February 2022 - Week 2 Edition

Gold is Your Multi-Generational Life Insurance

Considering the dual threats of long-term deficits and inflation destroying the value of the dollar, gold and silver are certain to retain their permanent value, hard-earned over the centuries as precious metals, hard to find, mine and impossible to mass produce. Most paper currencies since the birth of the printing press over 550 years ago have eventually fallen by the wayside, inflated into worthlessness.

In time, the managers of the U.S. dollar at the Treasury and Federal Reserve will probably be forced to inflate away the massive debt they have created. That’s why wise investors should be setting aside not only stocks, real estate, cash, etc. but also holding hard assets like gold and silver – never to sell – but to pass on to their children and grandchildren as a long-term store of value and wealth. Gold is the “life insurance” for the rest of your portfolio. Be thinking about your heirs whenever you buy gold and silver bullion or rare coins. The legacy you create today may benefit multiple generations of your family and they will thank you some day for your foresight.

Larry Gatlin had a hit song in 1979, called “All the Gold in California.” He recently said that he should have followed the recommendations of financial advisors to purchase gold when it was about $300 an ounce in 1979. Instead, he explains, “I bought horses and cows and cars and guitars and a lot of other stuff … Now, gold is about $1,900 an ounce while the horses are dead, the cows are dead, the cars won’t run and the guitars are, well, just guitars. The bad news is, I didn’t buy gold. The good news, I now own gold and I’m going to buy even more.”

Gold Gains Again

Gold has been rising all week – from $1,810 Monday morning, February 7 to $1,820 at the close, then to $1,827 on Tuesday and to the mid $1,830s on Wednesday, mostly in anticipation of the Consumer Price Index (CPI) being released Thursday morning, which were higher than expected. The inflation rate is already at its fastest in 39 years and it may soon reach a 40-year high. Silver scored its biggest gain on Tuesday morning, rising from $22.80 to $23.20 in a two-hour surge on the opening. The metals also rose on rising Ukrainian war threats. In the futures market, April gold is trading at $1,835 (up $8 for the day) and March silver trades at $23.35.

Long-Term, Gold Will Rise Based on Soaring Debt and a Dollar Devaluation

Inflation will come and go. It is rising now. It will eventually come back down but debt will keep rising and it will eventually be either repudiated (through non-payment) or be purposefully “devalued” through a process called “monetization,” or printing more money to pay the debt.

Columnist George Will wrote about debt last week, commemorating the sad fact that the U.S. had just passed the $30 trillion national debt mark – after passing the $25 trillion mark less than two years ago.

It’s almost impossible to imagine a number that big but in human terms $30 trillion amounts to about $90,000 in debt for each American or $360,000 for a family of four. On a national scale, each 0.25% increase in the Fed funds rate amounts to a $75 billion increase in the cost of servicing the federal debt, so if the Fed enacts four 0.25% rate increases this year, that will cause a $300 billion cost increase for nothing more than writing checks to big banks, foreigners and rich investors who hold Treasury notes.

Will stated, “An average rate of just 5% — which Washington was paying in 2008 — combined with merely modest new federal spending, would push the debt toward 300% of GDP in three decades.” Today’s federal debt equals 100% of GDP, or 161%, if state and local debt is included. And aging Baby Boomers, with fewer younger workers, will also push Social Security and Medicare toward bankruptcy.

Will concludes: “Even an interest rate of just 3 percent on debt at 250 percent of GDP would siphon up approximately 40 percent of tax revenue. Inflation amounts to repudiation, paying debts in devalued dollars, and as debt increases, so does the government’s incentive to choose inflation.” I choose gold!

Huge Consumer (and Producer) Price Increases Are Coming Soon

The January Consumer Price Index (CPI) will be released on Thursday morning, February 10, at 8:30 am EST and the Producer Price Index (PPI), will come out later, next Tuesday morning, February 15. In both cases, be prepared for a shockingly high number, especially with the PPI, because the CRB Commodity index rose by over 10% in January alone and we’ve already shown you how fast the energy and industrial commodities rose – by double digits in January alone.

In addition to the energy surge, many components for new cars – like iron ore, lithium for EV batteries or the platinum group metals for catalytic converters – also shot up and there is still a huge chip shortage.

PRICE CHANGES DURING JANUARY 2022

If you recall, at this time last year, U.S. Fed Chairman Jerome Powell and most other Federal Reserve officials told us that inflation was “transitory.” but we disagreed due to the massive amount of new money they were pouring into the system. It turns out we were right, and on November 30, 2021, Chairman Powell had to face Congress and say, “it’s time we retired the word transitory.” AMEN on that, sir. And then Powell added that he would stop pumping in new money by March, and soon he would start raising rates.

That caused the stock market (and bitcoins) to go down, because they were relying on new money to fuel more speculation. Since then, many high-flying tech stocks have fallen sharply, including Meta/Facebook.

The Consumer Price Index on Thursday will be impacted most by the 13.7% increase of gas at the pump in January but food prices and used cars are also a big concern. The latest NBC survey asked, “Do you think that your family’s income is (1) going up faster than the cost of living, (2) staying about even with the cost of living, or (3) falling behind the cost of living?” Only 7% answered #1, that they were getting ahead; 31% said #2, that they were breaking even and 61% said #3, they were falling behind.

The Bureau of Labor Statistics (BLS) confirmed the fears of the 61%, showing that workers suffered a 2.4% drop in the purchasing power of their wages in 2021. That is a big reason why so many workers are quitting jobs, in order to seek something that pays more in an economy that has 10 million job openings.

Meanwhile, some prices seem to have no limit – Super Bowl seats this Sunday cost almost $5,000 or more up in the nose-bleed sections, where you need binoculars to see the game. The best seats cost over $40,000.  Less than 20 years ago, I bought two of the best seats in the 2004 Super Bowl for just $2500 each.

Metals Market Report Archive >