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Money Metals News Alert
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January 27, 2025
– Gold and silver prices rallied last week with gold finishing the week near
the all-time high set back in October. That mark was set October 30th at
$2,787/oz. Silver remains well below its recent high of $34.87.
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Stock prices sold off on
Friday and are under pressure again today. The Federal Reserve note dollar lost
nearly 2 full points in foreign exchange markets as the DXY index dropped from
109.39 to 107.46. Bond yields were flat for the week.
The FOMC meets this week
and Fed officials are expected to hold interest rates steady. President Donald
Trump has talked openly about pressuring the FOMC to drop interest rates.
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The current expectations are still for
two ¼ point rate cuts in 2025.
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Gold : Silver Ratio (as of
Friday's closing prices) – 90.4 to
1
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These 3 Catalysts Could Fuel Precious Metals
Markets
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Longtime bullion investors have been
evaluating whether to buy, sell, or hold in recent months. The change in
leadership in Washington DC has prompted some searching as to the direction the
markets.
Demand for precious metal tends to
come in three broad categories; inflation hedging, safe-haven buying, and
speculation.
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Gold and silver will generally get a
look from investors when investors are looking for ways to protect their savings
from the ravages of inflation.
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Given the imperative for
ongoing inflation in our debt-based currency system, and the history of all fiat
currencies, more inflation in the long run is all but guaranteed.
Inflation remains above
the Fed target rate, but the central bank has already begun a new cycle of rate
cuts. The consensus among Fed watchers is that the central bank will cut rates
twice more this year.
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Lower interest rates are inflationary
as reducing the cost of funds stimulates borrowing, which adds to the money
supply.
President Trump spoke publicly last
week about interest rates being too high. He signaled that he will be pushing
Jerome Powell and other Fed bankers for even more rate cuts.
The Federal Reserve bank has always
been marketed to the public as an independent institution, simply pursuing its
dual mandate for protecting the value of the dollar and fostering full employment.
In truth, the Fed never was independent and never will be.
The Fed Chairman is appointed by the
president and serves at his pleasure. Trump may very well succeed in getting what
he wants from Jerome Powell.
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Meanwhile, Congress has an
absolutely abysmal record when it comes to controlling spending.
It is possible this time
will be different, but Trump himself has never been a budget hawk.
Last month, he advocated
for Congress to finally dispense with the debt ceiling altogether.
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To the extent Trump imposes new
tariffs, some price inflation is likely. A 25 percent tariff on imports from
Canada and Mexico, for example, is almost certain to drive prices higher on goods
imported from those nations..
Higher-than-normal inflation in the
year ahead looks like a good bet.
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Forecasting safe-haven demand from
investors who worry about crises ranging from wars to troubles in the financial
markets is trickier.
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War tensions are falling
in the two main international conflict zones – Ukraine and the Middle East.
Here at home, the COVID
pandemic, which stimulated a wave of gold and silver buying that began in March of
2020, is now in the rearview mirror.
Many feel health officials
exaggerated the risks of COVID and are in no mood to entertain another pandemic
scare.
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As a sign of the times, Trump withdrew
the U.S. entirely from the WHO last week.
While Americans seem well inoculated
against another health panic, other troubles are possible.
The mass deportations promised by the
Trump administration are an example of a reform which could come with the cost of
at least some social chaos. The round up of millions of illegal immigrants could
generate some violence.
The equity markets remain
significantly overvalued when looking at the average Price-to-Earnings (PE) ratio.
A significant correction in stocks is inevitable, though it is impossible to
predict the timing.
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Gold and silver prices have performed
well in recent years, but the price action of late hasn???t been enough to entice a
wave of speculative longs into the markets.
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For the moment prices are
range bound. There is currently nothing in the metals markets to compare with the
energy in cryptocurrency markets where buying seems to beget more buying.
Gold and silver bugs have
long anticipated a short covering squeeze. Whether or not they will get it in the
next year or two is completely uncertain – like predicting the next major
correction in the stock market.
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That said, inventories are dwindling
and the shortage is showing up in premiums for COMEX deliverable bars. The
premiums for these bars have generally been stable, despite periodic shortages of
retail gold and silver products in the bullion markets.
This provides some basis for wondering
if the long-awaited reckoning for shorts is nigh. If speculators find some reason
to go heavily long gold and silver, leverage in the future markets could make for
some explosive price action.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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This copyrighted material may not
be republished without express permission. Offer only available through email
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