Inflation Data Has Given Federal Reserve an Excuse to End Rate Hikes

A potentially pivotal week of trading is seeing precious metals markets push higher.

The main catalyst is a breakdown in the U.S. Dollar Index. On Thursday, the dollar slid to its lowest level in more than a year versus a basket of foreign currencies.

Meanwhile, the latest inflation data show both consumer and producer price pressures continuing to moderate. That has raised expectations for the Federal Reserve to soon end its rate hiking campaign, which is largely the reason for the recent dollar weakness.

Markets are still pricing in one more 25 basis-point increase at the Fed's upcoming policy meeting. But the odds of it being the final rate hike are growing.

The chances of a recession and a dovish pivot by central bankers to actually cut rates in the months ahead are also growing.

The Dollar Index may therefore have a lot further to fall. And, as a result, precious metals markets may have a lot of room to run higher.

For the week, gold prices are up 1.8% to trade at $1,969 per ounce. Silver is showing some impressive outperformance, up close to $2 an ounce or 7.8% since last Friday's close to bring spot prices to $25.13. Platinum is putting in a nice 6.2% advance to trade at $987. And finally, palladium is coming off a multi-year low to post a weekly advance of 0.5% to come in at $1,308 as of this Friday morning recording.

Bullish momentum for metals markets has a chance to build in the second half of the year heading into what is typically a seasonally favorable period.

The first half of 2023 did see gold prices come within a hair of making new all-time highs. It also saw a groundswell of grassroots momentum propel gains for the sound money movement in states across the country.

The Sound Money Defense League reports that so far in 2023, 25 states have considered 50 pieces of legislation aimed at ending taxes and regulations on gold and silver transactions. Mississippi became the latest state to eliminate sales tax on bullion, building on the wins in Ohio and Arkansas in 2021 and Tennessee in 2022.

Currently, only seven states continue to impose sales taxes on precious metal purchases. They are New Mexico, Hawaii, Wisconsin, Kentucky, Maine, New Jersey, and Vermont. Of these states, five introduced legislation in 2023 to end this tax – with the New Jersey and Wisconsin bills still under consideration this year.

Most states, however, continue to impose capital gains taxes on precious metals. This tax on money itself is unfair to savers. It also discourages the legitimate use of gold and silver in barter and trade as an alternative to fiat cash.

The good news is that, of the 43 states that have an income tax in the first place, Arkansas just exempted precious metals from state capital gains liabilities – joining states like Utah and Arizona. Legislators in several other states have introduced similar measures.

Money Metals President Stefan Gleason spoke about the latest developments in state-level sound money initiatives in a recent appearance on Palisades Gold Radio.

Stefan Gleason: And if you look at gold and silver and say, "Well, what is preventing gold and silver from returning to its role as money?" Well, one of the biggest things in practical terms is the friction around the buying and the selling, the tax when you buy it, and the income tax when you sell it. And so we've really started with those two policies with the Sound Money Defense League, and the Sound Money Index focuses probably about half of its scoring on whether a state has a sales tax on gold, silver, platinum, and palladium, and whether a state has exemptions on income tax for the sales. When you later dispose of your gold and silver, you're taxed at the Federal level, and then you're taxed again at the state level. Well, some states are backing out of that and saying, "We're not going to tax this at the state level." Obviously, we'd like to see (Rep. Alex) Mooney's bill at the federal level and that problem with the IRS and the federal income tax.

But states can take some steps and many states are. And so we're seeing a lot of progress at the state level where public policy gains are much less difficult to achieve, particularly with mobilizing grassroots. The idea of taxing money and taxing gold and silver, which is a form of savings that's particularly appealing to people who are small-time savers who may not have access to stocks, bonds, real estate. It's a way for them to save and to save in an inflation resistant asset. So really, the little guy benefits from an exemption on gold and silver purchases. And if you look at the inflation issue in general, it's the people without assets who are most harmed.

Sound money advocates are also pushing for reforms at the federal level. Unfortunately, the powers that be in Washington, D.C. are institutionally opposed to gold and silver. Getting meaningful legislation passed – for example, to end the discriminatory 28% “collectibles” tax on precious metals gains – is a long shot, at least for now.

But the sound money movement does have allies on Capitol Hill, including Congressman Alex Mooney. He has introduced bills to audit America's gold reserves, restore a gold standard, and prevent the Federal Reserve from issuing a central bank digital currency.

Politicians who aren’t necessarily aligned with sound money principles can still be pushed to support pro-sound money legislation in some circumstances. In fact, many of the state-level victories in recent years have come with broad bipartisan support.

And many of these successes would not have been possible without grassroots pressure from constituents, including Money Metals Exchange customers.

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 wonderful weekend everybody.

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