A rising U.S. Dollar Index is putting downward pressure on hard assets markets this week. 

Dollar bulls are counting on the Federal Reserve to start tightening its ultra-loose monetary policy. They expect the Fed to begin tapering its monthly asset purchases later this year. 

Minutes released on Wednesday from the FOMC’s latest meeting suggest policymakers are leaning in that direction.  

But there is a massive gulf between beginning to taper bond purchases and finally hiking their benchmark interest rate several times to exceed the inflation rate.  Anything short of a positive real Fed funds rate still represents accommodative monetary policy.  And that will be in place for the foreseeable future.

The Fed can be counted on to continue to debase the currency. What’s less certain is whether other national fiat currencies will fall or rise in exchange rates versus the U.S. dollar. But over time, they will all fall versus real assets as inflation persists.

Traders in fast-moving markets can be very short-sighted, though, especially if they are employing leverage. Commodities and precious metals futures markets got hit with lots of sell orders this week, although gold prices are holding up fairly well here. 

Gold sometimes serves as a sort of safe haven within the hard assets space. And that was true this week as crude oil, copper, and the white metals all got hammered.

Even as the precious metals sector is currently out of favor among mainstream investors, contrarians are seizing the opportunity to accumulate. Some big institutional buyers are entering the market. 

The technology company Palantir purchased $50 million worth of gold bars in recent 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 company Palantir buying more than $50 million worth of... get this… gold bars in August, according to a regulatory filing. The company is able to take physical possession of the gold at any time with reasonable notice.
CNBC Talking Head:    I don't recall ever seeing this except for maybe a gold related company, and that would be a raw material or work in process or inventory or something. It's interesting. It's sort of surprising. It's kind of (like), we were expecting like a Bitcoin or something like that or an altcoin.
Guy Adami - CNBC:    Notice that they didn't buy the gold ETF, they bought actual physical bars of gold. It's fascinating. There's no con... Listen. I mean, I could talk about this for an hour and we only have a minute left. But I would say this is one of those days you bookmark. This is them saying, you know what? Central banks are out of control black Swan event. Good for them. And my sense is you're going to see more of that.

Exchange-traded products that track gold prices are ultimately still financial assets. They have counterparty risks, including credit risk.

If an investor’s objective in owning precious metals is to diversify out of the financial system, then only physical ownership held securely outside of Wall Street brokerage houses and banks will do. 

Seasoned precious metals investors keep their focus on their long-term objective. They don’t seek financial substitutes. Nor do they wait to buy until mainstream media headlines to tell them the gold market is hot. 

Instead, they accumulate low-premium bullion products over time – ideally when prices are pulling back and the market is quiet – aiming to get the most ounces for their dollars.  

But they know that trying to perfectly time the market is virtually impossible. Nobody knows when the next black swan event or other catalyst will ignite a major metals rally. 

It’s prudent to always hold a core position and ideally be able to add to it regularly.

Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.

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