It was certainly another very interesting week in the precious metals world.
There seem to be new jaw-dropping economic headlines every week; as Alasdair Macleod pointed out on Friday, the US M1 money supply rose 14% in two weeks to November 30th, a shocking statistic.
Quantitative easing continues to run rampant on a global basis to coincide with aggressive fiscal support from governments trying to keep local economies alive.
We pointed out on December 9th on Twitter that the last time the United States truly felt inflationary pressures were back in the 1970s and 1980s. To get a handle on this, the Fed chairman at the time, Paul Volcker, raised the federal funds rate to 15%.
“The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.”
— Gold Telegraph ✪ (@GoldTelegraph_) November 19, 2020
If we see a major increase in REAL inflation in the coming months, which involves food and energy, which is excluded in the Federal Reserve’s core consumer price index, the Fed won’t be able to do much. The cost of servicing all this newly created debt would be too much to handle and would put the financial system at risk.
We are just beginning a period of significant debasement, financial repression, and endless money printing.
The Gold Telegraph team has summarized four major headlines that transpired this week!
Commodities Hit 6-Year High
The commodities roller coaster was up this week, huge. From the collapse of the OPEC+ agreement, industrial metal spring dip, and of course… the pandemic, to name a few – commodities have been through it this year.
Despite it all, commodities are ending 2020, the highest it’s been in 6 years.
Infrastructure demand for oil and iron ore, extreme weather and overwhelming fires obstructing crops, and a weakened dollar are all helping the resurgence.
This week we even saw Water joining the ranks of silver as a tradable commodity on Wall Street under the ticker NQH20 as pollution and droughts promise scarcity concerns in the years to come.
World’s Negative-Yielding Debt Pile Hits $18 Trillion Record
The privilege of lending money is getting more expensive; it seems. Low-interest rates in Europe brought both China and Australia into the negative bond sales club this month. These two countries join Japan, the Netherlands, Switzerland, Germany, and France.
This unprecedented relationship between the demand for shelter and riskier assets has built a record-breaking $18 Trillion Negative-Yielding debt. Currently, 27% of the world’s investment-grade debt is now sub-zero.
The U.S. continues to hold above 0% treasury yields, and over in Europe, Italy, and Greece, bond yields are still treading in positive waters.
Shanghai exchange waives futures products delivery fee from Jan 2021-Jan 2022
The Shanghai Futures Exchange (ShFE) announced this week it will be waiving the delivery fee for all its commodities futures products from Jan. 9, 2021, until Jan. 10, 2022. The delivery fee for all its internationalized products – open to foreign traders – will also be waived for the same time period.
In an attempt to ease the financial pressure on market participants, the Shanghai exchange has periodically waived fees throughout 2020.
Back in April, they began waiving transaction fees on commodity product deliveries. This will run through to Jan. 8, 2021. Just last week they announced they were waiving the transaction fees for closing out a position opened the same day, on Dec. 3, on all rebar and hot-rolled coil contracts aimed at cutting transaction costs for industrial entities such as steel mills and steel traders.
Inflation is Coming
North America is at very low risk of seeing inflation to the same degree that Argentina or Venezuela experienced in recent years. However, more fiscal stimulus, volatile debt ratios, steadfast low-interest rates, and a weakened dollar align for probable concerns.
Demand for the market casualties of COVID; travel, events, and service should drastically rebound post-vaccine.
Services, of course, make up about 60% of the overall consumer price index and 75% of the core measure, which excludes food and energy.
This primes the landscape for CPI increase. All these market characteristics also come together nicely to set a positive landscape for gold—the natural hedge for inflation.