Policymakers See National Security Dangers in the U.S. Gold & Silver Market

U.S. Senators Jim Risch and Catherine Cortez Masto introduced the bipartisan “System Integrity through Licensed Vault Expansion and Resilience Act”, aka the SILVER Act, this week -- the latest step in the precious metals industry's efforts to derisk, modernize, and strengthen America’s precious metals market infrastructure.

Senate Bill 4621 follows the recent successful introduction of companion legislation in the House amid growing concerns among lawmakers, regulators, and industry leaders over the national security risks created by geographic concentration of exchange-approved precious metals depositories in the vicinity of New York.

Under exchange practices dating back to the 1970s, depositories used for deliveries on regulated gold, silver, platinum, and palladium futures contracts have been confined to the Greater New York area, creating what supporters describe as a dangerous single-region dependency as to critical financial infrastructure, combined with anti-competitive behavior.

A broad coalition of precious metals industry participants — including Money Metals as well as other large depositories, mints, dealers, refiners, banks, mining companies, logistics providers, manufacturers, insurers, and investors are also involved in backing the SILVER Act.

The SILVER Act would direct the Commodity Futures Trading Commission (CFTC) to ensure broader depository location options and greater transparency in the selection processes.

The legislation has already drawn favorable attention from the CFTC. At a recent House Agriculture Committee oversight hearing, CFTC Chairman Michael Selig publicly praised congressional efforts to address structural concentration risks and pledged to work with lawmakers on the issue.

Advocates of the legislation emphasize that current depository selection practices are monopolistic, suppressing competition and increasing costs for investors and businesses. Existing exchange-approved depositories currently charge the maximum storage fees permitted by the exchange, while many qualified facilities elsewhere in the country could provide services at lower cost. Transportation costs are also elevated because market participants outside the Northeast must ship metals long distances to access public markets.

Industry experts also note that precious metals are not only monetary and investment assets, but also strategically important industrial materials essential to electronics, aerospace, medical technologies, energy infrastructure, and defense manufacturing. As a result, maintaining geographically diverse and secure sources of precious metals is increasingly viewed as a national security imperative.

The current system creates unnecessary vulnerabilities for the nation’s precious metals markets and supply chains – and it arbitrarily excludes major industry players simply because they are not financial muckety-mucks in New York.

In other news, there has been a lot of talk lately about whether the Federal Reserve should raise interest rates. But the reality is the market itself is hiking rates with or without central bank cooperation.

Treasury yields have crept relentlessly higher over the last several months, signaling significant stress in the bond market.

The 10-year Treasury yield was over 4.6 percent this week, and the 30-year was north of 5 percent. Meanwhile, rates on the lower end of the curve are also spiking, with the 2-year Treasury note above 4 percent.

Earlier in the week, bond yields hit multi-decade highs.

At an auction last week, the 30-year Treasury sold at a yield of 5.046 percent. While the 30-year has traded above 5 percent on the secondary market a handful of times, it was the first time since 2007 that it sold at auction with such a high yield.

The Fed, along with other central banks around the world, finds itself in a “debt trap.”

But an even more fundamental dynamic is tipping the Treasury market – basic supply and demand. There is a lot of debt out there, and the federal government is creating more every day. Meanwhile, the world is growing wary of holding all that debt.

The recent increase in U.S. bond yields is partly a function of the U.S.-Iran war oil shock. Many countries are selling dollar-denominated assets for cash to pay for oil and to support their own currencies.

However, softness in the Treasury market predates the conflict. It has been struggling for months because a lot of countries simply don’t want any more exposure to U.S. fiscal malfeasance. The national debt has surged to over $39 trillion. Meanwhile, the federal government has shown zero interest in reining in spending. On top of that, it is blowing through an additional $1 billion per day to fight the war.

So, it’s not surprising that many countries are anxious to minimize their exposure to the dollar. We see this reflected in accelerating de-dollarization and the fact that gold recently climbed above Treasuries as the world’s biggest foreign reserve asset. When times get tough, you don’t want rapidly devaluing dollars backed by a spend-happy U.S. government. You want real money – gold – backed by nobody.

Let’s review the metals market action here.

Gold is off a slight 0.4% to come in at $4,536 an ounce. Silver is actually up 20 cents or 0.3% to trade at $76.95. Platinum is down 2.4% and checks in at $1,994. And finally, palladium is off 4.1% to trade at $1,371 an ounce as of this Friday midday recording.

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