Premiums on Coins, Bars, and Rounds May Finally Have Bottomed

By Clint Siegner

Gold and silver premiums have been following the demand for physical metal lower in recent months. As investor selling ticked up, popular bullion products poured back into dealer inventories. The result has been some of the lowest premiums we’ve seen in a decade for items like gold and silver American Eagles.

The “premium” is the amount over the market price for gold or silver commanded by a specific bullion product. It will include the dealer’s profit, but also incorporates the wholesale premiums and/or fabrication costs the dealer must pay to acquire the inventory.

Premiums are the best indicator of demand in the bullion markets.

Secondary market products – items that are being resold rather than sold for the first time as brand new – are just about always the best option for investors, provided they can be purchased at a discount. Unfortunately, that hasn’t been very often in recent years.

For most of the past decade, bullion investors have been less inclined to sell. Instead, mints and refiners had trouble keeping up with demand at times.

Buying resale may mean the lot of coins a buyer orders will be dated with one or more prior years. A batch of silver rounds could include more than one design. But as long as the product is in uncirculated condition and the designs are well-recognized and marketable, the resale value will be the same as for a new version of the same item purchased today and sold a year or two down the road.

The cost of manufacturing puts a floor on the pricing mints and refiners can offer. This is not the case in the secondary market, where manufacturing costs have already been borne by someone else. Buyers who aren’t insistent about getting brand new product can now get coins, rounds, and bars at a discount.

Metal prices bottomed in mid December, which discouraged some selling. Now prices are moving higher. Initially, this may drive another round of selling, leading to extra supplies of secondary market products. However, optimism about where metals prices are headed also appears to be on the rise.

Buyers might as well save money on premiums, while they can. There are some signals that the opportunity may not last too much longer.

Supplies of some secondary market items, such as silver American Eagles, can vanish at a moment’s notice. Buying demand has turned higher and these discounted items are always the first to go. If that trend continues over the next few weeks, look for premiums to rise from today’s extraordinarily low levels.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Most Investors Won’t Be Buying Gold & Silver until AFTER Big Gains Occur

By Clint Siegner

Physical demand for bullion rounds, coins, and bars remains somewhat soft in the U.S. This year’s run higher in prices as well as rising geopolitical tensions has whet the appetites of some investors, but it has not yet triggered broad participation.

With strong gains both this year and last, metals prices have been responding to a host of issues – from unrestrained federal borrowing to the prospect of nuclear exchange. But they haven’t moved up as much as many expect.

After advancing dramatically in the prior decade, gold and silver have not responded as strongly to the explosive money creation and debt of the last few years as stocks have. And while predictions of crisis have been plentiful, the “Big One” hasn’t yet materialized.

Some honest money investors have even been drawn to Bitcoin and other cryptocurrencies. This is, in part, because of the tremendous run-up in prices in recent months (notwithstanding last week’s crash), and because cryptocurrencies might prove beyond the reach of Wall Street and central bankers to control.

Unfortunately, many investors will be sitting on the sidelines until precious metals are proven outperformers again, and in doing so, they will miss a big move up in prices. While we expect to see much higher gold and silver prices, the catalysts for that aren’t anything to root for. Serious geopolitical strife, a major correction in stock prices, or the U.S. dollar in free fall all mean hardship and pain.

Change is inevitable, and the U.S. economic expansion is getting long in the tooth. Even artificial markets must ultimately yield to actual physics.

The good news for investors with a contrarian bent is that buy premiums on bullion products are the lowest they have been in a decade – and inventory is plentiful. Down the road the opposite may be true, i.e. high premiums and shortages of the physical gold and silver in minted form.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

New Risk For Investors: Fed Considers Jacking Up Inflation Target

By Clint Siegner

Investors are underestimating inflation risk. As a consequence, they are under-pricing inflation protecting assets including precious metals.

The Federal Reserve has given itself the objective of engineering an inflation rate of around 2%. However, there are many ways in which real-world inflation can potentially outpace the Fed’s 2% target.

Firstly, the Fed’s preferred inflation gauges are flawed. The so-called “core” rate of consumer price inflation strips out food and energy costs. The core Personal Consumption Expenditures (PCE) index has also been criticized for underweighting housing and medical costs.

The PCE number for March, which came out on May 1st, shows the Fed’s favored inflation gauge running at 1.6% year over year. That’s down slightly from the previous month’s reading of 1.8% (2.1% for the headline unadjusted PCE).

Since 2012, the core inflation rate has been running below the Fed’s 2% target. That has caused investors to grow complacent toward inflation risk. They seem to be operating under the assumption that 2% is a ceiling.

That is a dangerous assumption – not only because of food and energy inflation not being properly accounted for, but also because even the official “core” number could rise well above target for extended periods.

Fed Insiders Call for 4% Inflation Target

The 2% target itself isn’t set in stone. In fact, some current and former Fed governors would like to see the central bank pursue a more flexible inflation objective. Peterson Institute economist Olivier Blanchard argues the Fed ought to raise its target to 4% in order to make up for several years of below-2% inflation.

Former Federal Reserve chairman Ben Bernanke recently wrote a piece for The Brookings Institution in which he proposed ways to re-jigger the Fed’s inflation target. According to Bernanke, “in a changing world of imperfect credibility and incomplete information, private-sector inflation expectations are not so easy to manage.”

In other words, the Fed lacks the knowledge and credibility to be able to directly control what businesses and individuals think future inflation rates will be. That’s a problem for the central bank to the extent that expectations for inflation can be self-fulfilling and fail to match up with the centrally planned target.

What’s a central planner to do? Bernanke suggests implementing a more flexible inflation target.

“Looking forward, it is likely that the determinants of the ‘optimal’ inflation target—such as the prevailing real interest rate, the costs of inflation, and the nature of the monetary policy transmission mechanism—will change over time,” he wrote.

Bernanke Proposes Targeting Higher Prices on Goods and Services

Rather than a fixed numerical target, Bernanke argues the Fed could target price levels. A 2% annual inflation rate implies that a basket of goods costing $100 today would, in 20 years, cost $148.59. If the Fed targets that particular price level, then years of undershooting 2% inflation would require years of overshooting to stay on target.

Ben Bernanke’s conclusion: “The adoption of price-level targeting would be preferable to raising the inflation target.”

Armed with novel justifications for letting inflation run higher, the Fed is far from being held down by its putative 2% inflation objective. The risk for investors is that inflation at some point does start running higher than 2% – perhaps significantly higher.

Once unleashed, inflation could prove hard for policy makers to keep a lid on. The Fed can try to manipulate mass psychology.

It can control short-term interest rates and try to restrain money supply growth. However, it cannot directly control money velocity or long-term interest rates.

Recent yields on 10-year (2.3%) and 30-year (2.9%) U.S. Treasury bonds reflect the widespread belief that the Federal Reserve will hold inflation at 2% and allow bondholders to eke out small real returns.

Yet with government debt at $20 trillion and rising… with forecasts for the debt to GDP ratio to rise well over 100% to Third World levels in the next decade… the government can’t afford to keep paying out positive real rates of interest on its bonds.

The world’s biggest debtor will have to default or (more likely) devalue the currency in which its debts are denominated. Maybe not this year or next. But in the foreseeable future, bondholders will face the prospect of staggering real losses as inflation rates outstrip low fixed yields on debt instruments.

Inflation Punishes Savers and Bails Out Debtors

Inflation serves as a sort of hidden tax. It punishes savers and consumers as it rewards and bails out debtors – the biggest of all being the U.S. government. The temptation for Congress to rely on the Fed’s printing press to finance its otherwise unsustainable deficit spending is simply too great.

Bonds and other dollar-denominated financial instruments are currently priced as if inflation won’t be a problem for the next three decades. Meanwhile, gold, silver, and other hard assets are selling at discounts because most investors aren’t concerned about inflation protection.

They should be. Now is the time to be concerned. By the time rising inflation rates are a full-fledged economic reality, you can bet precious metals prices will be far higher than where they sit today.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, TheStreet.com, Seeking Alpha, Detroit News, Washington Times, and National Review.

Will Silver and Gold Rally in 2017 Under Trump?

By Steven Maxwell

Unstable economic conditions and a Trump presidency may cause a rally in precious metals.

Trump’s protectionist policies and his support for auditing the Federal Reserve could make silver and gold an attractive hedge in 2017. Couple that with a bubble economy that has many bloated sectors ready to be pricked, sending capital flooding out of paper assets into safer places.

Under Obama, silver hit a low of $9.46/ounce on November 6th 2008, a mere two days after Obama was elected as the 44th US president. After an epic real estate and stock market meltdown led to an unprecedented Fed bailout, a rally for paper assets and metals ensued.  Silver hit highs above $50/ounce in April of 2011.  While Obama readies his exit from the White House, the stock market continues to ride the stimulus bubble, but silver has substantially retreated to near its lowest price under his Administration – $16.80/ounce.

Source: Bullionvault.com

Although silver may seem to be a cheap and boring investment compared to the prospect of 20,000 Dow, had you bought it during those early days following Obama’s election, your investment would have still gained about 70 percent with a future that appears to be even shinier.

The price in precious metals swung a bit on election night – up when a Hillary win was expected, down after it was clear Trump would be victorious. Apparently a lot of people were rage dialing their brokers late into election night resulting a near five percent plunge in the Dow Jones in after-hours trading.

2016 Election Night Chart of Dow Jones: CNBC

This illustrates the fact that there can be emotional volatility during any time of transition and a subsequent rush to safety. On election night people ran to cash for safety. Yet, ongoing currency wars and potential trade wars with Trump’s proposed tariffs could make precious metals an important hedge.  Remember that other countries also buy silver and gold when currencies become unstable.

Those with physical metals or gold and silver in IRA could also benefit from Trump’s $1 trillion infrastructure plan, both because it will require printing money (inflation) and because the new construction will require more fabrication metals than a free market would normally demand.

One recent development that could also lead to potentially higher prices is the Deutsche Bank settlement last year over precious metals price rigging and their testimony about other participating banks. This punishment might create an atmosphere of more honest pricing going forward in 2017 and beyond as the market adjusts to its new freedom after the fallout.

Recall according to Bloomberg:

Deutsche Bank AG has reached settlements in lawsuits over allegations it manipulated gold and silver prices, lawyers for traders of the commodities said in court filings.

Attorneys for futures contract traders in two private lawsuits said in letters filed Wednesday and Thursday in Manhattan federal court that the bank has executed term sheets and is negotiating final details for the accords.

….

“In addition to valuable monetary consideration to be paid into a settlement fund, the term sheet also provides for other valuable consideration such as provisions requiring Deutsche Bank’s cooperation in pursuing claims against the remaining defendants,” attorneys Daniel Brockett and Merrill Davidoff said in their letter Thursday in the gold-fixing lawsuit.

Silver and gold futures traders sued groups of banks in 2014 alleging they rigged prices for the precious metals and their derivatives. Silver traders brought claims against Deutsche Bank, HSBC Holdings Plc, Bank of Nova Scotia and UBS AG. Gold traders additionally sued Barclays Plc and Societe Generale SA.

If an atmosphere of more transparency should take hold under a Trump presidency and other governments around the world, it’s reasonable to assume that precious metals will begin a steadier trajectory upward, rather than some of the severe volatility they have been subjected to. Once proper pricing is firmly established, mining companies will then be able to show their investors steadier returns, heralding a potential surge across the board.

A final economic consideration that continues to highlight physical silver as a strong asset is a year-over-year shortage, with production decreasing on a global scale. Once again, this reality has not been fully reflected in its current price. If all factors remain relatively constant, silver and gold will likely climb in value in 2017.

However, if any of the major financial bubbles burst, it could depress global demand for all commodities in the short term.  So it’s best to stay diversified and adaptable.

Steven Maxwell writes for Activist Post where this article first appeared.