Rising inflation fears transform precious metals demand

As Joe Biden announced his VP pick, Wall Street’s hopes for a V-shaped economic recovery were revived by falling jobless claims and the S&P 500 inching closer to an all-time high. Precious metals markets, meanwhile, were hit with a big V for Volatility. 

This past Tuesday, gold prices plunged by more than $100 in one of the biggest down moves ever for the precious metal in terms of nominal dollars. Of course, that move came off an historically high level of more than $2,000 an ounce.

As gold prices rise over time – and we see nothing to suggest that they have topped out here long-term – we can expect to see more $100 daily price swings. 100-point moves in the Dow Jones Industrials used to be rare but are now commonplace as the blue-chip average trades near 28,000. 

Just as the Nasdaq tends to be more volatile than the Dow, silver trades with greater volatility than gold. The white metal got absolutely slammed on Tuesday for a trading loss of more than 15% or well over $4 an ounce. Prices turned around and surged on Thursday to recoup a big portion of those earlier losses. 

Investors will be focusing more closely on the upcoming election now that Democrats have put forth their presidential ticket. Former Vice President Joe Biden tapped California Senator Kamala Harris to be his running mate.

In response, President Trump called in to Fox Business yesterday to slam both Biden and Harris as “big taxers” who would cause markets to crash.

Donald Trump: She is a big taxer, as Joe is a big taxer. They want a tax $4 trillion. It's going to be the biggest tax increase in history by far. It will triple up records, and they're big taxes. It's just something that won't work. You will see a depression the likes of which you have never seen. Everyone knows that if Biden gets in this market's going to crash. He's going to build regulations and he's going to tax people $4 trillion.

There is no denying that the stock market performed well after Trump was elected. Despite selling off hard in March because of the virus lockdown hysteria that wiped out many of the President’s economic achievements, Wall Street is now riding high again. 

But in recent weeks gold and silver have been riding even higher. Trillions in emergency fiscal and monetary stimulus programs are raising inflation fears as they boost asset values and reinforce the need for investors to diversify into precious metals. 

Bullion buying has gone through the roof ever since the authorities in Washington decided to try to paper over real economic declines with phony fiat stimulus. It’s been quite a dramatic change in character for gold and silver markets, which had been lackluster to say the least during the first three years of Donald Trump’s presidency.

If Trump gets re-elected, bullion buying could at least temporarily experience a bit of a setback. The types of investors who are most apt to buy gold and silver coins to protect themselves from risks also tend to perceive political risk as being lower during Republican administrations.

As we’ve seen, though, risks to the economy and the value of the U.S. dollar have accelerated dramatically despite Trump remaining in the White House. Gold has hit a record high under Trump and we don’t see a Trump win in November killing the longer-term gold bull market. 

In fact, neither Trump nor Biden have any workable plans to close the exploding budget deficit or stop the Federal Reserve from embarking on a deliberate campaign to raise inflation rates. 

Inflation is the only bipartisan path forward in Washington. Despite their public bickering over taxes and handout programs, both Republicans and Democrats – with a few rare exceptions – are in fundamental agreement when it comes to monetary policy. 

The election results won’t change the Fed’s current course of pursuing negative real interest rates and unlimited Quantitative Easing.

In this environment, investors would be wise to keep their focus on the big picture of currency depreciation and its ramifications rather than politics. 

Elections have consequences, of course. But we don’t foresee the end of the precious metals bull market being one of them.