A spike put downward pressure on hard asset markets last week. Dollar bulls were counting on the Federal Reserve to tighten its ultra-loose monetary policy. They expected the Fed to begin curbing their monthly asset purchases later this year. The study, released Wednesday from the FOMC’s final session, suggested that policy makers are leaning in this direction.
But there is a massive gap between the beginning of the tapering of bond purchases and the eventual hikes in the benchmark interest rate several times in order to exceed the rate of inflation. Anything below a positive real Fed interest rate still represents an accommodating monetary policy. And it will stay that way for the foreseeable future.
You can count on the Fed to continue devaluing the currency. What is less certain is whether the exchange rates of other national fiat currencies will rise or fall against the US dollar. But over time they will all decline relative to real wealth as inflation persists.
However, traders in fast-moving markets can be very short-sighted, especially when using leverage. The futures markets for commodities and precious metals were hit by many sell orders over the past week, although gold prices held up quite well here.
sometimes serves as a kind of safe haven in the hard assets realm. And that was true last week when he and the white metals were all hammered.
While the precious metals sector was currently out of favor with mainstream investors, counterparties took advantage of the opportunity to accumulate. Some large institutional buyers entered the market.
Tech company Palantir Technologies (NYSE 🙂 has bought gold bars worth $ 50 million in the past few weeks. The news surprised and confused some of the talking heads on CNBC. But analyst Guy Adami stepped in to explain why physical gold makes sense in an environment of uncertainty and inflationary monetary policy.
CNBC news report: Data analytics firm Palantir is buying more than $ 50 million worth of gold bars in August, according to a government application. The company can take possession of the gold at any time within a reasonable period of time.
CNBC talking head: I don’t remember ever seeing this except maybe a gold-related company and that would be a raw material or a work in progress or an inventory or something. It is interesting. It’s kind of surprising. It’s kind of (like), we were expecting something like that or something like that or an altcoin.
Guy Adami, CNBC: Note that they did not buy the gold ETF, but real physical gold bars. It is fascinating. There’s no such thing as cheating … listen. I mean, I could talk about this for an hour and we only have a minute left. But I’d say this is one of those bookmark days. That’s what they say, you know what? The central banks are out of control over the Black Swan event. Good for you. And I have a feeling you’ll see more of it. “
Exchange-traded products that replicate the price of gold are ultimately still financial assets. You have counterparty risk, including credit risk. If an investor’s goal in owning precious metals is to diversify out of the financial system, then only physical property, securely held outside of brokerage houses and banks on Wall Street, will suffice.
Seasoned precious metals investors continue to focus on their long-term goal. They are not looking for a financial replacement. Nor do they wait until mainstream media headlines tell them the gold market is hot to buy. Instead, they pile up low-premium bullion products over time – ideally when prices are down and the market is calm – with the aim of getting the most ounces for their dollars.
But they know that timing the market perfectly is virtually impossible. Nobody knows when the next Black Swan event or some other catalyst will trigger a major metal rally.
It is advisable to always hold a core position and ideally to be able to expand on a regular basis.
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