March 2021 - Week 3 Edition
Coins Are Selling Well – Despite a Flat Metals Market
Despite this year’s flat metals market (so far), rare and bullion coins are selling very well. Despite coin shortages from the U.S. Mint and other mints, and despite their sometimes-lofty premiums to the dealer community, bullion coin sales are brisk. There are some reasons for that.
For one thing, the New American Eagle reverse design has collectors and investors excited about the American Eagle series all over again. People often want to buy first-year products and collectors and dealers tend to bid up prices for these first-year products. The Vice President of the Numismatic Guaranty Corporation (NGC) told me that coin companies often say they want to buy and promote quantities of first-year products.
Also, investors realize that metals are up strongly in a one-year or two-year basis, even if they are not currently rising on a two-month basis in 2021.
Since the late 1960s, when I first began collecting and investing in coins, I have noticed that about once or twice in most decades, we see a bull market that leads to a 100% to 1000% rise in rare coin prices. We could be at the beginning of another such surge in prices now. We haven’t seen this overall investor interest in gold and silver coins in 12 to 15 years – at least since the 2008-09 “Great Recession” days, when stocks were falling sharply, and gold and silver were rising. Like then, we’re seeing a sharp rise in more TV and print ads for coins, which brings in more new customers. Experience shows that a significant portion of these new customers become rare coin investors within 6 to 24 months, and this helps to propel rare coin prices higher due to the narrower population of rare coins on the market.
Be careful buying from late night TV ads because like my dad used to say when I was first dating, “nothing good happens after midnight.”
By the way, we’re also seeing shortages in that third “precious metal of freedom,” lead for ammunition. Now is the time to invest in more of all three of the metals of freedom – gold, silver and lead. Call your account representative today for the latest information on coins and the coin market.
Producer Prices Rise at an 11% Annual Rate in 2021 – More to Come?
The Federal Reserve holds one of its eight times a year meetings of the Federal Open Market Committee (FOMC) this week, in which they set market policy on interest rates, to be announced Wednesday. In recent meetings, Fed Chair Jerome Powell has said that inflationary pressure is only “transitory,” that any upward pressure is a short, passing phenomenon that will die down once the global economy stabilizes, but will he still sing that same song now, with Producer Prices up at an 11% annual rate, so far, this year?
On Friday, the Labor Department reported that the Producer Price Index (PPI) rose 0.5% in February (a 6% annual rate), on top of a 1.3% rise in January – the biggest monthly gain since 2009. Put those two months together and the PPI rose at an 11.3% annual rate in the first two months of 2021. In February, wholesale energy prices rose 6%, while food prices rose 1.3%. So far, these higher wholesale prices have not been reflected in the Consumer Price Index (CPI), but they generally follow after a six-month lag.
Economist Lawrence Summers, formerly the Treasury Secretary to President Bill Clinton and Director of the National Economic Council for President Barack Obama, is a confirmed Democrat but he wrote in a recent Washington Post op-ed that he is concerned that Biden’s stimulus package will “set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.” In the short-term, Summers added that, “there is the risk of inflation expectations rising sharply. Stimulus measures of the magnitude contemplated are steps into the unknown.”
What “magnitude” are we talking about? In an interview with Louisiana Republican Senator Bill Cassidy, MD, on Fox News Sunday, host Chris Wallace posted these “White House Facts:” 91% of Louisiana adults and 93% of Louisiana children will be getting a “stimulus” check. Then, Wallace asked Cassidy, “Don’t these people need this money?” (This is in a state with a relatively low 4.7% unemployment rate.) The Senator could have shot back: “Why do you think over 90% of the people in my state need a check?”
The Atlanta Federal Reserve sees the U.S. GDP rising at an 8% annual rate this quarter, so the Democrats are pushing an already-hot economy into the “red zone.” When the Biden Administration sent out $600 debit cards earlier, it helped boost retail sales 5.3%, so these $1,400 checks will likely boost GDP more.
In another indicator, the CRB Commodity Price Index just broke through its pre-pandemic high last week.
Biden’s $1.9 trillion stimulus package is just the start. There is a $2 trillion infrastructure bill coming next. By year’s end, our public debt could soar from $20 trillion to $27 trillion in just three years, and our overall government debt could rise to 127% of GDP this year – a level not seen since the end of WWII.
Who knows what the Fed will do this week, but if they are in touch with reality, they should act to limit future inflation by shoring up their balance sheet by not creating so much new money each month. Perhaps Fed Chair Jerome Powell could change his mantra on “transitory” inflation, as well. We’ll see.
Gold is Rising Again
Gold rose $22 (+1.27%) and Silver rose $0.65 (+2.47%) last week, while stocks soared on passage of the inflationary and pork-bloated $1.9 trillion “stimulus” package, during an already supercharged economy. Since gold tends to rise as an inflation hedge, and inflation tends to rise in a booming economy, this is a double-edged inflationary stimulus. During the COVID peak months, people tended to save or invest in stocks or home improvements, but the time is coming when more will turn to gold for protection.
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