Precious metals markets are getting a bit of a lift this week as investors anticipate a pause in the Federal Reserve's rate-hiking campaign.
Fed policymakers meet next week. After months of relentless interest rate increases, traders are pricing in a more than a 70% probability that the central bank stands pat in June.
That doesn't necessarily mean there won't be any more rate hikes later this year. Fed officials have signaled that they still want to make more headway against inflation.
They also want to see how the economy responds to higher borrowing costs. The full effects of the latest rate hike won't be known for a few months. By then, we could see serious problems emerging in the housing market and a worsening of stresses in the banking system – possibly prompting the Fed to slash rates.
But for now, investors on Wall Street seem unconcerned about risks to the economy and financial markets. On Thursday, the S&P 500 edged up to a new high for the year.
With equities rallying and systemic risks in the banking system no longer making headlines, precious metals markets aren't attracting much attention.
Gold prices continue to consolidate just below major overhead resistance. As of this Friday recording, the monetary metal trades at $1,971 per ounce and is up 0.7% for the week.
Turning to the white metals, silver shows a weekly gain of 2.8% to bring spot prices to $24.53 an ounce. Platinum is unchanged on the week to trade at $1,025. And finally, palladium is giving back 8.9% this week, about half of that today alone, to settle at $1,350 per ounce.
In other news, major cryptocurrency exchanges have come under regulatory fire. The Securities and Exchange Commission filed charges against Binance, accusing the platform and its owner of engaging in deceptive and illegal practices. Binance stands accused of co-mingling billions of dollars of customer assets.
In response, the platform suspended new U.S. dollar deposits and may also soon restrict withdrawals while denying wrongdoing.
The crypto industry has been plagued by scams and financial malpractice. Now two of the biggest players in the space, Binance and Coinbase, are in the crosshairs of the Biden administration.
Some investors are welcoming a regulatory crackdown in the wake of Samuel Bankman-Fried and his fraud schemes at FTX.
Others fear that the government seeks to commandeer the crypto market and use regulation as a pretext for launching a central bank digital currency. That would be a step toward a cashless society in which all transactions are monitored by and subject to the approval of the Fed.
Sound money advocates are trying to stop a central bank digital currency before it gets rolled out. Congressman Alex Mooney recently introduced the Digital Dollar Pilot Prevention Act. It would block the Fed from unilaterally pursuing any form of digital currency.
Mooney's H.R. 3712 is the latest in a growing backlash to central planners' designs to further centralize government control of currencies, including creating a greater ability to track all financial transactions, disallowing certain types of purchases, and even outright "turning off" a targeted individual's access to money.
H.R. 3712 has already attracted support, with more than a dozen original cosponsors and several endorsements from pro-liberty groups.
Meanwhile, the opposition to central bank digital currencies is actually somewhat bipartisan.
Republican Presidential hopefuls Ron DeSantis and Vivek Ramaswamy, along with Democrat Robert F. Kennedy Jr., have spoken out about the dangers of a centralized government-run digital currency.
Sen. Ted Cruz (R-TX) and Rep. Tom Emmer (R-MN) have also come out against CBDCs, with the latter claiming that Democrats quietly support anti-CBDC legislation as well.
Governor DeSantis recently signed legislation banning any involvement with a digital dollar as to the State of Florida, including any CBDC being viewed as money within the meaning of Florida's Uniform Commercial Code (UCC). Several other states are now considering similar measures to pump the brakes on a potential FedCoin.
Meanwhile, investors who hold privately issued digital currency such as Bitcoin would be wise to make sure they aren't subjecting themselves to undue counterparty risk. The SEC has effectively declared that all crypto exchanges are operating out of compliance with securities laws.
The threat of government crackdowns could spark a cascading loss of confidence that causes crypto firms to go bust. Individuals who hold or transfer digital assets on exchanges could therefore see those assets disappear.
Holders of tangible assets such as physical precious metals need not worry about their wealth being digitally evaporated. But they do still need to make sure their physical holdings are secure from physical threats.
Beware of exchange-traded products, pooled accounts, and other indirect forms of precious metals ownership that entail multiple layers of counterparty risk. Physical bullion should be held outside of the banking and brokerage systems. When entrusting precious metals assets to a third-party vault, it is important that an investor's particular holdings are never co-mingled with those of the firm or other clients.
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In fact, secure storage through Money Metals Depository costs less than the fees charged by a gold or silver exchange-traded instrument -- but without the same counterparty risks and other dangers.
