Why Isn't Retail Demand for Silver Pushing Up Prices? / Commodities / Gold and Silver 2021
Metalsmarkets continue to diverge this week, with copper and platinum adding torecent breakout gains while gold struggles to find footing.
Duringthis week’s selloff, gold revisited its lows from last November. A supportlevel exists at $1,750, but momentum selling could take prices down a bitfurther before technical gauges flash deeply oversold signals.
Turningto silver, the white metal continues to show relative strength versus gold,although prices haven’t actually moved much over the past few trading days.
Despitelackluster returns in most of the precious metals so far in 2021, inflationpressures are pointing upward. OnWednesday, the Labor Department reported that U.S. wholesale prices surged by1.3% in January.
Risingcosts for health care and energy led the bigger-than-expected increase. It was the largest single month rise inproducer prices in more than a decade.
Thatmade inflation a hot topic on CNBC.
CNBCAnchor #1: Thismorning, we got a major warning sign about inflation. Producer price is climbing more than expected in January.
CNBCAnchor #2: Thatquestion of, could there really one day actually be a return of inflation? Arewe already pouring fuel on a pretty hot fire to begin with? Given people aregetting back to sort of life, a lot of the country already is, but that returnto normalcy, the spending that will come along with that, and then $1.9trillion on top of that. And by the way, potentially an infrastructure billfollowing on that.
CNBCMarket Commentator: And the Fed, ofcourse, is trying to engineer inflation, and has been trying to prepareinvestors for the idea that they are going to be tolerant of significantlyhigher inflation, for some time to come, to essentially counterbalance all thistime we've spent under their target of 2%.
Fornow, Federal Reserve officials and most mainstream economists are brushing offthe recent spike in prices as transitory. Some rebound was inevitable off thevirus lockdown lows of last year.
Butthere is good reason to believe the inflation upswing has further to run. Anotherround of government stimulus may soon hit the economy. And of course, therecent rise in inflation will do nothing to deter the Fed from its easingagenda.
Thequestion many investors may be rightly asking is why gold prices are sagging. Afterall, isn’t the monetary metal supposed to be an inflation hedge?
Ofcourse, in the very long term, gold prices do reflect the inverse of currencydepreciation. But gold also functions as a safe haven during times of stress infinancial markets. Lately, markets have been fueled by extreme optimism towardan economic recovery – helping lift most industrial commodities in the process.
Sofar, the rise in inflation has been greeted enthusiastically by equityinvestors. It means deflation is no longer a threat.
Thegold trade tends to take off during times of fear. When investors begin to fearan overshoot of inflation, rising interest rates, or other threats to stock valuations,they will find precious metals more attractive to hold.
Duringthe severe inflation and economic stagnation of the late 1970s, gold and silvervastly outperformed the stock market.
Ofcourse, every economic cycle is different and unique. Today, gold and silveralso face enormous price suppression campaigns by institutional short sellers.The concentrated short position in silver in particular exceeds that of justabout any other commodity on the planet.
Yetwe know the manipulated paper markets for precious metals don’t fully reflectthe dynamics of physical supply and demand. Despite the spot price of silverbeing contained, demand for bullion products in recent weeks has gone throughthe roof.
It's been a mad scrambleto keep inventory on the shelf – and the silver supply situation is highlytenuous. On top of that, recent weather issues in many areas of thecountry have slowed the transportation of metal.
Silver Eagles arecurrently scarce and carry elevated premiums. We are also now beginning to seesome supply issues emerge in gold products,particularly fractional coins and bars.
Most other dealers arealready wiped out of silverbars and rounds – or they are quoting ridiculously long lead timesfor fulfilling customer orders. But Money Metals Exchange hasso far been able to keep all popular silver items in stock while shortening oreliminating delivery delays.
Meanwhile, we aren't seeing overall tightness on 1,000 oz silverbars so far – mainly some logistical issues involving the location of availablesupply. But again, the silver supply situation is tenuous.
Ifthe outflow of silver through the retail minting channel continues at this ratefor a few more weeks, that is likely to put real pressure on the availabilityof commercial bars as well as silver grain for minting.
Weknow that ultimately mints, jewelers, and industrial users of gold and silverrequire physical metal. Cash-settled futures contracts and shares ofexchange-traded funds are no substitute for the real thing.
Timewill tell whether furious retail buying of physical precious metals can helplift the lid on spot prices.
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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