A question we get daily is why are precious metals prices going down if inflation is so high? The simple answer has everything to do with the rise in interest rates. The YTD US dollar index is up a staggering 15%, while gold is down over 7%, and silver is down double that. What does all of this mean and just how far will metals fall?
Recession: It’s not theoretical to say we are in a recession after two consecutive quarters of a decline in our GDP (Gross Domestic Product). The GDP is the total monetary value of goods and services produced here in the United States. An American company that produces all of its products and services in China is not helping the American people. It does however help the American company and its shareholders when they can produce these products and services for pennies on the dollar in China. Beware of any government official or economist that tries to explain this differently. The American people are far better off when products and services are produced by the American worker.
Inflation: We are all feeling the effects of inflation. Although wages may be increasing, inflation is increasing faster. This makes it harder for a family that survives on a fixed income or a fixed wage to afford daily essentials like food, gasoline, and all services and goods. Inflation makes it hard to afford to save money for retirement and invest in our kids’ futures. Small businesses are hit the hardest who cannot keep up with the increase in costs of the services and goods they require to run the business. These increases make it harder to expand their businesses and pay their labor costs. A hyper-inflation scenario which may unfold in 2023 will shut many businesses entirely. The longer inflation remains an issue the less chance you will have to ever retire, at all.
Stagflation: When you have high inflation, you will begin to see higher levels of unemployment and lower demand for services and goods. Because families are no longer working and cannot afford many of life’s simple pleasures, economic growth will slow even more. A family vacation where travel is necessary will not be possible. Even a trip to the movie theater where a bucket of popcorn costs $12 will be out of the question. At this point any move by the US government and the Federal Reserve Bank is too little too late for the American family. This is a term that is used very little by economists who do not understand its theory, and who all know its a contradiction to earlier policies they supported. Once stagflation has a grip on a nation, it’s very hard to reverse policy and correct.
Precious Metals: Any investor who wants to protect their assets from inflation and stabilize their portfolio must own precious metals (bullion) – period! The prices of precious metals today are being driven down as a result of the dramatic increase in interest rates. This is your “Opportunity Zone”, to buy LOW. The only tool the Federal Reserve bank has to drive down inflation is to keep raising rates. With the aggressive measures and policies adopted by the Fed Bank, we see precious metals at or near the low end of the spectrum. And when you consider silver is currently trading below 50% of its all-time highs, we are advising our silver bullion customers to move accordingly.