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Gold and Silver prices surge as the dollar dumps and stocks slump.
This is not to be considered investment advice. This is to be considered entertainment. You should ALWAYS seek a certified investment advisement professional before making ANY decisions with your money.
Over the last week Gold, Silver and Platinum have rallied to the highest level in years as the metal markets post monstrous gains in the last 48 hours. $GLD up 5%. $SLV up 19%. $PLT up 10%.
In the metals industry, there are always two sides of the coin, there are the ones who deny Precious Metals as a legitimate investment vehicle and those that buy the metal and make money from it. This is because Gold and Silver gains such as this, in times like these, are as predictable as tomorrow's sunrise.
Need proof? Well, Gold has quadrupled the gains of the DIJA in the last 20 years, which is covered in depth in our last article.
Here’s why you are seeing the Precious Metal rally.
All industries had slowed, due to the current global pandemic known as the COVID-19 Pandemic. With the industries that purchase and use noble metals in manufacturing (which accounts for well over 75% of all Precious Metal transactions) slowing as well. This means industrial purchases of noble metals slowed. This is to account for the dip we observed back in April. With the slowing of the global industry forcing Governments worldwide to increase money supply into circulation in the form of stimuli to reinvigorate the world economy.
This has done two things. It has reignited the world's industry as well as devalued global currencies, causing the demand for Precious Metals (both investment and industrial noble metals) to soar and major global currencies to weaken.
It’s not necessarily the case that Gold and Silver are more valuable then they were last week, it’s that the fiat currencies used to purchase the metal is less valuable then it was last week. In addition to the sudden surge of demand.
We are only barely feeling the effects of the $2.2 trillion dollar U.S. stimulus from back in March as today July, 24th 2020 the U.S. Government and European Union announce over $4 trillion dollars in more stimulus on the way. This means you will not only receive a second Stimulus Check but you will also see industrial demand increase and both major currencies (the euro and dollar) decrease even further in value.
Printing money from thin air.
This term is often thrown around in the precious metals industry and although true, faith in fiat paper ‘legal tender’ (tinder) remains unshaken by in large. The immediate effect of stimulus checks is very noticeable but there is an on-going argument that the long-term effect is more damaging than the short-term benefit. This is something that is battled in congress and creates a huge divide between the two political parties in the U.S...
The argument for a stimulus check is short-sighted in that large sums of money dropped into the populations checking accounts do create that money to be dumped directly back into our economy, with a huge caveat. This helps invigorate business and prevents the stock market from plummeting. BUT, unbeknownst to the majority of the population, the long-term effect (devaluation) quickly outweighs the $1,200 extra bucks to spend on Amazon that month.
But wait, why do I care if the dollar decreases in value?
Unless you expect to receive a pay raise from your boss for the exact rate of inflation then technically by this time next year you will be making less money. Some of you might remember the late 90’s when you could buy a pack of Wrigley’s chewing gum for about 10-15 cents a pack. Well, that same pack of gum at wally world is selling for $1.19. Has Wrigley improved their hallmark candy to chew smoother, improve dental hygiene, and last longer? No, it’s the same exact product, the difference is, the ingredients used remain as valuable as it was prior but it takes more US dollars to purchase the ingredients, forcing Wrigley to charge more. This is because your DOLLAR is worth LESS.
What would be better than a stimulus check, it’s free money!
The counterargument to a stimulus check is tax cuts. Most recently brought up in the political arena specifically is a payroll tax cut by the Trump administration, but the same argument could be used for any direct tax on you such as sales tax, income tax, property tax, et cetera.
This prevents the need to ‘print money from thin air’ and has a similar effect as a stimulus check, granting you more money to put back into the economy without devaluing our currency. It’s also important to note that having a strong currency doesn’t only benefit you directly but also indirectly as the U.S. dollar as the global trade currency and petrol dollar. This is why we have remained the world's foremost superpower over the years. Henceforth, inflation causes the cost of living to rise quickly. It’s not that your landlord, grocery store, utility companies, and fast food joints are price gouging you, it’s that they need more money coming in to conduct their operations.
Well, this seems like a no-brainer then, don’t print money, cut taxes.
Not so fast! A payroll tax cut? How does this help the 14 million newly unemployed Americans who aren’t receiving a paycheck anymore? Running an economy isn’t so easy now, is it! But before your Twitter fingers start going, try and realize that things aren’t always a simple ‘no-brainer’ fix that can be easily passed into law without consequence and that BOTH parties have rightful gripes about what is best now and for the future U.S. and global economy.
Where does Precious Metals fit into the mix?
Unlike paper currency, Gold and Silver bars and coins can’t just be printed from thin air by humans. This prevents artificial inflation and why investors use the commodity as a “safe haven” and hedge AGAINST inflation.
Precious Metals are notorious for holding its value through ANY period of economic turmoil and subsequent inflationary effects that might occur.
For example, if you had $100,000 dollars in 1980, you could have purchased about 10 entry-level Toyota Sedans. Fast forward today and $100,000 dollars would only yield you about 5 entry-level Toyota Sedans. If you had purchased $100,000 dollars worth of Gold and Silver in 1980, you would be able to trade that for a bit more than 10 entry-level Toyota Sedans today.
Again, it’s not that Toyota Sedans are better or more reliable/efficient than they were in the 80’s it’s that the value of the dollar used to purchase the vehicles is much weaker.
Gold and Silver ore is what is called a finite durable good meaning that the entire amount of Gold and Silver on earth has one true weight that will never increase. With there being a set amount of Gold and Silver on the planet today, it’s value will actually always increase and towards the end of the entire supply might skyrocket until it becomes unavailable and supply ends.
In conclusion, Investors use precious metals as a safe haven to protect their wealth (or a portion of it) from inflation. It’s why noble metals are considered Precious really. Governments can not simply create Gold, Silver, Platinum, and Palladium bullion out of thin air, therefore the threat of inflating the value of the metal is impossible and because there is only a finite amount of the resource, it will always slowly but surely gain value until it becomes unobtainable.
Stunning image of Gold, Silver and Platinum 1 oz Coins from Austria. Photo taken by Investor Crate staff circa 2019 at our Texas facility.
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Great time for sellers!
You explain inflation and how PM’s hedge against it fairly well. But not how PM prices are suppressed (to hide inflation) with bank paper trades and manipulations not seen/allowed in other commodities. Aren’t these practices working anymore?