US Dollar Strength Holding Back Precious Metals for Now / Commodities / Gold and Silver 2021
Gold and silver bulls attempted to start a rally last week, but prices were capped by astrengthening U.S. Dollar Index.
The buck has been advancing strongly against foreigncurrencies over the past month. Currency traders are encouraged by the FederalReserve’s apparent plans to taper asset purchases and begin raising interestrates way out in 2023. Dollar buyers also seem convinced that the recentinflation spike is transitory.
That’s a huge speculative assumption on the part ofanyone who holds U.S. currency. The bigquestion investors will have to answer for themselves is whether high inflationis transitory or a strengthening U.S. dollar is transitory.
Those in the transitory inflation camp point to signsthat recent price pressures are abating. For example, the spike in lumberprices this spring appears to have reversed, with lumber futures tumbling overthe past few weeks.
But there is no evidence housing costs are coming down.And a labor shortage in the retail and restaurant industries continues topersist, which is putting upward pressure on wages. While good for workers inthe short-term, a resulting wage-price spiral would be bad news for consumers.
It's difficult to view the skyrocketing national debt andongoing Fed monetization of that debt as good news for the U.S. dollarlong-term.
But for now, the Greenback is getting a bid in theforeign exchange market. And that is helping to keep precious metals pricesdepressed.
Metals and commodity markets could get a boost frommassive new infrastructure spending set to come out of Washington. LastThursday, House Democrats passed a $715 billion transportation and waterinfrastructure bill.
Additional infrastructure spending proposals totalingover $1 trillion are coming down the pike.
The current legislation does not include any specificfunding mechanisms. The costs would presumably be paid for by being added to analready record-high budget deficit.
The government is testing the willingness of creditors tocontinue to lend by buying its bonds at ultra-low interest rates. Normallylenders like to have promises to pay backed up with some form of collateral –whether its cars that can be repossessed in the case of auto loans, homes thatcan be foreclosed upon in the case of mortgages, or jewelry or other valuablesthat are pledged in the case of pawn shop loans.
What backs up Treasury debt is the power of the printingpress. That can be viewed as a feature that renders default extremely unlikely.But it also renders losses of purchasing power via inflation much more likely.
Pawn shop owner and reality TV star Rick Harrisonunderstands the risks of losses due to default, theft, and fraud. He alsoappreciates the more insidious risks of inflation and the role of preciousmetals in providing protection.
Rick Harrison: There's a reason my shopis called Gold & Silver. It's my two favorite things to buy. When you'vebeen a pawn broker as long as I have, you know real gold when you see it. Onceyou account for inflation, an ounce some gold buys you basically the same thingtoday as it did back then. The value really hasn't changed, just our money'sgot worth a lot less. That's why they've been using gold as money for 6,000 years.And all paper money was, was a promise to pay you real money. Silver is thebest conductor of electricity there is.
Rick Harrison Sr: I've been collectingsilver sun for the past 30 years. Silver and gold is a hedge againsthyperinflation.
Rick Harrison: That is the deal.
Harrison recently told Kitco News that he is havingdifficulty obtaining and keeping inventories of physical silver.
Rick Harrison: It's very hard to keepany bullion stock in stock. And the bullion we do we have, I mean, I'm sellingthem for like $4, $5 over spot when it comes to silver because I just can't getit right now. It's very difficult to get. I mean, just physical silver is avery hard thing to find right now. And I know a lot of people in this businessand like people do retail in it. Physical delivery is very hard right now.
Kitco News:Why? Why do you think that is?
Rick Harrison: Well, it's a big thingwith the COVID and everything. The US government stopped making Eagles for awhile there, they got really behind. So, there was a lag there and all lastyear there was massive physical demand. There's a lot of physical demand rightnow and it's just whole supply chain issues.
Supply chains for retail bullion products have beenstressed for well over a year now. It’s been frustrating for dealers as well asinvestors. Part of the solution may be higher spot prices to incentivize moreoutput at the top of the supply chain.
In the meantime, bargains can be had within the preciousmetals space after the recent price slump. Gold and silver at today’s prices are cheap relative the risk of futurecurrency depreciation.
Precious metals have also recently become less costly toobtain after considering taxes in states such as Ohio.
Last week, Ohio Governor Mike DeWine signed a law endingsales taxation of gold, silver, platinum, and palladium bullion and coins. TheBuckeye State joins Arkansas as the two states having canceled taxation of the monetary metals so far thisyear.
Backed by the Sound Money Defense League, Money MetalsExchange, Campaignfor Liberty, grassroots activists, and coindealer representatives, the Ohio legislation bill restores the right of Ohioinvestors, savers, and small businesses to acquire precious metals withoutbeing slapped with sales and use taxes.
Including Ohio, 41 U.S. states now fully or partiallyexempt gold and silver from state sales taxes.
That leaves nine states –Vermont, New Jersey, Maine,Tennessee, Kentucky, Wisconsin, New Mexico, Mississippi, and Hawaii – and theDistrict of Columbia as jurisdictions that still harshly penalize citizensacquiring the monetary metals to protect their savings against the serialdevaluation of the Federal Reserve Note.
Of those remaining nine states, Hawaii,Maine, Mississippi, New Jersey,Tennessee, and Wisconsin have recently considered measures to remove the salestax in their states.
To be sure, the nine states that still fully tax themonetary metals are increasingly embarrassing themselves, because the nationaltide has turned decisively against this foolish and unjust practice.
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.
© 2021 Mike Gleason - All Rights Reserved
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