Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
As Federal Reserve chairman Jerome Powell vows to keep fighting the high inflation he helped unleash, investors are also weighing evidence of a weakening jobs market. Gathering signs of a recession could cause the Fed to dial down future rate hikes.
Central bankers will convene on September 20th to announce their next interest rate decision. Anything less than 75 basis points would be seen as something of a dovish pivot.
But for now, Powell continues to talk tough. In comments this week, the Fed chairman vowed to make sure the public doesn’t see high inflation as the norm.
He also seemed intent on making sure the public doesn’t blame him for creating the inflation problem, Powell insisted the only reason why inflation took off is because of the pandemic – as if the virus itself decided to drastically increase fiscal and monetary stimulus!
Jerome Powell: None of this high inflation, that we see around the world now, would’ve happened without the pandemic. The pandemic severely disrupted the economy. It gave rise to risks of much more dire economic consequences than actually transpired, really. And that was thanks, in part, to the policy response. The longer inflation remains well above target, the greater the risk that the public does begin to see higher inflation as the norm, and that has the capacity to really raise the costs of getting inflation down. So finally, history cautions strongly against prematurely loosening policy. I can assure you that my colleagues and I are strongly committed to this project, and we will keep at it until the job is done. I can also assure you that we never take into consideration external political considerations.
In the name of being apolitical, Powell has refused to publicly urge Congress and the White House to practice better fiscal discipline. But even Fed economists have noted that monetary policy alone will fail to bring about price stability if the government continues to massively increase demand for new currency through reckless borrowing and spending.
Meanwhile in Europe, central bankers there are finally taking steps to try to bring record-high inflation down and support the plummeting euro. On Thursday, the European Central Bank hiked its benchmark interest rate by an unprecedented three quarters of a point.
The ECB’s move could deal a major blow to dollar bulls. U.S. dollar strength on foreign exchange markets this year has been largely attributable to Fed rate hikes. Now that other central banks are getting in on the action, their currencies stand to fare relatively better going forward.
A potential top in the U.S. Dollar Index would, of course, tend to be bullish for precious metals markets.
This week saw some pickup in buying, led by the white metals. Gold is little changed since last Friday’s close and is up less than half a percent and currently comes in at $1,726 an ounce. Silver shows a weekly gain of 3.4% to trade at $18.99 an ounce. Platinum is up 3.9% for the week to trade at $895. And finally, palladium prices are higher by 5.4% this week to command $2,210 per ounce as of this Friday morning recording.
Geopolitical observers are eyeing potential catalysts for precious metals moves out of China and Russia.
Russian President Vladimir Putin is trying to move international trade away from the U.S. dollar standard and toward greater acceptance of gold as the ultimate money. Of course, Putin has no other choice but to pursue de-dollarization given the comprehensive slate of economic sanctions imposed by the U.S.
Western sanctions on Russia have targeted the country’s gold specifically. Russian gold has been banned from the London Bullion Market Association, which serves as the world’s preeminent metals trading and price-setting platform.
In response, Russia is developing plans to operate its own international gold exchange, which reportedly has been dubbed the Moscow World Standard.
In any event, sanctions won’t stop Russian gold from fulfilling international demand for it. Buyers in China and India in particular are more interested in acquiring gold from whatever source than heeding Western restrictions.
The Chinese are literally bankrolling Russia’s gold industry. Last month, Polyus, Russia’s largest gold producer, began issuing bonds denominated in Chinese yuan. Polyus is the world’s fourth biggest gold mining company based on production volumes.
Demand for gold in China is translating into demand for yuan in Russia. The Russian finance ministry is considering borrowing in yuan, according to recent reports.
Meanwhile, demand for Russian rubles is up among its trading partners, sending the value of the currency soaring this year.
Instead of crippling Russia’s economy and collapsing its currency, U.S.-led sanctions have had the unintended consequences of strengthening Russia-China ties and accelerating de-dollarization among other U.S. adversaries.
Yes, the U.S. dollar has been strong versus most other major foreign currencies this year. It’s still widely viewed as the world’s reserve currency and isn’t going to suddenly disappear from the world stage anytime soon.
But underneath the surface of its apparent strength is gathering weakness and vulnerability. When measured in terms of its purchasing power, the U.S. dollar has been weakening at an alarming pace with inflation hitting a four-decade high. And an increasing number of countries around the world are trying to reduce their dependence on dollars even though they continue to transact in them, for now, out of convenience.
But convenience shouldn’t be confused with soundness. There are no truly sound national currencies in circulation today. The only money that is respected and trusted universally is hard money in the form of gold and silver.
Before I close today, I want to take a moment to remember David H. Smith, a longtime Money Metals columnist and resource sector luminary.
Our dear friend David lost his battle with cancer last weekend. David was a phenomenal yet humble man. He was a teacher, a student, and a philosopher.
As my brother Stefan Gleason relayed earlier this week in his special email to Money Metals readers, we have rarely known a more optimistic, thoughtful, and wise person.
David was not just a pithy writer who informed and guided his readers; he was a trusted advisor whose feedback and counsel had been invaluable as we built up Money Metals Exchange into the top precious metals dealer in the United States.
Born in in West Virginia, David H. Smith grew up on the Olympic Peninsula in Washington State where he developed his love for martial arts, fishing, and the outdoors.
After retiring from a 29-year career teaching 7th graders, he focused on precious metals and investing. David investigated precious metals’ mines and exploration sites in Argentina, Chile, Peru, Mexico, Bolivia, China, Canada, and the U.S.
He also fished the great rivers of North America and Patagonia, where he felt most at home. He is survived by his two children Rachel and Steven.
David was deeply knowledgeable about the precious metals markets and the mining sector, and for the past 10 years he shared his insights with our Money Metals readers, Money Metals podcast listeners – and 20 years for subscribers of The Morgan Report published by the great David Morgan.
David was able to pen his last column just two months ago. Some of you may have noticed that it read like a goodbye.
He will live on in our prayers and our memories, and his writings will live on at MoneyMetals.com.
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.