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Metal Market Report May 2021 - Week 4 Edition

May 2021 - Week 4 Edition

Gold and Silver Soar

Gold reached its highest level since January 7 on Tuesday, May 25, as the dollar reached a three-month low.  The dollar is down 4% since April 1 – driven down by inflation fears and unprecedented deficit spending, as well as by new global threats erupting in the Middle East and Far East. In the first quarter, the opposite trend dominated with a firm dollar and rising long-term interest rates – which pushed gold down – but since April 1, gold and silver have risen strongly while the dollar has retreated.  By Wednesday morning, gold was holding firm at about $1,900.

Many Big Investors are Trading Out of Bitcoin and into Gold

Since April 15, bitcoin has retreated by up to 50%, as many investors have feared an international crackdown on the unbacked electronic currencies – preferring gold.

The proximate cause for the latest decline in bitcoin prices – down 46% from May 9 to May 23 – were the negative comments by Tesla CEO Elon Musk, who said he was not accepting the cryptocurrency in payment for his popular electric vehicles due to the negative environmental impact of bitcoin “mining” in the state of Wyoming. To the uninitiated and technologically clueless, his words seemed to imply that bitcoins are “mined” like gold, with pick and shovel.  Musk’s words made it sound like these “miners” were endangering the waters or wildlife in the pristine state of Wyoming, but no: bitcoins are not mined that way. These “miners” use vast computer server farms and drain large amounts of electric energy writing lines of computer code to create (mine) each bitcoin. Since Wyoming’s electricity is primarily generated from coal, Musk tagged bitcoin as a polluter.

Whatever the cause, the bitcoin “bubble” burst at about $63,350 in mid-April and fell to $31,900 on May 23, falling most of the way in two weeks, from the $59,300 level on May 9 to under $32,000 on May 23. By May 26, bitcoin had rebounded slightly to $39,400.

After the Colonial Pipeline was shut down on May 7 – for $5 million in ransom, to be paid only in untraceable bitcoins – the public’s sentiment shifted to the downside of bitcoin. Governments don’t like competition in the currency business, and they don’t like major transactions going untaxed and unregulated. Last week, for instance, China cracked down severely on bitcoin traffic.

Here’s what the South China Morning Post wrote in Saturday’s edition (May 22): “China will crack down on bitcoin mining, according to an announcement by the government's cabinet three days after regulators reiterated their ban of digital tokens in financial transactions, delivering a one-two punch that may further weigh on the cryptocurrency industry after triggering last week's global sell-off. The government said it will ‘crack down on bitcoin mining and trading behavior, and resolutely prevent the transfer of individual risks to the society,’ according to a statement by the State Council’s Financial Stability and Development Committee chaired by the Chinese president’s top representative on economic and financial matters.

Asia is where bitcoin originated. If Chinese authorities are cracking down, can other governments be far behind? Most bitcoin owners only bought the currency to see it rise, not to use it or spend it, so they sold it just as fast as they bought it once they saw the price declining in the last month. And “bitcoin” isn’t the only cryptocurrency. There are hundreds of electronic currencies competing with bitcoin. Many of them have fallen faster. “Ether,” the main coin the Ethereum blockchain network, fell 40% in less than 24 hours.

We’ve seen many fads and bubbles over the last 40 years in this business. Bitcoin is only about 12 years old. Gold is 5,000 years old. Governments have tried to confiscate gold, or clip the coinage, or debase the currency, but gold remains the world’s premier store of value. It has stood the test of time.

How fitting that bitcoin peaked on the traditional Tax Day, April 15, which is also the day SS Titanic sank! We can’t say that it won’t rise again, since investors have short memories and infinite hope, but just keep comparing the intrinsic value of gold’s 5,000-year track record vs. bitcoin’s decade of “mining.”

Biden’s Economists Make Excuses for Excessive Spending

There is so much disinformation coming out of Washington, but the top economists “aid and abet” the President by creating a crisis where little or none exists.  Here are two examples. First, on Sunday May 2, Cecilia Rouse, Chair of the President’s Council of Economic Advisors, appeared on Fox Sunday Morning, where host Chris Wallace showed how FDR’s “New Deal” in 1933 cost only $856 billion, adjusted for inflation, and President Obama’s first-year packages to recover from the “Great Recession” cost $1.8 trillion, yet we are in a strongly recovering economy and Joe Biden’s announced plans cost $6.0 trillion.

Rouse’s initial response to Wallace this was: “Let’s be clear. The first part of what President Biden was spending was part of The American Rescue Plan. We’re in an economic recession caused by a pandemic.”

That’s not true. The recession ended a full year ago, in May 2020. We’ve seen strong growth in three full quarters, so far, and the current (second) quarter is predicted to rise by over 10% by the Atlanta Fed, so we’re far from “in a recession,” unlike January 2009 or March 1933, when we were clearly in recessions.

The second example happened May 7, when Treasury Secretary Janet Yellen answered questions about low job growth in April.  She kept reiterating her opinion that the extra government benefits had nothing to do with the fact that only 266,000 returned to work in April rather than the expected 1,000,000.

Yellen said, “Concern about the pandemic and the health consequences, I think, remains a factor for many. I don’t think that the addition to unemployment compensation is really the factor that’s making a difference … trying to get back on track after a pandemic in which there are a lot of supply bottlenecks is going to be, I think, a bumpy process, but I really don’t think the major factor is extra unemployment.”

She kept saying “I think” (or “don’t think”) instead of citing data or taking polls. Instead, all she needs to do is ask workers and employers, who would tell her the truth. They can make more by NOT working.

According to The New York Times and other sources, companies are desperate. Bank of America, for instance, said it would raise its minimum wage to $25/hour and insist that its contractors pay at least $15 an hour. The Times cited several other big companies that raised wages dramatically to lure new workers.

On May 11, the Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey (JOLTS) for March, which showed a record 8.1 million job openings.  That was an increase of 600,000 openings in March, compared to only 200,000 new hires that month – strong evidence that the extra $300-a-week in additional unemployment benefits (plus other benefits) is discouraging people from returning to work.

It’s clear that when no economic crisis exists, Washington economists must invent a crisis in order to generate excuses to spend more and more money to pile more on more debt on our nation’s future, which is bullish long-term for gold and select rare coins.  I encourage you to call your account representative today as prices are trending higher!

 

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