Fed: “We’re Not Going to Take This Punchbowl Away”

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by Mike Gleason, Money Metals:

Meanwhile, Are Central Banks Considering a Ban on Private Crypto Currencies?

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Precious metals markets are struggling against the headwind of a rising U.S. dollar this week.

The dollar index broke out to a four-month high on Thursday. Neither a much-awaited fall in bond yields nor dovish remarks from Federal Reserve officials dissuaded currency traders from buying Greenbacks and selling other fiat currencies.

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Commodities and precious metals markets also saw some selling. As of this Friday morning recording, the gold price trades at $1,741 an ounce – down 0.6% for the week.

Meanwhile, silver sold off to a support level at $25 an ounce. On Thursday, traders battled back and forth ahead of options expiration. Bulls were able to hold the line and push the market to close a few cents above $25. The white metal currently checks in at $25.19 an ounce and is heading for a weekly loss of 4.5%.

Turning to the PGMs, platinum is giving back 2.2% this week to bring spot prices to $1,183. And finally, palladium now registers a weekly gain of 1.1% to come in at $2,700 per ounce.

Despite choppy trading in metals markets so far in 2021, intense demand for coins, bars, and rounds continues to strain supply chains in the bullion market. Some mints and dealers are simply unable to deliver product to their customers in a timely manner.

Here at Money Metals, we are working hard to keep up with demand while continuing to provide award-winning customer service. We do have available inventories of most bullion products – and if we are quoting shipping delays, it’s way less than most competitors. Customers can currently expect order processing delays of up to four days.

Supply bottlenecks are showing up elsewhere in the global economy. Disruptions from COVID lockdowns and distortions in the normal rhythms of supply and demand are leading to shortages and price increases in some retail and commercial goods.

To make matters worse, this week a critical bottleneck for global trade was literally blocked. A container ship got stuck in the Suez canal, closing off that major transcontinental shipping route and costing the world economy untold billions. It could be several more days before the daunting task of moving the giant vessel is complete.

In the meantime, volatility could ramp up in commodity markets. Although prices for most raw materials fell this week, disruptions in processing and delivery could soon begin to be reflected in higher futures prices.

Broader inflationary pressures are also at work. The Federal Reserve won’t stop stimulating until its official inflation gauge shows a reading of above 2% for a sustained period.

On Wednesday San Francisco Fed President Mary Daly indicated that central bankers won’t tighten monetary policy preemptively while the economy recovers and unemployment falls. She said the Fed is “not going to take this punchbowl away” until their objectives are fully met.

One of the Fed’s long-term policy objectives concerns digital currency.

On Monday, Federal Reserve Chairman Jerome Powell delivered remarks to the Bank for International Settlements — the central bank for central banks around the world.

Powell decried Bitcoin and other privately circulating cryptocurrencies as inferior to currencies issued by central banks. He indicated the Fed is looking into developing a central bank digital currency to try to blunt the rise of cryptos.

Meanwhile, Treasury Secretary Janet Yellen and members of Congress are aiming their regulatory crosshairs at Bitcoin. They say it’s used mainly for illicit purposes, even as it gains more mainstream acceptance by the likes of Tesla and other companies.

The government’s real problem with cryptocurrencies is that they represent potential competition to the Fed’s currency-creating monopoly. And as that threat grows, so do the risks of a major crackdown on digital coins.

Billionaire hedge fund manager Ray Dalio is warning that Bitcoin could be banned, much like private gold ownership was during the Great Depression.

Ray Dalio: They outlawed gold. That’s why also outlawing Bitcoin is a good probability. Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing, because things can get out of control. So I think that it would be very likely that you will have it under a certain set of circumstances outlawed the way gold was outlawed.

Dalio has also said that “cash is trash.” And gold is among the assets he is diversifying into for protection against dollar depreciation.

As for the possibility of future gold confiscation, the reasons why the government did so in the past simply do not apply today. Back in the 1930s, a form of a gold standard was still in force. The central bank needed gold in order to expand the money supply.

Today, of course, the Fed can print digits at will.

It’s possible that at some future date which is hard to imagine now, the U.S. could move to reinstate a gold standard in order to restore confidence in the dollar.

A severely depreciated dollar would presumably mean a much higher market price for gold. Gold holders would still be able to realize their nominal gains if ordered to sell.

One of the most common misconceptions about so-called “gold confiscation” is that armed federal agents went around to banks and homes to seize gold. In reality, citizens were ordered to exchange their gold for cash – and many refused to do so. Those who did received payment for it – albeit in a currency that was devalued shortly thereafter.

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