Not Worth a Continental: A Lesson for Today

Although we've seen a bounce in gold and silver over the last couple of days, the biggest driver behind the recent weakness has been the market's sudden shift in expectations surrounding the Federal Reserve.

Just a few months ago, investors widely expected at least one more interest rate cut this year. Now, following a series of hawkish comments from new Fed Chairman Kevin Warsh, many traders are betting the next move could actually be a rate hike.

Speaking this week at the European Central Bank's annual forum, Warsh left little doubt about where he wants to take monetary policy. He declared that the Federal Reserve remains fully committed to restoring inflation to its 2% target, insisting that anyone expecting the Fed to tolerate higher inflation "will be disappointed."

That tough talk has strengthened the U.S. dollar, pushed bond yields higher, and added more pressure to precious metals, which generally struggle when real interest rates are rising.

The question, however, isn't whether Warsh wants to defeat inflation. It's whether he can.

The Federal Reserve doesn't operate in a vacuum. It must contend with a federal government carrying unprecedented debt, an economy built on years of artificially low interest rates, and financial markets that have grown increasingly dependent on easy money.

That's the dilemma.

If the Fed keeps rates high – or raises them further – it risks exposing the excesses created during nearly two decades of aggressive monetary stimulus. Higher borrowing costs threaten heavily indebted consumers, businesses, commercial real estate, and perhaps most importantly, Washington itself.

On the other hand, if economic growth slows sharply or financial markets stumble, history suggests the Fed will once again face enormous pressure to reverse course.

That's why many long-term precious metals investors remain focused on the bigger picture rather than today's headlines.

As veteran investor Brad Dunkley recently observed, policymakers have repeatedly shown they're unwilling to tolerate prolonged recessions or deep market declines. Instead, they eventually respond with lower interest rates, renewed liquidity, and additional monetary stimulus.

Whether it's the 2008 financial crisis, the pandemic response, or numerous market interventions in between, the pattern has been remarkably consistent.

For now, markets may continue reacting to Warsh's hawkish rhetoric. But the larger structural forces haven't changed. Massive debt burdens and persistent deficit spending continue to favor a long-term environment of monetary debasement and negative real interest rates.

Those are precisely the conditions that have historically supported gold and silver – and they're unlikely to disappear anytime soon.

As for the weekly market action, through Thursday’s close anyway, gold comes in up about 1.1% to check in at $4,135 and looks to end a 4-week losing streak.

Silver, through Thursday, was up nearly $2 an ounce and trades at $61.72.

As for platinum, it checked in at $1,633 as of the U.S. close on Thursday, essentially unchanged on the week. And finally, palladium got a nice bump this week, rising $64 to come in at $1,279.

The market is open until midday U.S. time on Friday with the market observing the 4th holiday a day early here in the States. Money Metals is open for business however until 3:30pm Mountain Time (5:30pm Eastern) on Friday – so give us a call and we’d be happy to assist.

Before we celebrate America's 250th birthday this Fourth of July, it's worth reflecting on one of the Founding Fathers' greatest – and perhaps most overlooked – legacies: their understanding of sound money.

Across the country this weekend, Americans will gather for parades, backyard barbecues, fireworks, and celebrations honoring the Declaration of Independence. We rightly take pride in our nation's remarkable history, its enduring commitment to liberty, and the generations of patriots who built and defended the United States.

But there's one aspect of our founding that deserves more attention today than it often receives.

The men who founded this nation had firsthand experience with the dangers of inflation and paper money.

During the Revolutionary War, the Continental Congress printed enormous quantities of paper currency – known as Continentals – to finance the fight for independence. At first, those notes helped sustain the war effort. But without sufficient backing in gold or silver, and with rampant overprinting and counterfeiting, they rapidly lost value. The collapse was so severe it gave rise to the expression "not worth a Continental."

In his excellent July 4th essay posted at MoneyMetals.com, author Stuart Englert explains how that experience left a lasting impression on America's founders.

George Washington warned that paper money would "ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." Thomas Jefferson called paper currency "the ghost of money," arguing that only gold and silver could serve as honest and dependable money over the long term. James Madison likewise understood that governments inevitably abuse paper currencies and that excessive fiat money drives sound money out of circulation.

Those hard-earned lessons found their way into our nation's founding documents.

Article I, Section 10 of the Constitution, prohibits the states from making anything but gold and silver legal tender for the payment of debts. A few years later, the Coinage Act of 1792 established the U.S. Mint and defined the dollar in terms of a fixed weight of silver and gold.

In other words, sound money wasn't an afterthought. It was woven into the very foundation of the American republic.

Of course, over the past two and a half centuries, America gradually moved away from that system. Today, our economy operates on a purely fiat currency issued by the Federal Reserve – one backed not by precious metals, but by confidence in the government's ability to manage its finances.

Meanwhile, the purchasing power of the dollar has steadily eroded. Inflation has become a permanent feature of modern life, quietly reducing the value of savings and increasing the cost of everything from groceries to housing.

That doesn't diminish America's extraordinary accomplishments or the freedoms we enjoy. Patriotism doesn't require pretending every government policy is wise. In fact, one of the defining characteristics of our republic is the freedom to debate, question, and improve our institutions while remaining deeply proud of our country.

As we celebrate this historic Independence Day, it's fitting to remember that many of the same leaders who secured America's political freedom also believed economic freedom depended upon honest money – money that couldn't simply be created at will.

Whether or not the United States ever returns to a precious-metals monetary standard, the principles that guided the Founding Fathers remain remarkably relevant. Gold and silver continue to serve the same purpose they have for thousands of years: preserving purchasing power through times of inflation, uncertainty, and monetary experimentation.

So, as fireworks light up the sky this Fourth of July and Americans commemorate 250 years of independence, it's worth remembering that the founders gave us more than a nation founded on liberty. They also left us timeless lessons about financial responsibility, sound money, and the importance of protecting the value of our hard-earned wealth.

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