As global elites gathered in Davos this week to discuss their plans for controlling the world economy, the gold market is delivering an alternative message.
Among the issues being discussed at this year's World Economic Forum is that of central bank digital currency. A presentation at the meeting based on research funded by the Bill & Melinda Gates Foundation called for central bank digital currency to serve the goal of "redesigning access to money."
Technocrats believe that they can reshape the world economy to serve their grandiose objectives -- whether it's redistributing wealth or eliminating fossil fuels or reducing the world population.
Meanwhile, markets are reflecting some inconvenient truths. For one, demand for oil is surging. As China reopens, oil consumption is on track to set a new record this year, according to the International Energy Agency.
Demand for precious metals is also likely to be strong in 2023. The gold market continues to power ahead, sending a signal that the U.S. dollar and other fiat currencies are untrustworthy when it comes to retaining purchasing power.
Gold is up a slight 0.3% this week to bring spot prices to $1,933 an ounce. The white metals are underperforming. The silver market shows a weekly loss of 1.8% to trade at $24.05 an ounce. Platinum is off 2.2% to come in at $1,064. And finally, as of this Friday morning recording, palladium is giving up 3.8% for the week to trade at $1,777 per ounce.
Platinum is in the spotlight this week as a potential political solution to a trillion-dollar problem. The government has reached its statutory borrowing limit. On Thursday, Treasury Secretary Janet Yellen announced emergency measures to stave off a debt default.
News Report #1: Treasury Secretary Janet Yellen has initiated extraordinary measures in order to keep the United States from defaulting on its obligations now that the country has officially hit the $31.4 trillion debt ceiling. That's the limit Congress puts on how much money the government can borrow to make its payments.
Congressional Reporter: We've reached our credit card limit. However, unlike most of us, the Treasury has far more sweeping powers to deal with hitting its credit card limits, so they are using accounting mechanisms – they call them extraordinary measures.
News Report #2: The United States is bankrupt and they're now talking about minting a $1 trillion platinum coin. Literally, the whole point of it would be they would mint the coin and then they'd put it in a vault somewhere, and then this would give the ability of the Federal Reserve to print $1 trillion and basically use it for the government to pay all the bills.
If you’ve been listening to this podcast for any length of time, you’ve probably heard this idea floated before in the past.
Yellen has dismissed the trillion-dollar platinum coin proposal as a gimmick. Of course, she would prefer Congress simply give her the authority to issue more debt. But some within the Biden administration are taking the idea more seriously as a way to blunt any negotiations with Republicans in Congress.
Conservative legislators are demanding some spending concessions before agreeing to raise the debt ceiling. But Democrats insist the debt limit should be raised without any conditions attached.
The government will almost certainly avoid default one way or another. The fact that the Treasury Department could arbitrarily declare a one-ounce platinum coin to be worth a trillion dollars and then sell it to the Federal Reserve to raise revenue shows that hyperinflation is how a sovereign debt crisis can be resolved.
The problem with minting a trillion-dollar coin is that it then becomes too obvious what’s being done. The government would be telegraphing that it intends to monetize its debts by creating trillions of dollars out of thin air. That could cause holders of U.S. dollar assets to panic.
The Treasury would much rather go through the motions of increasing its borrowing capacity and selling more bonds to the Federal Reserve.
But the end result will be the much same. Trillions of new dollars will be created out of thin air. And over time, they will lose value.
But at some point, instead of losing value gradually, Federal Reserve notes could suffer a sudden loss of confidence. That’s what Treasury Secretary Yellen hopes to avoid.
In the meantime, coins minted out of platinum, palladium, gold, and silver will command real market value based on their metal content regardless of whatever face value is attached to them.
On the sound money front, we’re pleased to report that a number of exciting bills have been introduced in state legislatures across the country. Today I’ll touch on Money Metals’ efforts to eliminate sales taxes on gold and silver purchases.
Of course, imposing taxes on the exchange of Federal Reserve notes for monetary metals has become an unusual and outmoded practice in the United States... thankfully only 8 states still engage in it.
In 2022, Money Metals and our customers helped persuade legislators in Alabama, Tennessee, and Virginia to pass legislation to exempt or extend current sales tax exemptions on the precious metals.
With 42 states now having eliminated sales taxes on purchases of gold and silver, our legislative team has turned its focus to Mississippi, Kentucky, Wisconsin, and Maine.
Under the status quo in those states – along with HI, NJ, NM, and VT – citizens are discouraged from protecting their savings against the devaluation of the dollar because they are penalized with sales taxation for doing so.
Removing the sales tax would eliminate the penalty on acquiring gold and silver in those states -- a burden that has become more pertinent at a time when inflation is ripping through the economy and wreaking havoc on family budgets.
Eliminating sales taxes on gold and silver is good public policy for many reasons, not the least of which being that they are money as prescribed in Article 1 Section 10 of the U.S. Constitution. It makes no sense to slap a tax on money.
But there are other arguments that sound money forces also make to win over legislators.
One is that sales taxes are typically levied on the final consumer of a good. Computers, shirts, and shoes carry sales taxes because the final purchaser is "consuming" the good.
But precious metals are inherently held for resale, not "consumption," making the application of sales taxes on precious metals completely inappropriate.
Meanwhile, studies have shown that taxing precious metals is an inefficient form of revenue collection.
The results of one study involving Michigan show that any sales tax proceeds a state collects on precious metals are likely surpassed by the state revenue lost from conventions, businesses, and economic activity that are driven out of the state.
Taxing gold and silver also harms in-state businesses.
It’s a competitive marketplace, so buyers will take their business to neighboring states which have eliminated or reduced sales tax on precious metals, thereby undermining jobs.
Levying sales tax on precious metals harms in-state businesses who will lose business to out-of-state precious metals dealers.
Taxing precious metals is also discriminatory against one particular class of savers and investors.
Gold and silver are held as forms of savings and investment. But states do not tax the purchase of stocks, bonds, ETFs, currencies, and other financial instruments. So, they should not have a sales tax on the purchase of gold and silver either.
Taxing precious metals is harmful to citizens attempting to protect their assets.
Purchasers of precious metals aren't fat-cat investors. Most folks who buy precious metals do so in small increments as a way of saving money.
Metals investors are purchasing precious metals as a way to preserve their wealth against the damages of inflation. Inflation harms the poorest among us, including pensioners, citizens on fixed incomes, wage earners, savers, and more.
Meanwhile, no states have permanently reversed their existing sales tax exemptions.
The state of Louisiana and Ohio both experimented briefly with reimposing sales taxes on precious metals purchases. They both quickly reversed course (within two years) and reinstated their sales tax exemptions on precious metals -- because businesses, coin conventions, and state tax revenues were leaving the state.
There is now a clear and growing trend in the states to embrace sound money reforms, and we’re pleased that Money Metals has been able to play a leading role in these efforts.
But we’re also so thankful that our customers have jumped in and provided invaluable grassroots support for legislation pending in nearly 20 states in recent years. Those calls and emails to state legislators about pending bills make an impact. Most of the sound money victories in the past few years would not have been possible without them.
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.