Mike Fuljenz's Blog

Numismatic News & Precious Metals Market Commentary

Monthly Archives: September 2010

Precious Metal Commentary for September 13, 2010

Precious Metal Commentary

September 13, 2010

Gold Almost Touches new Record High Last Week As Silver Passes $20 Mark

Silver topped $20 and Gold topped $1260 last week, but they could not sustain those levels on Friday’s close. This morning (Monday), silver rose above $20 per ounce again, up 30-cents per ounce to $20.20, while gold was fairly flat and platinum rose about $10 per ounce. Silver and platinum have industrial applications, so they rose (along with copper) on rising Chinese and global demand of raw materials. Also, another central bank bought gold last week: The International Monetary Fund (IMF) said that on Thursday it had sold 10 tons of gold (worth about $400 million) to the central bank of Bangladesh.

  • Gold 52 weeks ago (September 14, 2009): $999.00
  • Gold’s average price during 2010: $1169.43
  • Gold’s London low for 2010: $1058 on February 5
  • Gold’s London high for 2010: $1261.00 on June 28

The Bottom Line: The precious metals and stocks were virtually unchanged last week, but silver is making a big move.

Recipe for Higher Gold: Rising Deficits & Bond Rates + A Falling Dollar

The U.S. budget deficit remains stubbornly high. Last Wednesday, the Congressional Budget Office (CBO) reported that the federal budget deficit for the first 11 months of fiscal 2010 was $1.3 trillion, or 9.1% of GDP. With the CBO predicting that the budget deficit will add another $10 trillion over the next decade, the Federal Reserve can’t afford to raise short-term interest rates, but if interest rates remain near zero, the dollar will keep declining. (Investors will seek higher income elsewhere). Last Wednesday, the Bank of Canada raised its overnight interest rate by 0.25% to 1%, luring investors north of the border. By contrast, a 30-day U.S. Treasury bill only offers an insulting 0.1% per year. A falling dollar means that gold will continue to rise in U.S. dollar terms, even if it stays “flat” in terms of some other currencies.

Due to the sinking dollar and concerns about the U.S. government’s long-term financial health, global demand for long-term U.S. Treasury bonds is falling. The sale of 30-year Treasury bonds last Thursday did not find buyers at then-current rates, so yields rose to 3.82%. Demand for 10-year Treasury bonds was also slow, pushing yields up to 2.67%. The Fed is caught in a bind – low short rates and rising long-term rates. All of this seems to point to a weaker dollar over the next several years, supporting the gold bull market’s continued rise.

Two New Views on Potentially Higher Gold Prices In 4th Quarter And Over Next Five Years

(1) Stephen Leeb, editor of The Complete Investor, predicts $5,000 gold within five years. Leeb uses a complex but logical new way of valuing gold, based on the ratio of gold to the “Gross World Product” (GWP), the value of goods and services produced by the entire world, adjusted for inflation. Just to reach a “real” new high for gold – adjusted for both inflation and global growth – gold would have to trade at $4,300 per ounce today. Add in 5% global growth rate over the next five years and that would take gold’s price up to $5,500 gold by the year 2015. Leeb writes: “Yes, gold has had a great run – but there’s no reason to think it’s going to end any time soon. Don’t call us crazy for thinking gold could top $5,000.”

For seven years now, since the founding of his newsletter in 2003, Leeb has recommended a 10% to 15% portfolio position in gold, but how he thinks “an even higher percentage will serve you well. The more nations debase their currencies, the more that gold will reward you. Even if you just see gold as insurance against potential deflation or inflation, that insurance is very cheap right now – and until the world economy gets a lot healthier your need for insurance is very high. So take advantage of the opportunity.”

(2) Franklin Sanders, editor of The Moneychanger, has charted the annual highs and lows for gold and silver over the last decade. He has chronicled the fact that gold’s peak day usually falls in December, while gold’s lowest annual date usually fall in January or February. Lows come early and highs come late – reflecting a gradually-rising long-term bull market. Twice, a very early date (January 5) was the low of the year point, while very-late dates (December 27-30) marked gold’s high of the year. Only once did the peak come before the low point of the year. That was when gold hit $1,000 on March 18, 2008 and then faded later in the year. Gold’s recent track record adds to the likelihood that gold will keep rising this year, well into December. Since 2001, we’ve seen seven of nine peak days coming September 26 or later:

Gold’s Annual Low & High Prices
2001-2009
Year Gold’s Low Date Gold’s High Date
2001 February 15 September 26
2002 January 24 December 27
2003 April 7 December 30
2004 May 13 December 3
2005 February 8 December 9
2006 January 5 May 11
2007 January 5 December 28
2008 November 13 March 18
2009 April 15 December 3

So far in 2010, gold’s low date was February 5 and its peak date is June 28. The low will likely hold (at $1,058), but the peak date will not likely hold up. We had a near-record high at $1,260 last week, and gold has averaged a lofty $1,215 since last May 6, when the one-day (one-minute!) 1,000-point market crash sent hordes of investors to cash or gold for increased safety from meltdowns. Add in the “holiday factor” of rising gold demand in India, America and China from October to February and the seasonal factors favor a potential $1,500 gold price by year’s end, as we predicted here almost one year ago.

This Week In Gold History

September 12, 1857: The S.S. Central America sank off the coast of South Carolina, at the cost of 423 lives and a cargo of $1.6 million in gold coins, fresh from the San Francisco mint. The dollar loss, small by today’s standards, was big enough to cause a credit crunch that greatly exacerbated the Panic of 1857.

September 13, 1983: The U.S. Mint struck its first gold coin in 50 years (the Olympic Eagle). In 1933, FDR had banned much gold ownership, under threat of fines and jail. Fifty years after banning gold ownership, the U.S. government finally minted a gold coin for sale to the American public.

Rare Gold Coin News: Indian Gold Shortage, Prices Beginning To Rise

Many better $2.50 and $5 Indians are tough to find and many MS-64s are intermittently unobtainable. $20 Liberties are surging. Premiums are trending higher on slightly better Type III $20 Liberties in MS61 – MS64 due to a sudden spike in demand.

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Metals Market Commentary for Aug 30th 2010

Gold Rises For 4th Straight Week Leading Silver and Platinum Higher

Gold rose $10 last week, for the fourth straight week. This time, silver and platinum followed gold’s lead, unlike in previous weeks. Last week, silver had the greatest percentage increase of all the metals. Gold is flat today (Monday), but as we near the end of August, gold is up over 6% and silver over 8% (in August), while the stock market is down over 3% for the month. The year-to-date gap is now almost 20% between gold (+14%) and the widely-watched S&P 500 (-4.5%).
Gold reached its latest all-time high on June 28, at $1261. Now, we know why: soaring investment demand. Last Wednesday, the World Gold Council announced that world gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter a year earlier. Supply rose, too, but not as fast as demand: While demand rose 36%, supply rose 18% to 1,131 metric tons. The WGC said that soaring investment demand was the biggest component of demand, saying that uncertainties around the world are expected to provide continued strong demand for gold. Demand for gold-backed exchange-traded funds (ETFs) rose 414% vs. the second quarter of 2009, while retail investment demand rose 29%.

Jason Toussaint, managing director for the World Gold Council, said that investors appear to be making the switch from buying gold only in times of crisis to having gold as part of a more diversified portfolio. Specifically, Toussaint said “Gold is the ultimate diversifier.” The World Gold Council further said that India and China are expected to continue to provide the “main thrust” of gold demand, but European retail investors “appear to be making an increasingly important contribution to investment demand.”
September is the Month for Gold, Not Stocks

In a study of the monthly performance of the Dow over 60 years, September was the worst month by far. Interestingly, in a 40 year study of gold, September is the best for gold. While history doesn’t always repeat itself, or rhyme as Mark Twain suggested, decades of history seem to scream sell some stocks and diversify with gold in August and September.

Business Week Bashes Gold, but Kaplan Defends the Metal

The current (August 30 to September 6) edition of Bloomberg’s Business Week printed a cover story on gold and a leading gold investor. The cover title said: “The Gold Digger: Thomas Kaplan and the mad search for the world’s most primitive source of wealth.” Their adjectives (“mad” search for “primitive” wealth) show their editorial bias. Instead of “primitive,” they could have used “original” or “proven” or “time-tested form of wealth,” but they selected a word (primitive) associated with out-dated or ignorant.

Mr. Kaplan turned that “primitive” term around, saying, “The conventional wisdom is that gold is for primitives. That derision shows me that, contrary to the notion that we’re in a bubble, we haven’t yet begun the real bull market.” The Business Week article then tended to criticize Kaplan’s mining efforts, even though he is far more conservation-oriented than most gold-mining executives. In fairness, the article gave him the final word, which is worth quoting in full: “People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they’re going to say, ‘we really should own some of that.’ The question will then change to, ‘Where do we get gold?'”
Mike Fuljenz’ 2010 NLG award-winning book, Indian Gold Coins of the 20th Century, is beginning to stir up demand for better $2.50, $5 and $10 Indian Head gold coins. Meanwhile, premiums on slightly better Mint State 61-64 $20 Liberties are beginning to trend higher due to a sudden spike in demand.