Groundhog Day
It is funny how I can take a short hiatus from writing on the precious metals market, come back and the conversation barely has changed. Will the Federal Reserve continue to raise interest rates? What banks are in crisis? Is Bitcoin a real thing?
There of course are other things that can affect the market such as politics. But the US system is being undermined currently and I wish not to write about globalist agendas in this forum. As a reader you will need to search out the truth and seek how to protect your family and future from these risks.
Sticking to the matters at hand, a couple of weeks ago Moody’s cut the ratings of several banks. Among them are some banks you would not expect because most of them have a really solid management with a low risk-taking policy. Yet, it is actually those low-risk taking policies that hurt them because of the positions they took during the zero-rate environment, in which they had become accustomed. Now their positions in their interest rate portfolio are coming back to haunt them as they take book losses.
Then we have the higher interest rate environment also affecting the Real Estate market. It seems however that commercial real estate is taking the bigger hit as the double whammy of higher rates and weak demand has moved it to a crawl. But the threat of even higher interest rates still is a concern for home sales as well.
Meanwhile, the Federal Reserve continues to maintain is position that it will raise interest rates and its target is 2% inflation. Many people in the private sector do not really believe that the inflation rate is at 3.18% per annum. At least for most people, though inflation has slowed in the last year, we could easily sense that the number should truly be higher. Yet, the Fed has their target rate and that is where they are going, they do not care about the private citizens and unemployment. That is not their job. Their job is to protect the interest of those with the most assets, and for the most part they do their duty. This means that you can expect them to raise rates again.
Meanwhile, in the gold and silver market the high interest rates have been weighing down on the market. With money being able to earn money in the bank or bonds in dollar terms, investors begin to shy away from metals for short term gains. Add to this the expectations made clear by the Fed today that they will likely raise rates again and the downside pressure keeps a damper on the prices. But for how long when all the other economic signals are negative?
Gold remains the most liquid and there is no real underlying supply concern that can affect its price, and this is what actually makes it behave more like a currency. Investors fear not missing out on a price move by much as they can easily jump right back in the case of a turn of events. Yet, gold is the currency of last recourse, it is currently where you want to be if the [i] “s**t hits the fan” as we say here colloquially. This means with the likelihood that there remain more financial debacles in our future due to the current environment a price move back over $2000 is within sight in the not-too-distant future.
Then we have the silver market, which in most cases follows along with the gold market. Yet at this time expectations are great of a fundamental shift into deficit territory. Because of the increased demand and usage of the metal in all things electronic there is a new underlying price support that will keep this metal price from showing too much weakness and there are greater odds that six months from now the price may be significantly higher than $25. Oh, one thing I need to mention, please do not buy into the propaganda that the COMEX is going to run out of silver and the price is going to explode. This simply is not true and will not happen.
Finally, a source of real consternation are the platinum group metals. Rhodium and palladium, two metals whose greatest demand is from auto catalyst production are understandably weak. China’s economic slowdown is certainly a direct factor along with some conversion of auto buyers to Electric Vehicles. However, it is not the electric vehicle that is causing palladium to lose ground. The conversion of palladium to platinum usage in the auto catalysts are the driver. It is a slow process, and this would explain why palladium prices, a metal that is not in any way in short supply, is not yet at par with its sister metal. In fact, I will warn that slowing demand for palladium, increased reclaim from spent catalyst will eventually drive these prices much lower.
The real question is why platinum, a metal with such a positive fundamental outlook for replacing palladium usage, incremental growth in chemical and industrial usage along with expected explosive growth in the new hydrogen economy suffering from an anemic price? I don’t have the answer to this riddle. Not only is this metal in demand, but because of the continued production crises in the world’s major producer of the metal which is South Africa you would expect a price rally. Analysts have been calling for supply deficits in the coming years. It is my view that investors may be asleep at the wheel on this one and for all the efforts at the World Platinum Investment Council, it is failing to reach their collective ears.
I have heard from more than one person that global mining production cannot meet the demands supposedly expected by politicians by the year 2030 for electric vehicles. For more information on this issue Matt Watson at Precious Metal Commodity Management LLC. This being said, if you are an investor and are not invested in platinum because of the threat of electric vehicle cannibalization of transportation sector. I believe you are mistaken.
[i] Forgive me for my old-world sensibilities. I really should not bother when children are being subjected to more grotesque things in the public libraries and public education system than a minor foul word.