Gold, Silver, Foreign Currencies Weaken into September

Precious metals markets got off to a rough for the month of September.

Gold prices fell to test the $1,700 level on Thursday. As of this Friday recording, the monetary metal is back up above $1,700 and currently trades at $1,721 an ounce – down 1.4% for the week.

Bulls are hoping prices can keep above the July low when the gold spot briefly dipped below $1,700 by a few dollars. If gold can find support here, a potential double bottom will be in play.

Turning to silver, the white metal has suffered more technical damage during this late summer selloff. It made a new low for the year on Thursday. As of this Friday recording, the silver market shows a weekly decline of 3.9% to bring spot prices to $18.39 an ounce.

Platinum is off 2.6% to come in at $855. And finally, palladium prices are down 3.7% this week to trade at $2,078 per ounce. For the year, though, palladium is still slightly positive.

Metals markets overall are struggling in the face of relentless U.S. dollar strength versus the euro and other foreign currencies. The U.S. Dollar Index spiked Thursday to hit a fresh new multi-year high.

Meanwhile in Europe, a plummeting euro is contributing to record-high inflation and fears of energy shortages. If the European Central Bank fails to act soon to arrest the euro’s decline, the result could be social and political unrest leading to a possible breakup of the regional currency regime.

Political divisions and economic strains are also pushing the United States toward a potential inflection point. Some analysts are warning that if the Biden Justice Department moves to indict former President Donald Trump, riots and even civil war could ensue.

Frustrations over inflation and an economy heading toward recession amplify the risks of social and political unrest.

The only thing that has prevented inflation from spiraling out of control and creating Third World problems right here in the United States has been the dollar’s soaring exchange rate. That enables U.S. businesses and consumers to obtain foreign imports at relatively favorable prices.

But just as rapidly as the dollar has risen on foreign exchange markets, the next big move could be just as rapid on the downside. The Federal Reserve note has, in fact, been losing value rapidly in terms of its domestic purchasing power.

It will likely cease being strong on foreign exchange markets when the Fed begins to pivot away from rate hikes. The Fed is widely expected to deliver another 75 basis-point rate hike later this month. Markets are already pricing that in.

They aren’t pricing in a recession. Central bankers and Biden administration officials continue to insist that the economy isn’t entering a recession despite two consecutive quarters of negative GDP growth. At the same time, Fed policymakers see slowing the economy as the only viable way to bring down inflation.

They may succeed at crushing the economy. That doesn’t necessarily mean they will slay inflation.

Last weekend, the Federal Reserve Bank of Kansas City issued a white paper warning that stagflation is likely. The authors stated that interest rate hikes alone will be insufficient to tame rising price levels. They blamed fiscal policy in Washington, D.C. for continuing to be loose and expansionary.

Of course, it is the Fed that enables all the government’s reckless deficit spending by backing it with an unlimited printing press. Fed officials apparently hope politicians will practice fiscal responsibility in an election year, even though they have no incentive or track record of doing so.

As the national debt explodes at the same time as the Fed is hiking rates at its most aggressive pace in decades, the government faces a massive increase in debt servicing costs in the years ahead. Interest on the national debt is set to become the single largest component of the federal budget.

But instead of forcing Uncle Sam to tighten his belt, higher interest rates will only exacerbate the problem. Faced with rising interest costs, the Treasury Department will move to borrow even more money to avoid making cuts elsewhere.

The Fed will continue enabling the Biden administration's spending spree by creating new currency and buying Treasuries in whatever amounts are necessary to keep federal finances afloat.

The political and monetary forces at work are ultimately bearish for the U.S. dollar. Over the long run, it is anything but a safe haven. It is guaranteed to lose purchasing power.

Given that stocks, bonds, and precious metals have all struggled this year – and there are signs that the housing market is already beginning to tumble – risk-averse investors may be tempted to hide out in cash. But neither the U.S. dollar nor any other fiat currency has any real upside. The downside risk is theoretically unlimited since currencies can and do fail.

The only form of cash that has no risk of becoming worthless, and the potential to deliver real gains as fiat currencies decline, is hard money in the form of physical gold and silver. And that remains true despite the recent pullback in spot prices.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great Labor Day weekend everybody.

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