Mike Fuljenz's Blog

Numismatic News & Precious Metals Market Commentary

Monthly Archives: August 2010

Precious Metal Commentary

Gold Posts Double-Digit Dollar Gains For 3rd Straight Week

Gold added another $12 last week, for the third straight week of double-digit dollar gains. This morning, gold awoke flat, trading as high as $1,234 before stabilizing around $1,230 on the December (most active) futures contract. The dollar index was somewhat stable too, as the euro was flat at $1.27. It’s a typical late August week, with most big traders away on vacation.

   
The Bottom Line: Stocks fell again last week, as did silver and platinum, but gold rose another $12 last week.

The Top 10 New Gold Demand Stories For 2010

Congress is (finally!) in recess, the President is on vacation and most big Wall Street traders are in the Hamptons or on Cape Cod, so it’s a convenient time to review 10 top reasons why Gold is your Best Investment for 2010. These 10 reasons are basically NEW demand factors taking effect or growing in impact this year, giving gold new luster as a hedge against rising global uncertainty. In no particular order, here are the Top 10 new gold demand stories for 2010:

#1 Big New Buyers I – (Hedge fund managers accumulating gold): Last week, another big hedge fund, Eton Park Capital Management, revealed that they had accumulated a new $800 million stake in SPDR Gold Shares (GLD). In previous months, mega-hedge fund managers George Soros, John Paulson and other high-profile investors filed documents with the SEC claiming large position in gold. Paulson’s fund owns 31.5 million shares ($4 billion) of GLD as of June 30, and Soros’ Fund owns about $600 million. In one dramatic example, hedge fund manager Thomas S. Kaplan has gone “All-In on Gold,” according to the Wall Street Journal. He bought mining properties in 17 countries on five continents. His bullion and mining shares total a $2 billion bet on gold, which he says helps him sleep well at night: “I have reached a point where I feel the only asset I have confidence in is gold. If the world does well, gold will be fine. If the world doesn’t do well, gold will also do fine, but a lot of other things could collapse.”

#2 Big New Buyer II – (The University of Texas Investment Management Company): UTIMCO has invested over $500 million (3%) of its huge investment fund in gold. UTIMCO CEO Bruce Zimmerman told the Texas board of regents that UTIMCO bought gold as a “protection against inflation, but even more as a lack of confidence in financial markets due to extraordinary government fiscal and monetary stimulus…I wish I could tell you that the future looked rosy. Unfortunately, that’s not our view.”

#3 Big New Buyer III – (China is Selling Dollars, Buying Gold): Bloomberg reported last week that China was turning bullish on the euro and yen for its massive $2.45 trillion in foreign currency reserves. China recently reported that it cut its U.S. Treasury holdings by $100 billion in the year ending June 30. At the same time, China has been encouraging its citizens to buy gold. China’s leaders have not yet admitted that they are buying gold for China’s foreign currency reserves, but the fact that China is now the #1 gold producer, #2 gold consumer and #2 biggest global economy point to a big new role for gold.

#4 The Dollar is Sinking, Magnifying Gold’s Rise: The U.S. trade deficit came in dangerously high ($50 billion) in June, the latest reporting month. The federal deficit is larger, even in a recovery year, than it was in the crisis/recession year of 2009. The federal government is adding one spending program after another, while Europe is cutting back government spending in a new wave of austerity. The Fed has resumed “quantitative easing” (printing more money, monetizing the debt). All of these “easy money” policies point toward a declining dollar, which automatically increases the price of gold in dollar terms. Since the beginning of the Euro in 1999, gold is up over four times in dollar and Euro terms.

#5 The Alternatives are All Weak Tea…or Worse: Stocks are under water for the year. Bank CD rates keep declining toward zero. Even short-term Treasury bills and notes yield under 1%, which is a guaranteed loss after inflation and taxes. Real estate is flat or falling. Nearly all new money is heading into bonds, which resemble a new “bubble.” As soon as interest rates begin rising, bond prices will fall. Gold is the most reliable investment for the rest of 2010 – it is even beating most other commodities.

#6 Other Investments can be Counterfeited*…or Cratered in a Minute: Stocks were “cratered” in a minute last May 6, when the Dow dropped 1,000 points in a few seconds. Stock exchange officials still can’t explain how that happened, so it could clearly happen again. Most paper money in history has been counterfeited by improving print technology. Most bonds and other government documents rely on the solvency of the issuing government. Gold stands above that crowd, easily authenticated and highly unlikely to crater without new buyers suddenly buying at new levels.

*Speaking of counterfeits, the original purpose of the creation of the Secret Service in 1865 was to prevent counterfeiting, which accounted for fully one-third of all notes in circulation at the time. In modern times, the Secret Service cuts back on monitoring counterfeit schemes during the year leading up to each Presidential election – in order to protect nominated candidates.

#7 Gold Demand is Rising in Europe…Finally!: The Greek debt crisis last spring scared Europeans into buying and hoarding gold as their safest haven in a storm. Gold investment demand is “exceptionally strong” (according to the World Gold Council) in Europe, especially from German and Swiss investors, due to the high levels of debt in the euro-zone. The ECB’s $1 trillion rescue package scared investors into storming the coin shops and bullion desks in major banks to diversify their savings into hard money. The Austrian mint said that it sold 243,500 ounces of gold coins in just half a month, from April 26 to May 12, more in just 17 days than the total of 205,300 ounces sold in the entire 90-day first quarter.

#8 Rising Demand in the U.S. and Central Banks: Sales of American Eagle gold coins were up 65% in the first half of 2010, according to the U.S. Mint. Demand for physical gold is projected to rise to 52.3 million troy ounces this year. In another kind of investment demand, central banks and governments are also buying gold. They bought 425.4 tons last year, according to the World Gold Council. According to most gold observers, the world’s central banks will likely add another 200-300 tons of gold this year.

#9 New Hot Spots Threaten Hot Wars: Iran has moved forward in building its nuclear capability. It is now a virtual certainty that either Israel or the U.S. will intervene to stop the recalcitrant hard-liners in Tehran before they actually build a bomb delivery system. Speaking of nuclear warheads, North Korea and Pakistan already have nuclear bombs, while their leaders are becoming increasingly irrational. When the U.S. exits Iraq and Afghanistan, that could leave a void in which the worst warlords could thrive. In times of crisis or threat gold has trended higher.

#10 Breaking News (not seen reported elsewhere today) 8 Banks Failed Last Friday: On Friday, August 20, eight U.S. banks failed, tying the 20-year high set last April 16. Four were in California (in Solvang, Stockton, Chico and Sonoma) and two were in Florida (Ocala and Bartow). This year should suffer the most bank failures since 1991, at the height of the savings and loan crisis, and yet there is no headline in the weekend or Monday papers about this record-high level of bank failures last Friday and during 2010. About 1 in 10 banks are now on FDIC’s troubled banks list. When mom-and-pop savers and investors can’t totally rely on their banks for safety and income, they will increasingly diversify with the one proven investment over the last 5,000 years of human history: Gold.

Rare Coin Markets Update

Indian Gold Shortage: Many $5 Indians are tough to find and most MS-64s are virtually unobtainable.

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Welcome to my Mike Fuljenz blog

Welcome to my blog on issues numismatic. I hope that you will visit my blog often to read our weekly highlights of the week’s precious metals review. Our blog will be tied to Twitter providing you up to the minute tips, so if you feel these tips might help you as a coin collector please sign onto Twitter and follow our tweets. And most of all, thanks for visiting. Mike Fuljenz