Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Gold and silver markets are coming under pressure again this week as investors weigh economic growth prospects against the risks of inflation and deleveraging.
As to the economy, stocks saw a bounce back early in the week on renewed optimism. Wall Street and the Biden administration touted unemployment claims falling to their lowest level in decades. Only 4.2% of Americans are out of work – at least officially. That number is highly misleading, though, since it omits millions of people who have left the workforce entirely and aren’t counted as unemployed.
A shortage of people who are able and willing to show up for work is hitting the restaurant and retail sectors especially hard while stoking wage inflation. The promise of a better paycheck may sound good to employees and job hunters alike. But the actual purchasing power gains can be fleeting as higher labor costs force businesses of all types to turn around and raise prices on customers.
But President Joe Biden is downplaying inflation concerns and touting a strong economy. Wall Street cheerleaders such as CNBC’s Jim Cramer are amplifying the narrative. According to Cramer, it’s the greatest economy ever.
Jim Cramer: First of all, to me, we have the strongest economy perhaps I have ever seen. See that number this morning, the unemployment number? It's the best in years. Best since '69. We have all spotted the endless help wanted signs, the housing and apartment shortages, the tremendous demand for goods and services, a marvel to behold. Oh, people are confident about their jobs. I say fantastic, and the ability to even get better ones if they want to. They're spending more than I've ever seen, but they're doing it with cash, not on credit. They're doing so in a Roaring 20s style.
The elites on Wall Street, in the media, and in Washington just can’t seem to understand why millions of ordinary Americans are dissatisfied with the way things are going. Perhaps it has more to do with the price of food going up than the numbers concocted to drive stock values higher.
The recovery, such as it is, is built on a massive currency creation and debt expansion. The problem with debt is that it has to be paid back – or inflated away if you have access to a printing press.
Investors who take on margin debt to buy securities risk facing margin calls when their accounts head south. They then may have to raise cash by selling whatever can be sold.
The amount of money traders have borrowed to buy stocks is up 40% from last year and recently neared a total of $1 trillion. That puts the market at heightened risk of a sharp, margin-induced sell-off. As margin calls force investors to liquidate stock holdings, some who are desperate to raise cash may do so by dumping any gold and silver they happen to own.
The risk to gold and silver investors is that volatility in equity markets can carry over to precious metals markets.
As of this Friday recording, gold prices come in at $1,793 an ounce, up now by a fraction of a percent for the week. Silver shows a weekly loss of 1.8% to trade at $22.23 an ounce. Platinum is up 0.3% to trade at $948. And finally, palladium prices are down 3.6% this week to command $1,775 per ounce.
Gold tends to be the least volatile of the precious metals and is far less volatile than Bitcoin and other cryptocurrencies. Bitcoin prices swung wildly this week after plunging below $50,000. The digital token had hit an all-time high last month of close to $67,000.
While cryptos still have significant upside potential, they also carry unlimited downside risk since they lack any sort of tangible utility that could provide a fundamental floor for demand.
Hard assets including gold will retain value over time regardless of which direction speculators may push or pull prices in the near term. Although the yellow metal has been beaten down over the past few weeks, its declines were nothing like those seen in Bitcoin.
Gold has been used as money for thousands of years. The yellow metal has been considered a reliable store of wealth and protector of value for centuries. It speaks a common monetary language to its holders.
Bitcoin has only been in circulation a few years now and has yet to really prove its reliability under stress. While Bitcoin may offer tremendous short-term profit potential, it is a roller coaster ride with an unknown future.
The relative stability of gold makes it a more viable portfolio diversifier for conservative investors who are looking to protect their wealth and hedge against rising inflation.
Those who can stomach a bit more volatility in exchange for greater upside potential may wish to favor silver over gold. Silver provides the security of a hard asset that also functions as sound money.
It is also arguably one of the most undervalued assets on the planet given that it currently trades for less than half its all-time high in an environment where almost all other commodities are near or above their all-time highs. It’s only a matter of time before silver makes its next move to take out its old record price of $50. And when it does, the gains could ultimately be measured in multiples of today’s spot price.
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.