Paper vs. Physical Markets :: The Market Oracle ::

Stock exchanges / financial markets 2021
7/29/2021 – 3:47 PM GMT

By: MoneyMetals

Stock markets

The first half of 2021 did not go as precious metal investors had hoped. Despite efforts to “squeeze” the bullion banks, silver has yet to break the $ 30 mark and gold remains below the highs set almost a year ago.

The effort was brave. The demand for physical gold is unprecedented.

The paper markets, on which the price discovery supposedly takes place, remain independent of physical supply and demand.

It will take more than physical demand to break the back of the banking regime that dominates the paper markets.

It will also require a change in investor psychology. The trust of those who hold paper contracts must break down before they stop going to the rigged casino and placing their bets.

In the meantime, there is little use in applying fundamental analysis to the gold and silver paper markets. Fundamentals will have a much bigger impact on physical gold markets.

The reasons for buying and holding coins, rounds and bars have multiplied over the past year and a half. Demand led to historically high premiums and a shortage of available inventory.

In the past few weeks, however, buyers have seen some relief. The premiums on many bars and rounds have fallen and traders’ inventories are in better condition. Whether or not these trends will continue into the second half of 2021 will depend on where demand comes from here.

Here are the forces that we expect will drive demand for physical bullion through to the end of the year.

The first is price inflation. Rising prices have received a lot of attention in the financial press. Fed Chairman Jerome Powell assures us that these forces will be temporary, but investors should not be fooled.

Many commodity prices have fallen in the past month or two. Wood has fallen dramatically, and some experts are now wondering if Powell was right after all.

We doubt it. Today the price of sawn timber is about twice as high as the average of the last few years. Oil prices are 50% higher than at the beginning of the year. Perhaps most importantly, wages are skyrocketing.

Higher prices are almost certainly on the way and that fact will be hard to hide even if bureaucrats are heavily managing the headline CPI numbers.

The next driver is likely to be the reticence of the Federal Reserve. The central bank cut the fund rate to zero in March 2020 and then stepped aside and let Congress provide most of the artificial incentives needed to keep our addicted markets from collapsing.

Most Americans received a number of direct payments from the federal government. These payments expire, at least for now.

Notice that the Fed is back to playing a more prominent role in the markets. Officials there are jawbones about reducing incentives. This was to be expected given rising price inflation and record highs on the stock markets.

However, investors should keep in mind that the FOMC expects to keep inflation fueling longer because CPI inflation has been below the rate targeted by central planners for so long. It is unlikely that the Fed will undertake any serious tightening before the end of the year.

The issue of electoral integrity is a kind of wildcard for the precious metals markets. The Arizona forensic exam is complete and the results cast some doubts. Other countries are considering their own audits. In fact, there is now an organization pushing for audits in all 50 states – even those where Trump won.

Finally, ongoing (or escalating) civil unrest could fuel demand for gold bars. The fight for vaccine passports and re-bans can intensify with the spread of the Delta variant.

Precious metals prices respond well to chaos and uncertainty, and more of both seems likely.

From Clint Siegner

Clint Siegner is a director at Money Metals Exchange, perhaps the fastest growing trader in low-premium precious metals coins, rounds and bars. Siegner, a graduate of Linfield College, Oregon, brings his corporate leadership experience along with his passion for personal freedom, limited government, and honest money to developing the brand and reach of Money Metals. This also includes writing in detail about the precious metal markets and how they intersect with politics and world events.

© 2021 Clint Siegner – All rights reserved
Disclaimer: The above information is for general informational purposes only and is not intended as investment advice. The above information and analysis are obtained from sources and using methods believed to be reliable, but we are not responsible for any loss you may suffer as a result of this analysis. Individuals should consult their personal financial advisor.

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