May 2021 - Week 2 Edition
Gold and Silver Reacting
Gold rose from $1,790 to $1,812 in under 30 minutes last Thursday morning, May 6, from about 9:35am to 9:55am Eastern time, then at 8:30 am Friday morning – after the April jobs report announced only a very minor increase – gold shot up even faster to $1,840. By the end of the day gold settled around $1,830. In its greatest surge, gold rose from $1,790 at 7am Thursday to $1,844 at 9am Friday, or +3% in just 26 hours.
Silver followed the same pattern, rising from $26.80 to $27.25 early Thursday, then shooting up to $27.55 on Friday’s jobs report. In all, silver rose 5%, from $26.45 early Thursday to $27.75 over the weekend. The precious metals shot higher based on a sharply weaker U.S. dollar and Friday’s weak jobs report.
The U.S. Dollar Has Fallen 3% in the 40 Days and 10% in the Last Year
The U.S. Dollar Index (DXY) is down 3% since March 31, 2021, and down 10% since May 10, 2020. The tremendous expansion of the U.S. money supply in the last year has resulted in the devaluation of the dollar and a rise in gold prices. Even though other currencies are also being devalued through monetary expansion, the U.S. dollar’s over-printing is expanding faster, so the dollar is falling to other currencies.
Since January 2020, the U.S. Monetary Base (basically, the currency available to spend) has shot up 70% – a rise unprecedented in American history – rising from $3.44 trillion to $5.83 trillion on April 27. Before the 2008 financial crisis, the monetary base was less than $1 trillion ($840 billion), so it is up 7-fold in 13 years after rising very slowly for several decades. The Treasury and the Federal Reserve have lost all restraint when it comes to printing money, dooming the dollar to inflation and depreciating value.
Inflation is certain to follow. This week brings us the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. Unbelievably the Federal Reserve is still trying to push inflation higher by their favorite esoteric index, the Personal Consumption Expenditure (PCE) price component from the GDP, which still says inflation is under 2%. This is confusing since most products we buy and commodities that make up those products are rising by double-digits in the last year, and especially in the first four months of this year. Lumber prices have tripled in the past year. Gas prices are skyrocketing, and many food prices are now 50% above normal. Here are just a few year-to-date gains:
In 1999, when the euro debuted, the world’s central bank holdings were 71% in U.S. dollars. At the end of 2020, that percentage is down to 59%, a 25-year low, so the U.S. dollar is slowly losing favor around the world.
Since 1944, the U.S. dollar has been considered the world’s “reserve currency,” and most U.S. leaders have attempted to take that responsibility seriously. However, the dollar is on the road to ruin unless the Biden administration stops its reckless spending and over-printing for endless “stimulus” packages in a reasonably strong economy. This is the time for spending restraint, not more profligate deficit spending.
After passing the $2 trillion “Covid relief” bill (with very little Covid relief in it), the Biden team is now working to pass a $2+ trillion “infrastructure bill” (with very little physical infrastructure spending in it). There will also be more $2 trillion spending plans to come, pushing the monetary base up to $10 trillion.
When inflation increases and interest rates start to rise – at a slower rate than inflation – the result will be record high “negative REAL interest rates.” The pundits will say that “gold should fall” when interest rates rise, but they are wrong historically, because the key is REAL (after inflation) interest rates. Gold will rise if you can make more from “real money that can’t be printed” than over-printed paper money.
For instance, if the 10-year Treasury yield rises to 2% this year and the inflation rate goes to just 5%, then the real interest rate is a negative -3%, which would be a recent record low, which is very bullish for gold.
That’s one big reason why gold shot back above $1,800 last week and should rise above $2,000 in 2021.
These are some of the reasons why gold and silver bullion coins have higher premiums than last year and are in high demand from both younger and older investors. Popular tangible collectibles, like rare coins, are seeing a continued surge in demand and many special coins are seeing rising prices compared to other popular collectibles like cars and art. Gold and silver rare coins are easily transportable and stored wealth and are favored with exemptions from sales tax in most states. Please contact our professional account representatives today to find out what exciting new purchases are currently in inventory. You’ll be glad you did!
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