The Coronavirus Doesn't Matter Either... We Have the Federal Reserve! / Commodities / Gold & Silver 2020
As the coronavirus continues to spread, global financialmarkets are showing the symptoms of investor unease.
Chinese and emerging markets stocks have taken a big hitover the past several days, as have commodities. Crude oil prices have dropped13% over the past two weeks while copper has seen a 12% drop on concerns aboutthe impact of the China virus on global demand.
Gold is faring much better as some investors seek out the precious metals for safe-haven protection, up 1% for the week.
Markets brushed off the Federal Reserve’s policyannouncement on Wednesday. The Fed kept rates unchanged as expected.
Chairman Jerome Powell reiterated the central bank’spolicy of “symmetric” inflation targeting. That translates into allowinginflation rates to rise above the Fed’s 2% target for a sustained period tomake up for recent periods where it ran below 2%.
Obviously, the central planners on the Federal ReserveBoard remain unsatisfied with the level of price increases consumers face. Foodand fuel are still too cheap, they say. Medical care and college tuitions aretoo affordable for too many people.
And it’s all because the dollar isn’t depreciating fastenough for the Fed’s arbitrary inflation target to be hit.
The U.S. Dollar Index is firming so far this year. Andthe threat of a global pandemic has policymakers concerned that consumers andbusinesses will hunker down and further depress price levels in dollar terms.
The mainstream media and political correctness policehave other concerns as top priorities. No, it isn’t about the risk of Americansbeing infected from international travel into the U.S. It’s about the risk ofChinese people being stereotyped and subjected to “racism” and “sinophobia.”
Meanwhile, CNN alerted Americans to the alarming factthat President Donald Trump’s Coronavirus Task Force isn’t “diverse” enough. Badgeringpeople about what they look like is apparently helpful in fighting the spreadof a deadly disease. Thank goodness there are journalists willing to do suchbrave and heroic work!
And thank goodness the Fed stands ready during anypotential national emergency to pump limitless amounts of cash into the repomarket and banking system…
On Thursday, the Federal Reserve Bank of New York pumpedanother $83 billion in new liquidity into short-term lending markets. The movesaved the banks from having to sort out their own illiquidity issues foranother week.
Unfortunately for other industries – automakers inparticular – the Fed can’t liquify the markets for palladium and rhodium byinjecting fresh supplies of metals.
The markets for these critical metals used in catalyticconverters remain beset by physical supply deficits. This in turn is causingunusual spikes in leasing rates and distortions in pricing mechanisms as bid/askspreads widen.
According to Refnitiv GFMS, the palladium market willoperate under a supply deficit of 883,000 ounces this year. Prices may have torise even higher for the already pricey metal before supply and demand reach anequilibrium.
We would caution that it’s pretty late in the cycle to bea buyer of palladium here. The good news is that it’s still very early in thecycle for other metals, including lagging platinum and dirt-cheap silver.
Consider that in 2016, palladium began the year tradingaround $500/oz. Prices have since quintupled.
Silver bottomed in at the very end of 2015 just below$14/oz. Prices advanced strongly that year before falling back into a majortrading range. Silver has managed to make only modest net progress.
A mere quadrupling from its late 2015 low would take silver over $50 – and that would likely just be the warm-up phase that finallyestablishes new all-time highs. Then the explosive phase could begin that seesnew high after new high, week after week – just like we’ve seen in palladiumover the past year.
When silver and gold prices are making new records, perhaps the Fed will finally have the inflation it sodesperately wishes for. Pushing inflation rates back down, though, won’t be soeasy. Once the genie is out of the bottle, it can’t exactly be put back in.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
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