The danger of dysfunctionality

Consumers in America are facing a fresh inflationary jab - the US Mint will no longer produce the one penny coin.

The US Treasurer says there are more than 300 billion penny coins in circulation; they will remain legal tender but the production cost of a one cent coin, now 3.69 cents, is too expensive to sustain. The Mint reckons halting production of the coin will save some $56 million a year in materials alone.

First issued in 1793, the penny today is made of 97.5% zinc with just a 2.5% plating of copper.

Copper prices have been rising almost as fast as gold, up by more than 40% this year and reaching a record high of almost $6/pound on 24 July and in London a record high of $11,200/tonne on 29 October. Copper demand looks set to continue rising, thanks to growing AI data-center electricity needs, which will contribute to overall global copper demand rising by 1 million tonnes a year over the next decade. So it makes sense to scrap the penny, right?

'Bank Underground', a website for Bank of England staff writing independently from the Bank, has an essay that suggests removing "low denomination coinage" is not inflationary. Australia, Canada, Finland and Norway are countries that have abolished their one-cent coins without stimulating inflation they argue.

That's not the whole story however.

Rounding-up

56% of Americans told YouGov that if they spotted a penny in the street they would pick it up. Abandoning the penny means that businesses will eventually have to round up prices to the nearest nickel, or five cents. The Federal Reserve Bank of Richmond reckons that could cost shoppers about $6 million a year.

It also points out that eliminating the penny could increase demand for nickels. Production costs for the nickel are more than twice its face value. At what point will the government decide nickels are too expensive to manufacture?

But there is a bigger tale than this modest inflationary stab. The world is already moving away from physical cash, towards various forms of electronic payments, be that debit and credit cards or various forms of cryptocurrency. The abolition of the smallest coin may seem a trivial, inconsequential move but it is a signal of the erosion of the significance of fiat money.

Dizzying

Confidence tricks seem to be on the rise both in the US and Europe. In the US one of the least understood developments in that country's history - the shutdown of the federal government - has finally ended. The cost of it was anything between $60 and $180 billion. The non-partisan Congressional Budget Office reckons that the shutdown could shave off as much as 2% from the fourth quarter's economic growth.

Germany was once Europe's industrial powerhouse. No longer. Its political head, Chancellor Friedrich Merz took on a €1 trillion ($1.164 trillion) loan this year, the aim of which was to fund defense and infrastructure spending. But the German Council of Economic Experts (which gives advice to the government) now predicts Germany will have economic growth of under 1% next year.

But at least the US and Germany are not governed by a political party whose head seems more engaged in hunting down political challengers than anything else.

All of which tell us that governments are unconcerned with debt and defending their fiat currencies and more obsessed with trivia.

Hold onto real money

As the political leadership in various countries gives every appearance of approaching insanity - or at least, obsession with inanities - it's comforting to realize that we have a defense of our assets.

In the US the national debt is busily climbing towards $39 trillion; economic growth in September in the UK was minus 0.1%, just a couple of weeks before a national Budget which is bound to raise taxes.

Little wonder therefore that the gold price has shrugged off its brief dip below $4,000/oz and is rising again.

The one cent coin is facing its end. The surviving coins are living on borrowed time - their days are numbered. It's time to shift more of your wealth into gold, which has withstood centuries of crazy government. And with Glint you have not just the best asset against the waywardness of politicians - you also have the best way of paying for your daily needs.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.