Notwithstanding the strong demand for gold and silver globally, buying activity in the U.S. retail market for physical bullion has fallen noticeably in the wake of Donald Trump’s election victory. And retail selling in the U.S. has increased. The bullion markets have entered a new phase.

The two terms of President Obama included the aftermath of the 2008 financial crisis, zero interest rate policy from the Federal Reserve, and multiple rounds of Quantitative Easing. Reasons to buy gold and silver were plentiful. Today, the reasons to diversify into gold and silver are as strong as ever, but they’re perhaps less obvious to the average retail buyer in the U.S.

Many of the people who felt deeply concerned about the direction of the nation under Barack Obama are currently more optimistic now. U.S. stock markets are moving relentlessly upward. Artificially low interest rates are sending home prices higher. Even the U.S. dollar looks decent when compared to other world currencies.

The rationale for owning physical gold and silver isn’t making page one headlines. That does not mean the gold story is over. Rather the markets seem to be at a crossroads with investors waiting to see which direction events will take them.

One path is not bullish for precious metals prices. That route includes a stronger U.S. dollar coupled with real economic growth and risk assets continuing to outperform.

The other two paths move through very different landscapes, but both lead to sharply higher gold and silver prices. The first path involves price inflation amid rapidly growing government debt. The need to hedge against the dollar’s declining purchasing power re-emerges in investor psychology. The second path leads toward geopolitical uncertainty and the return of safe-haven buying.

There are good reasons to expect metals markets will take one of the more bullish paths. Here are the potential catalysts as we see them today…

The Return of Price Inflation as an Investment Thesis

The Bureau of Labor Statistics just reported the biggest jump in the Consumer Price Index in four years. Bureaucrats have a sordid history of under-reporting the true price inflation rate.

But a massive devaluation of the dollar remains the only politically viable means of addressing our national debt and avoiding an overt default on entitlement obligations.

No election can change that imperative. It remains a matter of when, not if, Americans can expect big league price inflation.

President Trump and his advisors would very much like to see a weaker dollar, and they are saying that explicitly. The jawboning has even yielded some results. For the moment, however, they aren’t getting much help from Janet Yellen. The Fed is still signaling tighter monetary policy, which could make the dollar look stronger relative to other major currencies.

The administration has put some proposals on the table which would promote a decidedly weaker dollar. Trump’s bid to launch a massive infrastructure spending program is one of these. The anticipation of a trillion dollars worth of construction projects is already fueling inflation expectations.

The proposal for significant tax reductions is getting plenty of attention, but, as yet, not many see it as a significant driver of price inflation. It would be. Tax cuts work as a direct stimulus because people have more spendable cash left in their pockets. Any cuts could also undermine the dollar by driving up federal deficits and borrowing, assuming a booming economy doesn’t increase overall tax revenues.

Finally, should Trump convince congress to levy import or border taxes with a major trading partner such as Mexico or China, it will mean higher prices inside the U.S. That is the inevitable cost for such a policy.

Source: SMM News

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