Debt Ceiling Conflict Could Spark Metals Buying

Well, investors seem to be brushing aside headline risks in the banking system, the government's finances, and the economy.

The stock market surged on Thursday despite entering the week on shaky footing amid fears of another major bank failure. Shares of First Republic Bank plunged after it reported alarming losses on assets along with a flood of customer withdrawals.

Cue another round of bank bailouts from Washington, D.C. With FDIC insurance already stretched to its limit and beyond, the banking system is ultimately dependent for its survival on the lender of last resort – that being the Federal Reserve.

The central bank could also potentially be called upon to bail out the biggest debtor of all – that being Uncle Sam.

This week the Republican controlled House of Representatives passed a bill to raise the debt ceiling and avert a default. The bill includes some modest spending cuts.

However, Joe Biden and his allies in the Democrat controlled Senate are refusing to play ball. They want an unconditional okay to keep spending and borrowing.

One way or another, the government will keep spending and borrowing. Even if Republicans get their way, overall government spending will keep increasing -- and so will the national debt. And the Federal Reserve will keep enabling it all through new currency creation.

Despite the Fed's most aggressive rate hiking campaign in decades, inflation remains stubbornly elevated. The central bank's preferred “core” Personal Consumption Expenditures price index rose at a 4.9% annual pace in the first quarter -- higher than forecasted.

Meanwhile, Thursday's GDP report showed the economy barely growing. The 1.1% growth rate for the first quarter came in well below expectations, raising the odds of an official recession later this year.

That also raises the odds of the Fed pivoting to rate cuts. In fact, futures markets are pricing in lower rates by year end.

Hard assets stand to gain from a cheapening U.S. dollar. The Dollar Index has been in a downtrend since last Fall. But over the past three weeks, currency markets have been choppy – as have precious metals markets.

Gold continues to oscillate around the $2,000 level. As of this Friday morning recording, the monetary metal comes in at $2,002 an ounce – up 0.4% for the week.

The bad news for bulls is that gold futures face a formidable zone of resistance between current prices and the $2,100 level. The good news is that gold continues to show resilience. Despite running into some selling pressure, the pullback so far has been minor.

Turning to silver, spot prices are essentially unchanged this week and come in at $25.32 per ounce.

The platinum group metals, meanwhile, are underperforming. Platinum is off 5.1% this week to trade at $1,088 while palladium shows a weekly loss of nearly $120 or 7.2% to check in at $1,545 an ounce.

Bullion buying remains brisk although it has pulled back a bit over the past week, but it still has the potential to go berserk at any moment. Potential catalysts for a mad rush by the public into precious metals include the failure of a mega bank, a political calamity in Washington surrounding the debt ceiling, or an abrupt move by the Federal Reserve toward monetary easing.

For now, though, most popular bullion products are readily available for reasonable premiums and minimal turnaround times when purchased through Money Metals Exchange.

The exception is American Eagle coins. Silver investors who aim to get the most ounces for their dollars would be wise to avoid Silver Eagles at this time due to their elevated premiums. We encourage clients to instead opt for privately minted silver rounds.

For example, we are pleased to offer the new Buffalo Warrior .999 pure silver round, minted by Bullion Works, right here in the USA. It features a stunning design sculpted by famed artist Luigi Badia – a modernized interpretation of the classic "buffalo" nickel.

Rounds make a good alternative to government-minted coins. Although they cannot be used as legal tender, their value is dictated by the spot price of silver. And at the end of the day, a one-once silver round has the same melt value as any ounce of silver in any other form.

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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