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Money Metals News Alert
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May 5, 2025 –
Gold and silver prices ended last week lower. Capital moved back into the equity
markets and the U.S. dollar moved higher.
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Bond prices edged lower
with the 10-year Treasury yield finishing back above 4.3%.
This morning, though, all
these moves have modestly reversed.
The Federal Open Market
Committee meets again this week. The overwhelming consensus among forecasters is
for Jerome Powell and his team to leave rates unchanged.
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Powell is getting public pressure from
President Trump and his administration to lower rates. The rhetoric is likely to
escalate if the FOMC stays the course.
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Gold : Silver Ratio (as of
Friday's closing prices) – 100.9 to
1
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Gold has outperformed most asset
classes for the last 25 years. If you think about it, that is a pretty remarkable
run.
Economic conditions varied widely, but
gold held up better in tough times as well as during periods of growth. In all
likelihood, no one who held gold through the past couple of decades regrets it.
Why has gold done so well and when
will that change?
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Precious metals investors
tend to focus on the economy, inflation, and central bank policy. There is another
driver which could be a more reliable signal as to when gold???s shine will dim.
The gold price has run
higher, often without regard to economic data and GDP growth. Making decisions
about whether to buy or sell gold based on the economic outlook doesn???t make much
sense.
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Monetary policy has some bearing on
the price over time, no question. But that does not mean selling gold when the
Federal Reserve begins tightening is a good idea.
Investors would have, for example,
missed the past three years where gold had some of its best performance -- while
the Fed hiked interest rates.
Price inflation and the gold price are
well correlated. The cost of goods and services moved relentlessly higher over the
past two and a half decades -- similar to the gold price.
Yet there is still more to the story.
The past three years, again, hint at something else going on as inflation slowed
while gold accelerated higher.
The most important driver might be
confidence.
Markets are complicated and it can be
dangerous to oversimplify. However, one trend has been remarkably steady over the
past 25 years. Confidence has been in overall decline.
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People have lost trust in
government, in banks, in other large multinational corporations, in their money
– you name it.
Our institutions have been
letting us down. Confidence, or the lack thereof, might just be the most
fundamental driver there is in the gold market.
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Swapping gold for other assets, such
as stocks, will make the most sense when confidence has bottomed and begins to
bounce.
The election of Donald Trump and the
implementation of DOGE might be signals of a bottom in confidence. It???s fair to
say roughly half of the nation feels the country is headed in a better direction.
However, the other half feels quite
differently. And Congress has yet to join in the effort to rein in spending and
limit government.
There is a lot of very difficult work
that has to be done before trust is restored. And it isn???t cyclical in nature,
like springtime inevitably following winter.
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The last period when
confidence was on the rise – and when gold underperformed other assets
– was between 1980 and 2000.
What would it take for
Americans to rebuild that level of political consensus? What are the core values
this consensus will be built upon? What must banks and pharmaceutical companies do
to reestablish the admiration of the public? Will people again share trust in the
media and its interpretation of news events?
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Trying to answer questions like these
gives some sense as to how easy it will be for leadership to manage the confidence
problem. It won???t be easy at all, and it isn???t a short term project.
At some level, it appears investors
instinctively understand. The gold price, at least thus far, is signaling the
bottom in confidence remains out of sight.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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