Biden Pours Gasoline on the Inflation Bonfire

As central bankers from around the world gather in Jackson Hole, investors are bracing for more rate hikes to come. The Federal Reserve is poised to hike again in September to try to cool inflation.

Meanwhile, the Biden administration is bent on flooding the economy with more deficit-financed stimulus. This week President Joe Biden announced a massive student loan debt forgiveness program.

Without bothering to get legislation approved by elected representatives in Congress, Biden took executive action to forgive student loan debt for around 20 million borrowers.

The total price tag is estimated to come in at over $300 billion and could even approach half a trillion. The costs will be reflected in a larger federal budget deficit.

Critics of the debt jubilee include Democrats from the Clinton and Obama eras who believe in practicing some semblance of fiscal restraint. They are warning that Biden's bailout scheme will add fuel to the inflation fire.

Ritika Gupta: President Biden's plan to forgive a portion of student loans held by tens of millions of people will ripple through the economy, but no factor will be more closely watched than inflation. Bloomberg Economics sees the potential to add as much as 0.2 of a percentage point to the inflation rate next year, that comes at a time when inflation is already at a four-decade high.

CBN News Reporter: Tom Cotton of Arkansas calling it a bailout paid for by the American taxpayer.

Tom Cotton: Just think about how unfair this is for all the Americans who are harmed by this who are now on the hook for hundreds of billions of dollars of other people's loans.

CBN News Reporter: Jason Furman, former top economist for President Barack Obama tweeting, "Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless."

While investors weigh inflation risks, they are also on recession watch.

Revised GDP data released Thursday shows the economy contracted by 0.6% in the second quarter. That's an improvement over the negative 1.6% reading printed in the first quarter. But it still confirms that the economy put in two consecutive quarters of negative growth.

Traders largely shrugged off the GDP report. Markets have yet to produce a clear winning trend among major asset classes in this environment of economic weakness and elevated inflation.

This week precious metals markets for the most part went sideways. Gold prices are down 0.5% since last Friday’s close to come in at $1,744 an ounce. Silver is essentially unchanged on the week to trade at $19.24 an ounce.

Turning to the platinum group metals, platinum is off 2.8% to trade at $885. And finally, palladium is now down 0.6% for the week to check in at $2,165 per ounce as of this Friday morning recording.

The physical palladium market is likely to be stuck in a deficit over the next two years, according to research by Capital Economics. Global demand is expected to continue rising while mining supply out of South Africa falls. That should translate into higher prices.

The platinum and silver markets are also set to experience potential supply shortfalls. Low spot prices are currently serving as a disincentive for miners to invest in exploration and production activity. Any uptick in industrial demand or investment demand could trigger outsized moves in these tight markets.

The gold market tends to be more stable in the face of shifting supply and demand dynamics. Unlike other metals that are consumed in industrial applications, most of the gold that is mined gets turned into jewelry, bars, and coins.

Gold functions as a tangible store of value, an alternative to the U.S. dollar and other fiat currencies.

Gold prices have been depressed this year in large part due to the U.S. dollar’s strength versus the euro other currencies. Even though the actual purchasing power of Federal Reserve notes has been rapidly declining, most other currencies are depreciating even faster.

The U.S. Dollar Index nearly made a fresh new multi-year high early in this week’s trading before backing down. Gold and silver bulls will be looking for signs of a top there.

A trend change in the dollar’s exchange rate versus foreign currencies could be the catalyst precious metals markets need to get going on the upside.

The summer doldrums may soon be coming to an end as gold enters what is often a period of seasonal strength heading into the fall and winter.

Of course, price breakouts can occur during any period on the calendar. So can major moves in other asset classes.

A long-term core position in physical bullion ensures that holders will never miss out on a $100 up day in gold and never be overexposed to financial markets in the event of a meltdown on Wall Street.

In other news, Congressman Alex Mooney is calling out U.S. Treasury Secretary Janet Yellen and U.S. Mint Director Ventris Gibson for the long-running production slowdown in the Silver American Eagle bullion coin program.

Money Metals podcast listeners know that these shortages have caused dramatically higher premiums for the Silver Eagle as compared to all other silver bullion coins.

As Mooney pointed out, the U.S. Mint has made available to the public only 11.6 million of the silver bullion coin through July 2022 – barely half of what has been supplied through the first seven months of prior years when demand has been similarly strong.

“The high costs resulting from the U.S. Mint production shortage directly harm U.S. citizens wishing to avail themselves of a U.S. legal tender means of protecting their financial security from the effects of inflation,” Mooney wrote.

Rep. Mooney is demanding Yellen and Gibson provide answers to several probing questions, including when they expect to start following federal law requiring they produce enough supply of silver coins to meet public demand -- and why the Mint doesn’t even bother to maintain a backup supply of silver blanks, so it doesn’t run into trouble whenever demand increases.

Here at Money Metals we are thankful that we have allies like Congressman Mooney seeking accountability from government officials for things that negatively impact silver investors as well as the precious metals industry at large.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast.

Money Metals Exchange

********