhile, inventories of gold and silver on the COMEX futures exchange are being rapidly depleted as demand for physical delivery surges. Since May, registered gold supplies have fallen by 6.35 million ounces. At that pace, COMEX vaults could be completely emptied out within a year.
Registered silver inventories are becoming even scarcer. A potential shortage of physical precious metals looms.
That could translate into a run on available bullion products. We have already experienced shortages for several months in Silver Eagle coins produced by the U.S. Mint. Silver Eagles now carry hefty premiums over spot prices – and Money Metals is actually paying more than $10 over than spot for those wishing to sell their Eagles to us.
Premiums on many other common bullion products are also being pressured due to heavy demand and limited supply. The best way to avoid the premiums is to focus on larger bars or to set up a Vault Metals storage account to accumulate gold, silver, or platinum ounces on the cheap.
Investors would be well advised to accumulate physical precious metals while they can still do so at reasonable prices. When these markets finally break out to the upside, the magnitude of the moves could be breathtaking.
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 weekend everybody.
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