Fed Chairwoman Janet Yellen testified before Congress today with a hawkish tone that sent gold prices downward and bond yields upwards prior and during her testimony. Gold spot prices were down around $11/oz. toward the end of Yellen’s testimony. The 10-year note rose to 2.5% from 2.43% while the 2-year note yield jumped to as high as 1.25 % from a low of 1.18% during her speech, according to CNBC.
Yellen’s comments strengthened the likelihood of interest rate increases for the foreseeable future, stating that “waiting too long” would be “unwise”. She qualified her comments with the warning that raising rates too rapidly could “risk disrupting financial markets and push the economy into recession.”
Last week 63-year-old Kenneth J. Plonski was charged in a Michigan court for defrauding the Copoco Community Credit Union of more than $70,000. Plonski claims he was also duped by a “friend” into wiring cash to Africa to buy gold. However, Plonski claims he never received any African gold.
The alleged scam is a classic case of “robbing Peter to pay Paul”. Plonski allegedly took out a mortgage with the CCCU in 2014 and began making his monthly payments. Court records show Plonski also used the mortgage to secure a Visa gift card with a $20,000 line of credit, according to a local Michigan network.
Trump’s third week in office brings us a look into rolling back financial regulation reforms, the power of the @POTUS’s tweets, and the new Department of Education director.
New Executive Order Likely to Target Dodd-Frank
This week, Trump signed an executive order calling for a review of financial regulations. Many Democrats are concerned the audit will target the Dodd-Frank regulations enacted to protect consumers after the 2008 meltdown. Although Trump’s request didn’t specifically mention the regulatory law, he has expressed his frustration with it in the past.
Silver prices have been climbing steadily recently, rising almost 12% since the beginning of the year. The cost of silver is normally closely tied to the rise and fall of the price of gold, which has also seen a recent jump. Causes for the push in precious metals include a sluggish dollar, political and economic uncertainty surrounding Trump’s executive orders, and the Fed’s pass on an interest rate increase last month.
Another factor to consider is Trump’s stimulus plan, which promotes investments in infrastructure: roads, bridges, electrical grids and telecommunications. The industrial uses of silver would make it a high-demand commodity within such a pro-growth environment. Whether Trump’s stimulus plan finds enough congressional support among Republicans is still to be determined.
Earlier this week we got the first jobs report of 2017, and the headline number was the only positive stat presented. Overall, 227,000 jobs were created in January, which was 52,000 more than expected. As Peter Schiff breaks down on his latest podcast, that number is a bit deceiving.
“First of all,” Peter explains, “as always the lion’s share of these jobs are lower-paying service sector jobs. They’re in retail trade, leisure and hospitality.”
The jobs that were created are not jobs to significantly strengthen the labor force; those jobs are stagnant, if not on the decline. In fact, the most revealing number of the Bureau of Labor’s report was found in the U-6 unemployment rate, which increased from 9.2% to 9.4%. These numbers more accurately reflect the true health of the labor market.
Gold hit an 11-week high, opening Monday at $1,223.50 and climbing steadily all morning. By the afternoon, it had risen another $12. Interest in gold was spurred by a weak dollar and last week’s mixed US jobs numbers that “muted expectations for near-term interest rate hikes,” according to Reuters.
Trump has issued more executive orders than he’s spent days in office so far, and week two of his Presidency started off with a divisive refugee ban. From there, things have been even more tumultuous for the markets, with justice department firings and rocky discussions with global leaders.
Refugee Ban Tarnishes Foreign Relations and the Dollar
- Many Republican leaders, from John McCain to the Koch brothers, have spoken out against the travel ban.
- This fracturing highlights new potential uncertainty that any of Trump’s campaign goals, including stimulus plans, will easily be enacted.
- The US business world is on high alert following the ban, Fast Company reports, as its vagueness and potential to shake up immigration law in the future could impact employees.
Gold has been on a small rally this week following Trump’s executive action to halt incoming travel of citizens from seven specific Middle-Eastern nations. The travel ban caused major moves off of risky assets and into safer financial investments like precious metals. Some investors are monitoring the potential fracturing of the Republican Party, which would likely increase market uncertainty into 2017.
Trump also issued an immigration ban that put his administration at odds with many foreign leaders like Australian Prime Minister, Malcolm Turnbull. The disagreement was reportedly over a previous agreement made with President Obama, according to the Washington Post. Regardless of the reaction to the tense conversation, if more discussions with global leaders become volatile, markets could react the same way.
This article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
One of the wisest questions any potential buyer can ask before they purchase an asset is, “How much would I receive if I sold this asset or product today?” In other words, “What is the bid on this asset?” Answering this one question alone can save an individual from making a foolish purchase.
Wise buyers understand the fundamental dynamics of the market. They are aware there is no single price for any product or asset. Instead, there is an “ask” price and a “bid” price.
The “ask price” (aka the “offer”) is the lowest price a prospective seller is willing to accept. The bid price is less intuitive. The bid is the highest price a prospective buyer is willing to pay for a product or asset.
Dealers create a market by simultaneously acting as sellers and buyers. Dealers earn a profit via buying an asset at the bid price and selling at the ask price.
Here is an example of a dealer quoting the bid and ask price for a contract of the Dow Jones Industrial Average also called “the Dow”:
So far, the Trump administration continues to deliver on some key campaign promises. These promises include the travel ban, federal hiring freeze, and authorizing the construction of the US-Mexico border wall. Higher education is another issue Trump will likely be addressing in the coming months, as it continually ranks as the biggest source of consumer debt today.
According to the student loan debt clock, the total is 1.47 trillion. The balance owed is almost as much as the total credit card and auto loans combined. Here are a few more alarming statistics:
Gold prices have gotten a Trump bump this week following last Friday’s travel ban and the worldwide condemnation heard from foreign leaders and thousands protesting at US airports. Donald Trump’s first 11 days in office continue to demand investor attention, even as FOMC meetings begin today. Whether the Fed will raise rates is being overshadowed by speculations about immigration, fiscal spending, and an increasingly more divided Republican coalition.
