July 2024 - Week 5 Edition

Holding a Coin is “Like Holding History in Your Hands”

There are many ways to hold history in your hands. My parents and I collected the signatures of famous people, including Presidents of the United States. Some people collect first editions of classic books or original works of art. To me, nothing speaks of history more than a specific mint mark and date on a rare American coin, along with the obverse and reverse sculptures and the stories behind them. The best way to hear this story is from the deep voice of James Earl Jones narrating a film for the American Numismatic Association (ANA)in 1995, “Money: History in Your Hands.” I was honored to be a member of the ANA committee that was charged with this important video project.

In the opening of the 30-minute film, Jones held up a silver coin and said, “Money talks. Each piece of money has a story to tell: The people, places and events portrayed on it, who made it, and why it was made. Money is history you can hold in your hands.”

In the film, he starts with the several stories available on a simple copper penny and then he works up to the historical detail on several silver commemorative half dollars. Finally, he tells us, “Money is more than something we just earn or spend. It is something to collect and study. It can be great art, a lesson in geography, or a tale from history and it’s always fun.”

Now is the time to act. Investors should keep accumulating gold and silver coins while gold remains under $2,500 an ounce and silver is under $30, our annual targets for these precious metals. The Democrats will likely enjoy a “honeymoon” of support after their Chicago convention from August 19 to 22 and, as Steve Forbes said to me in October, gold could soar far above $2,500 “if the wrong team wins.”

Likewise, it is a good time to contact our professional representatives to help you find that perfect coin for your set as I get ready to meet privately with dozens of my colleagues in the coming week to review new discoveries of rare coins coming onto the market.

Gold Falls, Then Rises, Awaiting the Fed’s Wednesday Announcement

The Federal Reserve’s Open Market Committee (FOMC) meets eight times per year and the most recent meeting ends Wednesday, July 31. During their 11 meetings between April 2022 and now, they raised interest rates at each meeting by a total of 5.25%, the fastest rate increase in history. This failed to push the U.S. economy into a recession, as many pundits feared, but it did throw many Americans into a spiral of unexpected high-interest debt payments, which are financially crippling them now.

Last week, gold retreated in expectation of no rate cut – or any promise of a rate cut at their next meeting (September 18) but on Tuesday morning, July 30, gold shot up $25 per ounce on the belief the Fed may cut rates this week or at least make a firm promise of a September rate cut.

We will have to wait for the Fed’s announcement and the market’s reaction but the Fed’s favorite inflation index, the Personal Consumption Expenditure (PCE) index, was mild last Friday so that argues for a rate cut. There are many other arguments, too – like a slowing economy, rising interest debt loads and the fact that market rates are a full point below the Fed funds rate (5.25% to 5.50%), which has now been in place since July 26, 2023. With the 10-year Treasury rate at 4.193% and the 2-year at 4.385%, there is no reason to keep the Fed funds rate 1% higher.

Two major Fed officers argued last week in favor of cutting rates this week. Former New York Fed President Bill Dudley said in a Bloomberg Opinion piece, “I Changed My Mind. The Fed Needs to Cut Rates Now,” saying, “The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s policymaking (FOMC) meeting.”  And the current Chicago Fed President Austan Goolsbee added the latest inflation statistics make him confident the Fed can cut rates now, saying, “You only want to stay this restrictive for as long as you have to and this doesn’t look like an overheating economy to me.” He also argued, as we have been saying here, that consumer debts are rising, which also argues for rate cuts now.

Here are some of the costs of high interest rates, which the Fed can relieve by cutting rates now:

• Median home prices reached $426,900 in June, up 4.1% in the past 12 months. Rising prices plus high mortgage rates tend to limit sales, so existing home sales declined 5.4% in June. There were 1.32 million homes for sale at the end of June, up 23.4% in the past year. Single-family home sales are running at a super-low 617,000 annual pace and the inventory of unsold new homes is up to 476,000, a 9.3-month inventory at today’s sales pace – the largest inventory since 2008

• Interest on credit card debt has doubled in the past two years. The combination of higher rates (21.2% at end-2023 vs. 14.5% in 2021) and higher debt levels ($1.13 trillion at end-2023 vs. $775 billion in 2021) yields $236 billion in annual credit card interest now vs. $112 billion in 2021. That has more than doubled over the past two years. The Philadelphia Fed reported last Thursday that 60-day past due credit card balances rose to 2.6%, up from a low of 1.1% back in 2021. The 30- and 90-day past due amounts are at their highest level since 2012, at 3.56% and 1.89%, respectively.

• Cox Automotive reported that vehicle repossessions are up 23% over last year. High interest rates make for higher monthly payments and also suppress both new and used vehicle sales.

• U.S. federal debt is near $35 trillion. At 5% interest rates, that’s $1.75 trillion per year to service that debt. A reduction of just 1%, to 4%, reduces the U.S. debt service costs by $350 billion.

• Office buildings are emptying out in many cities. At the end of 2023, national vacancies rose to 19.6%, the highest rate since these numbers began to be tracked in 1979. The worst markets are in San Francisco, with a 36% vacancy rate, followed by Denver at 31% and Seattle at 28%.

• Nationwide, rents for houses and apartments rose 30% between 2020 and 2023, according to the Zillow Observed Rent Index. This is causing rising evictions.

• The Wall Street Journal, using data from the Eviction Lab at Princeton University reported eviction filings in six major cities are up 35% or more (vs. pre-2020 norms) in the past year. In Phoenix, landlords filed more than 8,000 eviction notices in January alone, the most ever in the Arizona capital in a single month.

That’s why we keep arguing that the Fed needs to get out into the real world and stop looking at theoretical numbers in their various indexes. High interest rates cause suffering AND inflation. This is why I strongly recommend routinely adding gold to your portfolio and IRA.

Gold Bounces Back From Temporary Dip

Gold soared above $2,400 on Tuesday: On Thursday, July 25, gold dipped to $2,354 before recovering to $2,389 over the weekend and dropping to $2,367 on Monday before staging a sudden overnight rise to $2,412, in advance of the Federal Open Market Committee (FOMC) meeting this week. In the futures market, gold’s move was even more dramatic. The December 2024 contract rose from a Monday low of $2,377.30 to a Tuesday peak of $2,457.50 (+3.4%). Silver rose 3.1%, from a low of $27.70 Monday to $28.58 Tuesday (on the September futures contract).

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