Government Inflation Reading Still Comes in Hot, Tech Layoffs Continue

As investors digest the latest readings on inflation, employment, and consumer spending, precious metals markets are wavering on fears of further rate hikes.

Inflation continues to run well above the Federal Reserve’s 2% target.

On Tuesday, the Labor Department released the latest Consumer Price Index figures. The CPI rose a higher than expected 0.5% in January. That translates into an annual gain of 6.4%.

And on Thursday, the Producer Price Index came in higher than forecast. The PPI report showed wholesale prices rose 0.7% last month versus expectations for a rise of only 0.4%. That suggests more price pain is coming down the pipeline to retailers and consumers.

Unfortunately for most workers, their wages aren’t keeping up with rising costs of living. According to the government’s own data, real hourly earnings fell 1.8% year over year.

Alternative measures of inflation suggest the hit to workers’ purchasing power has been even more severe. The CPI understates housing and food costs as a proportion of family budgets and applies various substitutions and statistical adjustments to the raw data. That results in a significantly lower CPI than would be the case if it were calculated the way it was in previous decades.

Meanwhile, tens of thousands of employees at large corporations are facing a wave of layoffs. Tech giants including Google, Apple, Microsoft, and Meta are slashing jobs at a time when the Biden administration claims joblessness is at a 50-year low. The official unemployment rate is another government statistic that doesn’t square with reality.

But the reality markets are concerned with at the moment is the Federal Reserve’s likely inclination to continue raising interest rates. The elevated inflation readings that came out this week boost the odds of further hikes ahead.

Some knee-jerk selling ensued in the futures markets for gold and silver. As of this Friday recording, gold is down 1.4% for the week to bring spot prices to $1,847 an ounce. Silver, meanwhile, is headed for a similar weekly loss of 1.4% and currently trades at $21.91 an ounce.

Turning to the platinum group metals, platinum is off 3.0% since last Friday’s close to trade at $936. And finally, palladium currently checks in at $1,560 on the heels of a 2.3% drop in this week’s trading.

We do have some good news to report on the sound money front. More states are moving to eliminate taxes on precious metals. This week, sound money bills were introduced in the Iowa and Mississippi legislatures.

House File 208 would enable Iowa taxpayers to remove from their reported state income all gains or losses tied to sales of gold and silver.

Iowa exempted the monetary metals from state sales taxes years ago. By passing this bill, Iowa would join several other states in ending income taxation of the only form of money mentioned in U.S. Constitution.

Wyoming, Arizona, and Utah have already passed similar bills while South Carolina, West Virginia, Missouri, and Idaho are also considering measures just like the one in Iowa right now.

A new bill introduced this week in Mississippi would prompt the state to invest a small portion of state funds in gold and silver, as well as eliminate sales and income tax liabilities on the monetary metals.

Senate Bill 2966 exempts purchases of gold and silver from sales taxes and allows taxpayers to remove any capital gains from taxable Mississippi income. It instructs the state treasurer to invest no less than 1% of the excess general and special funds of the state in gold or silver. The sound money law would also establish an in-state bullion depository.

Mississippi is currently one of only eight states that still charges sales taxes on precious metals. This practice is blatantly unfair to hard assets investors. It artificially incentivizes people to opt for financial products such as stocks and bonds, which aren’t taxed when purchased.

Even so, holders of financial assets risk having to pay a hidden inflation tax that steadily erodes the real value of their investments over time. And while precious metals markets offer no guarantees on future results, sound money has an unmatched history of retaining its value over time.

Even as the legislators in Mississippi consider the more sweeping sound money bill I just described, a focused sales tax repeal bill backed by Money Metals and the Sound Money Defense League has just been voted out of house AND senate committees with a DO PASS recommendation. And the sales tax repeal heads to the floor of both Mississippi chambers for a vote on final passage.

This progress is very good news for those in Mississippi who are sick and tired of paying a sales tax when buying gold and silver.

Stay tuned!

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 Presidents Day weekend everybody.

*********