Talking heads predict no recession while shrinkflation clips consumers

Precious metals markets are extending their losing streak as the U.S. dollar pushes higher. The Dollar Index rose for a fifth straight week through Thursday's close.

Although the downward momentum in metals markets has been fairly steady for over a month, the total amount of price retracement has been modest. Volatility in gold and silver markets has actually been coming down.

When volatility gets compressed, that tends to precede a big move – often in the opposite direction of the prevailing trend, which has been down.

But for the time being, superficially good news on the economy is depressing investment demand for gold and silver. The talking heads on CNBC are now confidently declaring there will be no recession. The official unemployment remains low while inflation measures are moderating.

Meanwhile, though, the average 30-year mortgage rate climbed this week to its highest level in more than two decades. Higher borrowing costs are eating into consumers’ pocketbooks as well as the balance sheets of businesses. The full effects of tighter credit conditions won’t make their way through the economy for months. Given the risks, the Federal Reserve may finally be ready to wind down its rate hiking campaign.

It won’t be able to declare victory over inflation just yet, though. Both consumer and producer price indicators continue to run above target. And these official measures of inflation likely understate the rate of price increases families face at the grocery store.

Manufacturers of food and other consumer goods are trying to disguise some of the price hikes they are passing along. In a phenomenon known as “shrinkflation,” the sizes and portions of various packaged items ranging from rolls of paper towels to bags of potato chips are getting smaller.

News Anchor: We all notice it. You buy a bag of chips expecting it to be full, but once you open it, you realize it's only halfway filled. So this is actually called shrinkflation, and chip companies aren't the only ones doing it.

Economic Analyist: So, this is really a sneaky way to pass on a price increase because you're getting less for your money.

CNBC Anchor: Paper towels quietly also a victim of shrinkflation.

Economic Analyist: Well, just the way a viewer said toilet paper, fewer sheets, fewer sheets on Bounty and other brands. When I've spoken to manufacturers, they tell me the raw ingredients costs have gone up, transportation costs have gone up, labor has gone up, and they have a couple of choices… they can raise the price directly, but they know consumers will catch that, or they can do it the sneaky way, give you a little bit less because they know that most consumers are not net weight conscious. We all have to pay more attention to the fine print on all those package labels.

Savvy shoppers know that price isn’t the same thing as value. What matters is the cost per ounce of a box of cereal or bottle of detergent. The best value is usually found in larger sized products.

That is also true to a significant extent when it comes to bullion products. Fractional sized coins of less than one-ounce tend to cost more than full ounce or larger coins when calculating the costs per ounce. Large bullion bars often provide the best value in terms of metal content.

But there are exceptions to be aware of. Sometimes premiums on pre-1965 silver coins or scratched and dented gold coins are among the lowest available.

And sometimes buyers find utility in fractional sized items or aesthetic value in coins that arrive in mint condition.

Bargain hunters at the grocery store will often opt for generic or store-branded products. In many cases, they have exactly the same ingredients as pricier counterparts next to them on the shelf that are put out by more recognized name brands.

This principle also applies to bullion shopping. A popular name brand such as the U.S. Mint’s American Eagle will carry a sizeable premium over a round issued by a private mint that is less well known.

A Walking Liberty Silver Round meanwhile, produced by Money Metals Exchange, has the same .999 purity as a Silver Eagle. If they were both melted down, they would have exactly the same physical properties and be worth exactly the same amount.

But silver stackers who opt for the Walking Liberty will save a few bucks per ounce compared to the American Eagle, which is manufactured by the poorly run U.S. Mint.

Thanks to the Mint’s general failure to produce Eagles in quantities sufficient to meet demand, premiums on these coins have been elevated even more than usual over the past three years.

Premiums on other common silver bullion products are currently minimal. With spot prices down as well, bargain hunters are finding great value in physical bullion.

Dealers who try to generate business by advertising too-good-to-be-true pricing on products are not likely offering customers the best overall value.

They may have scant or non-existent customer service. They may be undercapitalized and at higher risk of failure. They may not be able to fulfill orders in a timely fashion. They may even have dishonesty and deception at the heart of their business model.

Several precious metals dealers in recent years, some of which ran high-profile radio and TV ads, have been exposed for running Ponzi schemes or bilking customers with bait-and-switch sales tactics.

As legendary investor Warren Buffett once noted, “Price is what you pay. Value is what you get.”