Leading up to the FOMC meetings on Wednesday, May 1^st, 2024 – both silver and gold had seemingly been shot out of a cannon to start the year, especially at the beginning of March as we began to see inflation tick higher once again.  Due to this fear that purchasing power was going to continue to be eroded by the stealth tax of inflation, silver popped 17.86% since the end of February, with gold following suit rising 13.19%.  These increases largely being brought on by China and the immense increase in demand they have seen for physical gold to battle against geopolitical uncertainty and unstable world economies.  It was becoming clear that inflation was going to be sticking around in every country, but it was becoming clearer that gold and silver would be there to protect those that owned it.

This is where what occurred with both gold and silver prices became quite interesting, providing an opportunity for those that recognize what happened.  Since Jerome Powell and the Federal Reserve announced they would in fact be keeping interest rates higher for longer, holding interest rates at 5.25-5.50%, silver and gold have both seen a correction in their prices.  Silver and gold have both pulled back nearly 2% since the announcement, however, what is interesting is the reason.

Due to silver and gold having no yield, in normal circumstances, silver and gold would not be the asset to hold in large quantities during times of higher interest rates when you could simply own government debt in bonds for a 5% payout.  So, once the Federal Reserve announced interest rates would be held higher for longer, silver and gold pulled back in price.  That said, this time in history is far from normal, as like we have covered before, periods of stagflation do not occur often, and we believe silver and gold both know this.  Government debt is going bad as the world reaches hundreds of trillions of dollars of debt that realistically cannot be paid back and because of all this circulating currency, inflation is becoming persistent.  If you look at both silver and gold charts, they signal toward this reality, as right at 2:00pm EST on May 1^st, as the decision to hold interest rates where they are was made, silver spiked 2.5% in a flash, with gold spiking nearly 2%.  The initial reaction of these two precious metals tells the real story, and not the speculative pull back we have seen since then over the last 2 days.

Just think about it, the reason the Federal Reserve held interest rates and decided not to cut them in May of 2024 is quite simply because inflation is not under control.  This means, even at current interest rates, monetary policy is not tight enough and so holding rates in the same spot longer, will not stop or even slow inflation at this point.  Giving major credence to owning silver and gold.  Both metals have shown that this time in history is different because since interest rates began to rise in 2021 shortly after inflation spiked in 2020, silver has gained a whopping 89.56%, while gold has gained 45.95%.  It is clear that interest rates being raised this time around will do nothing to slow gold and silver down in the long run as current policies are not stopping inflation and silver and gold will always absorb the loss of value/purchasing power in fiat currencies.

Another indicator that is pointing toward the inability of the Federal Reserve to beat inflation and that gold and silver are becoming ever more important to own is the current state of the banking system in the United States.  As we mentioned above, the fact interest rates are not high enough to stop inflation, would suggest the need to raise them higher, which would be bad for gold and silver.  However, a report came out, also on May 1^st, 2024, from a consulting firm named Klaros Group who had analysed nearly 4000 banks in the United States.  What they found was staggering… Their findings suggested that nearly 300 banks in the United States are at risk of failure due to high interest rates and commercial real estate loans that are going bad.  What is funny, they try to play down how serious this report is in the media by saying that each of these banks holds less than 10 billion USD in assets.  What they don’t do is the math, which is even if all these banks did hold just 10 billion USD in assets, (a drop in the bucket for major institutions), each one of them failing would lead to a loss of almost 3 trillion USD – over 4 times larger than the losses seen in the 2008 Great Financial Crisis and these are just the small banks!!  If the Federal Reserve were to continue to raise interest rates, bank failures would begin to pop up at rapid speeds, and eventually climb their way to the large banks as this system is so intertwined with derivatives and debt.

It is obvious to those that do not get bogged down by the mainstream narrative portraying that all is okay, that economies around the world are in a jam.  Inflation is running rampant and in conjunction with higher interest rates, the cost of living is soaring.  Surprisingly, one small African country, Zimbabwe, is leading the way and showing the world how to defeat inflation, and that being with GOLD.  The new ZiG (Zimbabwe Gold) currency has completely turned Zimbabwe’s economy around.  Backed by 2.5 tonnes of gold and other foreign currencies, this new currency is expected to take what was nearly 60% inflation in 2023 (57.5%) back down to a 2-5% range by the end of 2024.  Simply by giving their currency real value they have restored purchasing power to their people.  It is important to note that after 2008 Zimbabwe’s inflation ran in the BILLIONS making them the poster child for hyperinflation.  Today they are using real money, GOLD, to stabilize their prices.

If you too want to ensure that your purchasing power does not continue to be taxed away by continuously higher inflation, there is truly no better way to do so than to hold physical silver and gold.  They have shown through history right up to today that as purchasing power is lost due to currency creation, silver and gold will be there to absorb that lost value plus some to ensure your wealth stays with you and your family.  Here at Au Bullion we stay dedicated to providing a wide assortment of silver, gold, and platinum products for the best premiums in Canada.  Visit our website, aubullion.ca, to view our available selection.