Gold, silver supplies drop

At the New York COMEX close last Friday, the spot price of gold was down about $77 (5.8 percent), and silver fell almost exactly $2 (10.8 percent) from June 30, 2016. Absent other factors, you might expect that means that the value of the U.S. dollar had appreciated since the middle of last year.

And you would be wrong. The U.S. Dollar Index last Friday was about 0.5 percent lower than a year earlier. The day before, on June 29, 2017, the Index hit its lowest level since October 2016.

Actually, this may not be a fair comparison, as the June 30, 2016, prices and indices were shortly after the British electorate shocked the world by voting for that nation to leave the European Union. Gold and silver prices were instantly up significantly, though they did not hit their 2016 peaks until after June 30.

So, what is going on with precious metals prices?

I consider that we are right now in the calm before a major storm. If you look back at history, on Sept. 3, 1929, noted economist Irving Fisher wrote in the New York Times, “Stocks have reached what looks like a permanently high plateau.” Less than two months later, the Dow Jones Industrial Average crashed.

On June 27, Federal Reserve Chair Janet Yellen, in a speech delivered in London, stated, “Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we are much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be.”

Could history repeat itself, where Yellen’s statement may turn out to be a signal of a near-term economic downturn?

In my judgment, that idea is not out of the question. Governments and central banks have worked overtime since Donald Trump won the U.S. presidential election last November to prop up stock values and to hold down precious metals prices.

There was even some hope and optimism among American investors that, after he took office, President Trump would lead the implementation of some pro-business laws and regulations, an attitude which, up to now, helped prop up stock prices.

However, the longer it is taking for such laws and regulations to happen, the lower are the prospects that they will happen at all; or, if they do, the greater risk that they will be significantly watered down. Consequently, as investors lose their optimism, it is possible that the recent record highs in several U.S. stock market indices may not be sustained in the coming months.

This development may lead to falling stock prices even without the impact that should begin in August of state, county, and local governments and government school districts being forced to put on their balance sheets for June 30 fiscal year reports, for the first time ever, the extent of their unfunded liabilities for employee pensions and retiree health care benefits. As the public starts to realize the extent to which such governments are mostly insolvent or bankrupt, this event could also trigger a declining stock market.

While this has been going on, demand for bullion-priced physical precious metals in China, India and much of Europe has been strong. To some surprise, demand for physical precious metals has been weak in North America since about mid-December last year.

Demand for physical gold and silver has been so strong in the rest of the world that inventory shortages have developed.

Here in the U.S., the temporary glut of physical precious metals wrought by the demand in decline looks to have run its course. Demand may be picking up. At the company where I work, our June 2017 sales topped year earlier levels, the first month where this has occurred thus far this year.

In recent weeks and months, there have been opportunities to purchase physical gold and silver coins (with pre-2017 dates) and bars at much lower premium levels than normal. For some products, such as one-ounce .999 fine silver bars and rounds, the glut of inventory seems to have been absorbed. There have even been a few premium increases in recent weeks, possibly due to the combination of physical supplies dwindling and U.S. demand slowly rising.

Although governments and central banks have the financial wherewithal to suppress gold and silver prices, and have a long track record of having done so, they cannot indefinitely stop rising demand to acquire physical precious metals. The question that everyone asks, but no one can answer for certain, is when gold and silver prices will overcome such manipulation and soar.

It is possible, when coupled with the risk of stagnating or falling stock prices, that a major precious metals price rise could begin before the end of summer. It is also possible that it may take a year or two. I disagree with Fed Chair Yellen’s hope and belief that the next major financial crisis will not happen in our lifetimes.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).