Hot War in Middle East Bolsters Gold and Silver Prices

Gold and silver markets held firm early in the week and now appear to be surging, despite volatility ramping up on Thursday. A hotter than expected inflation report helped trigger a spike in bond yields and a selloff in stocks.

Precious metals, meanwhile, are garnering some safe-haven buying as the threat of a larger-scale war grows pitting the United States and Israel against Hamas, Iran, and other avowed enemies of the Jewish state.

Some members of Congress are urging the Biden administration to try to choke off Iran financially. Banning imports, freezing assets, and blacklisting the country from access to global banking and finance are some of the measures being put forward.

A similar campaign of financial ostracization has been waged against Russia. One of the unintended consequences has been an acceleration of de-dollarization among Russia’s trading partners and a steady increase in gold accumulation among central banks around the world.

Gold remains the only universally trusted currency. Regardless of what happens to the Russian ruble or the Iranian rial, or the U.S. dollar, an ounce of gold has the same intrinsic value wherever in the world it happens to change hands.

As of this Friday morning recording, for the week, gold prices are up 4.9% to trade at $1,934 per ounce, thanks largely to a big move up here today. With today’s surge in prices gold is looking to have its best week in seven months.

Meanwhile, the silver market is managing a weekly gain of just over $1 or 4.8% to bring spot prices to $22.86 an ounce. Platinum is essentially unchanged to come in at $893. And finally, palladium is down 1.5% this week to trade at $1,179 per ounce.

The Consumer Price Index for September came in at an annual rate of 3.7%. Analysts had been expecting a slightly lower CPI of 3.6%.

Headline inflation remains tame compared to the double-digit readings seen two years ago. But it also remains stubbornly elevated above the Federal Reserve’s 2% target.

Whether the Fed has the will to continue hiking rates to bring inflation down is in doubt. The recent surge in long-term interest rates by the bond market may function as a more potent form of tightening than another bump-up in the short-term rate that central bankers control.

The recent chaos in Congress and turmoil in the Middle East makes many investors increasingly confident the Fed won’t hike again this year. And any deterioration in the economic data will increase the odds of rate cuts in 2024.

Regardless of the Fed’s next policy move, investors, savers, and retirees will continue to face the challenge of trying to keep ahead of inflation.

Those who rely on Social Security for retirement income won’t be getting much help. The Social Security Administration announced that the Cost-of-Living Adjustment for 2024 will give beneficiaries just a 3.2% increase in payments.

Needless to say, actual costs of living for millions of retirees are increasing at a much faster pace than 3.2%. As noted earlier, even the flawed CPI gauge is showing inflation running higher than 3.2%.

Retirees can currently earn more than that parking cash in bonds or certificates of deposit. But fixed-income instruments are still a poor hedge against inflation with the potential for it to resume rising in the months and years ahead.

Any financial promises made by the government – whether it’s Social Security payments or interest due on Treasuries – should be viewed with skepticism.

The annual Social Security and Medicare trustees report for 2023 noted that Social Security is on a financially unsustainable path. The program will be unable to continue paying full benefits just 10 years from now. After that point, the so-called trust fund will be depleted.

Even if Uncle Sam finds a way to make good on his obligations in nominal terms, the currency in which they are denominated could depreciate at an accelerating pace.

Federal finances are in dire straits with budget deficits set to exceed $2 trillion per year. At the moment, Congress appears to be too divided and too dysfunctional to enact any sort of meaningful fiscal reforms.

Republicans were set to potentially elect a new Speaker of the House this week. But the leading candidate, Steve Scalise, ran into opposition and angrily ended his candidacy to the Speakership yesterday.

Fiscal conservatives weren’t convinced that he had any intention of ending the practice of omnibus spending schemes that got his predecessor Kevin McCarthy fired from his job. Where the GOP goes for Speaker now remains to be seen.

Unfortunately, there are no viable political solutions on the horizon for reining in deficit spending or rescuing entitlement programs from their impending insolvency. There are only monetary solutions. They will manifest in the form of more currency creation – in other words, more inflation, with no end in sight.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful weekend everybody.

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