June 2021 - Week 2 Edition
Most Commodities are Soaring as the U.S. Dollar Has Fallen Nearly 12% in the Last 15 Months
Despite a short, sharp rally late last week, the U.S. Dollar Index (DXY) is down 3.5% since March 31, 2021, and it is down almost 12% since the COVID-19 lockdown began on March 15, 2020, when the Federal Reserve and Congress began authorizing trillions of new dollars in relief and stimulus spending.
The tremendous expansion of the U.S. money supply over the past year has resulted in the devaluation of the dollar and a rise in commodities. Even though other currencies are also being devalued through monetary expansion, the U.S. dollar’s over-printing is expanding faster, so the dollar is falling to other currencies.
Since February 2020, the U.S. Monetary Base (basically, currency available to spend) has shot up 75% – a rise unprecedented in American history – skyrocketing from $3.454 trillion to $6.052 trillion as of May 25, 2021. Before the 2008 financial crisis, the Monetary Base was under $1 trillion ($840 billion), so it is up 620% in 13 years after rising very slowly for several decades. The Treasury and the Federal Reserve have lost all restraint when it comes to printing money, dooming the dollar to inflation and depreciating its value.
On May 12, the Consumer Price Index (CPI) for April was released and it came in at a shocking +0.8% monthly rate (a 9.6% annual rate). Unbelievably, the Federal Reserve is still trying to push inflation even higher because they ignore the CPI in favor of their favorite esoteric index, the “Personal Consumption Expenditure” (PCE) index within the GDP, which is a lagging indicator that doesn’t come out until late June. The PCE still indicates inflation is under 2%! Wake up, Federal Reserve Governors. Just look at the world around you. Drive a car. Shop for food. Gas prices are skyrocketing, and most energy prices are up 40% so far in 2021. Here are about a dozen commodities that are up over 30% year-to-date in 2021:
The dollar has been considered the world’s “reserve currency” since 1944. Since then, most U.S. leaders have attempted to take that responsibility seriously. However, the dollar is on the road to ruin unless the Biden administration stops its reckless spending and over-printing for endless “stimulus” packages in a reasonably strong economy. This is the time for spending restraint, not more profligate deficit spending.
After passing the $2 trillion “COVID relief” bill (with very little COVID relief in it), the Biden team is now working to pass a $2+ trillion “infrastructure bill” (with very little physical infrastructure spending in it). There will also be more $2 trillion spending plans to come, possibly pushing the monetary base up to $10 trillion.
When inflation increases and interest rates start to rise – at a slower rate than inflation – the result will be record high “negative REAL interest rates.” The pundits will say that “gold should fall” when interest rates rise, but they are wrong historically, because the key is REAL (after inflation) interest rates. Gold will rise if you can make more from “real money that can’t be printed” than over-printed paper money. That’s one big reason why gold shot back above $1,800 last week and should rise above $2,000 in 2021.
Gold Reached a 5-Month High
Gold rose to a 5-month high last Tuesday, June 1, but then it slipped below $1,900 to bottom out at $1,870 on Thursday on profit-taking pressure as the U.S. dollar made a short-term rally during its long-term decline (since the pandemic and massive dollar printing began). Gold rallied on Friday after another mediocre jobs report came out, but gold remained below $1,900 over the weekend. Despite gold’s near-zero gain so far this year, most commodities have been soaring by double-digits. For instance, crude oil prices hit a 2.5-year high last week, trading above $68 per barrel, and up over 40% so far this year.
Gold Bullion Sales at the U.S. Mint Sales Rose 360% in May
--And +40% for the Year to Date
During May 2021, the U.S. Mint sold 20,500 ounces of Gold American Eagles vs. only 11,500 ounces in May of 2020. American Buffalo gold coins were even more popular, with 44,000 one-ounce gold coins sold in May 2021 vs. just 2,500 ounces in May 2020. Despite the huge surge in gold sales during March 2020, due to the advent of COVID, gold bullion coin sales at the U.S. Mint through the first five months of 2021 was 40% larger. (Total Silver American Eagle sales were not available as of Wednesday morning, June 2.)
Remember, the U.S. Mint also limited sales as they prepared for the July launch of the Type II gold and silver eagles.
There is great interest in this year’s American Eagle series as there will be a design change on the reverse coming this July, the first design change since the series debuted 35 years ago in 1986. There will also be a significant debut of a special series of Morgan and Peace Silver Dollars to honor the centennial of the year in which the two series made their transition in 1921 – the final Morgan Dollar mint year, and the first Peace Dollar mint year. These series will also debut this fall, making 2021 a “Year of Transition.”
We continue to see steep premiums on American Eagles due to delays in deliveries, limited U.S. Mint sales and high demand. Be sure to call your representative and inquire about bullion coin options if American Eagle premiums rise too high. In transition years like this, high premiums are to be expected as collectors and investors seek out key dates like transition years where mintages can be divided between two design types. We’ll always keep an eye out for the best prices and timeliest delivery dates.
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