Inflation Readings Come In Screaming Hot

Gold and silver markets are registering big breakouts this week as the latest reports on inflation send shockwaves through the Biden administration.

Tuesday’s headline producer price index came in at an annual rate of 8.6%. Unrelenting inflation pressures at the wholesale level are hitting manufacturers – who will, in turn, pass those costs onto consumers.

The latest consumer price index reading released on Wednesday was also a doozy. The CPI rose by a higher than expected 6.2% -- the most significant jump since 1990. 

News reporter:

"Whether you're filling your tank, stocking up at the grocery store, or dining out, the cost for just about everything is trending higher. The consumer price index spiked 6.2% for October, the largest inflation surge in more than three decades. Across the country, millions of people have now left the workforce."

CNBC's Steve Liesman followed that up with,

"The economy is reopening, and employers are scrambling for workers, and they're having to pay more money to workers. What they're doing is they're passing along those higher costs in their prices."

Investors are growing increasingly concerned about the threat of persistently higher inflation. While all the recent monetary stimulus from the Federal Reserve has helped boost stock prices, the ugly side effects in the real economy are putting political pressure on the Fed to curtail the flow of newly created cash finally.

Of course, even if Fed officials called an emergency meeting next Monday to announce a quick taper, they would still be way behind the curve. Though there are no signs of panic over inflation yet on Wall Street, precious metals markets are seeing some significant inflows.

We’ve been anticipating a big gold price breakout, and now we are getting confirmation that a significant rally is underway. Robust bullion buying combined with insufficient production from mints is keeping coin premiums elevated.

Many newcomers to precious metals markets are confused about how product pricing works and why physical bullion prices are different from spot prices.

Indeed, specific disreputable dealers do artificially inflate premiums, particularly on coins they tout as being “rare” or “collectible.” But that does not explain what’s occurring throughout the entire retail bullion supply chain any more than a random gas station gouging customers explains a broad, sustained rise in the price of fuel.

Yet President Joe Biden this week vowed to address rising energy costs by going after so-called price gouging. It’s nothing more than a red herring designed to distract the public from inflationary fiscal and monetary policies driving up costs throughout the economy.

Anyone who blames surging average costs for products on “price gouging” quite frankly doesn’t know how markets work. The reality is that most retail businesses, including gas stations, grocery stores, restaurants, and yes, bullion shops, operate on slim profit margins.

When they face rising costs of acquiring inventory and staffing their operations, they must pass higher costs onto consumers if they wish to stay in business. The US Mint’s Silver Eagles are now commanding premiums over spot prices of more than $10 per coin. That represents a massive spread in percentage terms.

Some might assume that dealers are making a killing by selling these coins. The reality is quite different. We have to pay high premiums on the wholesale market and repurchase Silver Eagles from customers to make them available for sale.

Money Metals Exchange is currently offering those who wish to sell us these coins at least dollars over the quoted spot price of silver. That’s good news for those who hold Eagles. It means their investment is worth far more than the paper price of silver.

But they shouldn’t necessarily be in any hurry to sell. It’s possible that premiums could rise further still as the poorly managed US Mint keeps failing so badly to meet market demand. And silver spot prices will likely move higher over time.

Those looking to acquire low-premium bullion products at this time still have some excellent options. Money Metals has a variety of privately minted silver rounds and bars available for not much above spot.

Due to overwhelming demand, delivery delays of up to several days will apply on most orders. There may come a day when standard bullion products are unavailable anywhere – or only to those who are willing to pay exorbitant premiums.

We hope that isn’t the case. Our mission remains to help as many people as possible secure their wealth in hard money. And given the inflation alarms now sounding, there has never been a more critical time to do so.