Inflation and Other Threats Are Pushing Governments & Citizens to Gold

Precious metals markets are attempting to stage a rally this week off oversold conditions even as investors remain skittish over rate hikes.

Multiple Federal Reserve officials came out and suggested they favor additional interest rate hikes while inflation readings continue to come in hot. Some analysts are calling for a return to 50 basis point hikes. But markets continue to anticipate a pause by the summer.

Gold and silver prices can be expected to move in advance of any announced pause or formal dovish turn by central bankers.

For the week, gold shows a 2.0% gain to bring spot prices to $1,855 an ounce. The silver market is up 1.5% since last Friday’s close to trade at $21.29 an ounce. Platinum is popping 6.0% this week to trade at $986. And finally, palladium prices are 0.7% higher for the week to come in at $1,492 per ounce as of this Friday morning recording.

Interest in precious metals among general investors and speculators in futures markets has been lackluster so far this year. Although physical bullion buying has remained brisk, it hasn’t been enough to generate much of a move in spot prices.

But one of the largest sources of gold bullion demand is buying aggressively. Central banks around the world continue to be net accumulators of the monetary metal. They increasingly see the need for hard money in reserves amid geopolitical tensions and risks to the U.S. dollar’s status as world reserve currency.

A more prominent role for gold in the world monetary order could have a significant impact on available physical supply and ultimately prices.

On the heels of record-setting gold buying by central banks in 2022, they are continuing to stock up in 2023. The World Gold Council reported on Thursday that central banks bought 31 tonnes of gold in January. That represents a monthly increase of 16%.

Leading the way in official gold buying were China, which reportedly added 15 tonnes to its reserves, and Turkey. Last year, Turkey emerged as the single largest sovereign gold buyer.

Russia also made some big moves to acquire gold and encourage its trading partners to send and receive payment in precious metal. Countries that find themselves in the crosshairs of international financial sanctions have an obvious incentive to turn to the world’s most universally recognized store of value. So do countries that are grappling with inflation.

Last year, central banks acquired over 1,100 tonnes of gold — a 150% increase from the previous year. The World Gold Council expects 2023 to be another banner year for monetary gold demand.

This doesn’t mean that central banks will be adopting an actual gold standard. Nor does it mean that central bankers will be applying sound money principles.

But they do want to get inflation under control and project stability to the public. And they increasingly view holding U.S. dollars and other fiat currency IOUs in reserves as risky. Gold helps mitigate the risks of holding financial assets.

Individual investors can also hold precious metals in their personal reserves to protect against inflation and other risks to conventional financial assets.

While it is impractical for central banks to acquire silver on a large enough scale to fulfill the same role as gold, individuals on a more limited budget may find silver to be more practical for their needs than gold. Silver has the advantage right now of being cheap relative to gold and to almost all other assets on the planet.

And like gold, silver is historically and constitutionally considered to be money. In a worst-case scenario if the banking system failed, the internet went down, and the fiat monetary system collapsed, silver coins would be far more practical for buying food and other basic necessities than gold coins.

But of course most holders of physical gold and silver aren’t doomsday preppers. Most precious metals buyers are concerned primarily with obtaining a tangible long-term store of value that also has upside potential in the event that things do go from bad to worse.

In other news, there has been lots of action over the past week on the sound money policy front – both positive and negative.

On the negative side, the house revenue committee in Wyoming absolutely gutted the forward-thinking bill recently passed by the Wyoming Senate. The authority for the state to acquire gold was yanked out, as were the provisions permitting certain tax payments to be paid in gold and silver.

Rep. Mark Jennings attempted to save the sound money bill on the House floor with an amendment stipulating the State of Wyoming must, at long last, own at least some gold or silver. This compromise amendment would have ensured that Wyoming took one baby step forward on sound money. Unfortunately, the Jennings amendment failed by a vote of 34-27.

Those Wyoming House members who defeated the Jennings amendment did so because they outright oppose sound money -- and do not mind (or realize) that Wyoming is today a sitting duck, with limited ability to protect itself against the inflation and financial instability caused by central bankers and tax-and-spend politicians in Washington DC.

In recent years, the State of Wyoming has lost hundreds of millions of dollars on investments in emerging market debt – which is a fancy term that actually means loans given to Third World countries. Yet the Cowboy State does not own a single ounce of constitutional, sound money – even as gold has risen 50% since Wyoming legislators first started debating the issue back in 2019.

However, sound bills are moving forward in other states. This week, the Idaho House passed out a bill that would prompt the State Treasurer to hold some physical gold and silver, sending the bill over the Idaho Senate. A similar bill in Tennessee passed a house committee and is now heading to the Tennessee house floor.

Meanwhile, a bill in Iowa removing capital gains taxes from gold and silver received a favorable hearing and is heading for a full house vote. And another bill in Oregon would cancel some discriminatory taxes imposed on precious metals dealers and their customers. And that bill appears to have lots of support as it moves through the Oregon legislature.

All told, there are more than 30 sound money bills pending in 19 states – the most we’ve ever seen! Most of these bills will likely fall short, but the momentum does exist to achieve some important wins this year. Stay tuned.

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