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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
As investors await the incoming Biden administration and the uncertainties that a transition of power may bring, precious metals markets regained some ground through Thursday’s close but have pulled back again today, especially silver and platinum.
For the week, gold prices are down a slight 0.9% to come in at to $1,841 per ounce.
Meanwhile, the silver market shows a weekly loss of 2.4% to trade at $24.95 an ounce. Silver bulls still have some work to do to make up for last week’s steep drop and put 2021 on an upside trajectory. Until the $28 level is cleared decisively on the way to finally taking out $30 an ounce, traders can anticipate more back and forth grinding action here in the mid $20s.
Turning to platinum, it is outperforming a bit, although less so now after today’s price drop. Despite the healthy decline here today the white metal is still holding onto a slight weekly gain of 0.8% to trade at $1,093. Before the Friday pullback platinum was headed for its highest weekly close in over four years, but it looks now like that won’t happen.
And finally, palladium is putting in a weekly advance of 1.0% to command $2,430 per ounce.
Metals markets and financial markets have seemingly been unaffected by recent political turmoil. Investors have been nonchalant in the face of Capitol unrest and a second impeachment of President Donald Trump – not to mention fresh new records in daily COVID deaths.
Against this unfavorable backdrop, the stock market continues to hit new highs on an almost daily basis. Fundamental analysts are left scratching their heads as to what’s fueling such elevated valuations.
The most likely explanation is that there hasn’t yet been a downside catalyst powerful enough to take investors’ eyes off the prospect of more fiscal and monetary stimulus to come.
Joe Biden is calling for $1,400 stimulus checks to be delivered to Americans on top of the $600 payments that recently went out. The total cost of the President-elect’s COVID relief plan, which includes a $15 minimum wage, enhanced unemployment benefits, and a variety of other handouts, comes to over $1.9 trillion.
Joe Biden: Direct cash payments, extended unemployment insurance, rent relief, food assistance, keeping essential frontline workers on the job, aid to small businesses. We’ll focus on minority-owned small businesses, women-owned small businesses, and finally having equal access to the resources they need to reopen and to rebuild. Our rescue plan also includes immediate relief to Americans hardest hit and most in need. We will finish the job of getting a total of $2,000 in cash relief to people who need it the most. The $600 already appropriated is simply not enough.
All this new spending will be done with money the government doesn’t have. But borrowing another $1.9 trillion into existence would be just a formality at this point.
Biden is already set to inherit a record budget deficit. The Treasury Department reported Wednesday $573 billion in red ink over the last three months alone. That’s over 60% higher than the same period a year ago.
Deficit hawks are virtually nowhere to be found in Washington, D.C. And the Federal Reserve Board is full of doves who intend to keep pumping out easy money into the financial system.
Monetary policy is one thing that investors can count on not changing in the new administration.
When he leaves office next week, Donald Trump will go down in history as one of America’s most controversial Presidents. He continues to have passionate supporters as well as passionate haters.
Trump can certainly claim some major accomplishments on taxes, deregulation, and border security as part of his legacy. But he won’t earn high marks on his handling of the national debt. It has surged by a staggering $7.8 trillion over the past four years.
As a candidate, Trump had vowed to reduce the nation’s debt burden. But as President, he rarely used his veto pen to try to hold Congress’ spending ambitions in check.
Even before the COVID outbreak, big spenders in both parties were fueling more federal borrowing than ever before.
Now it’s not even a question of whether the next President will pay down the debt or balance the budget. It’s a question of what will be required of the Fed to enable four more years of annual deficits measured in the trillions of dollars.
The risk is that more explicit central bank monetization of federal borrowing causes the bond market and the U.S. dollar itself to lose credibility in the eyes of global investors.
As a consequence, price inflation could run much hotter than most investors currently expect. It’s possible that stocks could continue to push higher in such an environment, but it’s also likely that we would see some major sector rotation.
Mining companies have big upside potential in an inflationary environment. But they also have big downside risks, especially if the political environment turns hostile.
The safer play is to own the mined products themselves – physical metals. Gold, silver, platinum, palladium, and copper are all easily accessible to investors in the form of bullion bars, rounds, and coins.
We are seeing signs in the first two weeks of 2021 that investment demand for bullion is in a word: strong. Some tightness is emerging in popular products.
As Democrats take power with a massive spending and borrowing agenda, safe haven demand for sound money will likely remain strong.
But even before all the recent turmoil, retail demand for gold and silver has been rising sharply since late last year.
Add last week’s extraordinary events to the mix – fear of what the incoming Biden presidency will do, aggressive crackdowns by social media giants, and calls for a last-minute impeachment of President Trump – and we’re now seeing skyrocketing demand for just about everything sold at MoneyMetals.com.
So, does this mean you should expect shortages and rising premiums once again – combined with shipping delays?
Hopefully not. But there’s a growing risk of strains, especially at Money Metals’ weaker competitors.
Don’t forget… very few Americans, still, own even a single ounce of silver or gold.
A change in psychology toward gold and silver – and its value as a hedge against the growing array of risks – could completely clean out the U.S. market in days.
Large commercial bars are not limitless, but the most immediate problem will be limited mint capacity and other production bottlenecks.
To be sure, private mints have upped their production capabilities in the past year, having recently encountered the most demand they’ve seen in many years. But there still isn’t much slack.
Meanwhile, government mints are generally not as well run as their private counterparts. They’re run by bureaucrats and don’t respond quickly to market needs – partly because there’s no profit motive involved in government “enterprises.”
At Money Metals, we’ve already moved quickly to beef up our inventory levels on all manner of coins, bars, and rounds. We are stocked up on just about everything right now, and we’re working hard to stay that way.
Leveraging our large buying power and strong balance sheet, we’ve made some arrangements with our minting and wholesale partners to keep our inventory levels high.
Our fulfillment department is staffed up and has the capacity to ship literally tens of thousands of orders per month.
Bottom line, Money Metals, at least for now, is able to handle smoothly the rising surges we’ve been seeing in the retail bullion market. Our premiums are still relatively low – and we hope to keep them that way as long as possible.
We deeply appreciate the loyalty of our great Money Metals Exchange customers – and we stand ready to meet and hopefully exceed their expectations.
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.