In the midst of the current turmoil, it seems inappropriate to speak about rising gold and silver prices as being a good thing. Relatively speaking, they’re not. Most reasonable people would rather have a stable society than what we are seeing today; myself included. Nevertheless, we have to look at the world around us, and make plans that move us forward from here. There are several factors influencing gold and silver prices, including the riots and unrest, the money printing operation at the Treasury, and an increase in global demand. We will discuss each one in turn, and in some instances find a connection between them.
Monopoly Money ??
First of all, let’s talk about the laws of supply and demand. When supplies increase, an increase in demand to soak up the extra supply usually requires a drop in price. When demand increases, it usually requires an increase in price for supply to catch up with demand. We have both of these happening at the same time, which is lighting a fire under silver and gold prices, as of late. There has been a significant increase in the supply of paper currency being produced. There has been as much production of paper currency in the last 2.5 months, as there was in all of 2019.
Cash is being pushed out to Americans, while many are still not working. This is causing the value of the cash already in people’s wallets to go down. Incidentally, it is interesting that the latest batch of US Currency matches the color scheme of Monopoly money, as illustrated by the graphic below (courtesy of www.businessinsider.com)
At the same time, demand for physical silver is increasing with limited available supply. The spot price of silver was $12.12 on March 19. Today the spot price is 18.01, for an increase of 48.6% in 2.5 months. Some analysts believe we could see $26 silver this year. But to get your hands on a modern silver 1 oz sovereign coin such as a Maple Leaf will set you back an additional $5 premium per ounce. Other forms of silver offer lower premiums, but you get the picture. Premiums rise when demand rises and supply falls. Add to this the effects of an abundant supply of currency, and prices are all but assured to rise over time.
Food Prices Disturbing New Trend
On the same day (March 19), the spot gold price was $1,471. Today at $1,727, represents an increase of 17.4% in 2.5 months. It is curious that both gold and silver began their rise as mountains of currency were dropped into people’s laps, in the form of stimulus checks. But if this were true, then we should also see inflation rising in other areas of the economy. We do. In April alone, food prices saw the largest increases in 46 years.
While the overall rate was 2.6%, many common food items increased significantly. Meat, for example, went up 4.3%. (See graph below, courtesy of BLS data compiled by CNBC). Eggs rose over 16%. What this implies is that your paper currency you had stashed in the bank lost more purchasing power in one month, than the interest it will earn all year, when used to purchase food. Meanwhile, the funds you previously converted into silver and gold gained in purchasing power, overriding the losses on your paper currency.
While the event that unfolded in Minneapolis was horrific and tragic, there was much fuel present to help spread the outrage worldwide. Besides the emotional turmoil that comes from watching what appears to be authorities taking the life of a human being while the cameras roll, there were/are unrelated conditions that may have helped magnify the frustration and reaction. Whether the correct approach or not, much of the economy had been in some form of lockdown since mid March. People’s movements had also been restricted. Suddenly, precautions related to COVID-19 took a backseat to the outrage, and 2 months worth of built up frustrations now had a new focal point. The economic damage of being closed for 2 months, now has the added damage of higher costs to repair and rebuild, plus higher insurance costs that will likely be passed on to everyone.
Not to mention the added human tragedy of 34+ people killed during the rioting, through last night. Our first hope is that the families involved can find the comfort and strength to start again. Our second hope is that we as a nation can somehow emerge from the challenges we have all faced in 2020, better than when we came in - in how we relate to one another, and economically. We have a long climb ahead of us. Which brings us to the global demand issue. Worldwide, people are trying to source gold and silver like they haven’t in a long time. Some of this is due to mines and refineries experiencing slow downs and stoppages due to COVID-19 related challenges. But there are also pressures building in the paper markets that seem to be coming to a head, as we mentioned earlier here. Record amounts of gold have been transported, trying to keep the system from imploding. With more people demanding delivery of physical metal, known imbalances that didn’t matter previously, suddenly matter.
Safe Storage Solution
As shop owners in Van Nuys California recently discovered, it can be dangerous to defend physical gold and silver, during times of social unrest. Local store owners came out of their establishment to run off looters who were trying to break in to the gold shop next door. With precious metals surging in price, it makes the property of anyone holding gold or silver a target to thieves. They had the added difficulty of living in California - a state not known for being friendly to gun ownership rights. When they walked outside wavingguns at the looters, someone called the police. As the police arrived, the last of the looters escaped, while those protecting the gold with firearms were arrested. Hopefully they can get it sorted out favorably.
While it is an important time to continue to provide financial security for uncertain times by owning gold and silver, it is also important to keep you and your loved ones safe. Therefore we recommend keeping your metals safely stored in the Texas Bullion Depository. This is the nation’s first and only state-administered depository, and the parent company of the United States Gold Bureau was chosen to manage it, which says a lot. So while you are keeping your finances safe and your future purchasing power protected, protect your family and property as well by storing your precious metals in our vaults. The extra peace of mind is more than worth the marginal fee.