Numismatic News & Precious Metals Market Commentary
Precious Metal Commentary for October 11, 2010
Metals Market Commentary
October 11, 2010
Gold Sets New Price Record Again As Silver Reaches 30-Year High
Gold rose every day last week, through Thursday, when the London morning gold fix reached another record high $1359.50, followed by an intra-day high of $1364.50 in New York. Gold corrected on Friday, but the bullish trend is strongly in place, due to the dollar’s rapid decline to most other currencies. Meanwhile, silver continued its hot run with a rise to 30-year highs above $23, while copper hit $3.79 per pound, its highest levels since all-time highs at $4 in mid-2008.
- Gold 52 weeks ago (October 12, 2009): $1058.75
- Gold’s average price during 2010: $1182.62
- Gold’s London low for 2010: $1058 on February 5
- Gold’s London high for 2010: $1359.00 on October 7
The Bottom Line: Gold set another all-time high last week, while silver set new 30-year highs and the dollar fell sharply.
The Dollar Enters “Free Fall” in a Global “Race to the Bottom”
The dollar decline is turning serious. Last week, the U.S. dollar sank to a new all-time low vs. the Swiss franc. For the first time in history, it costs more than $1 ($1.03) to buy one Swiss franc. The U.S. dollar is also trading at a 27-year low to the Australian dollar and a 15-year low to the Japanese yen. The euro rose to $1.40 per dollar last week, up 17% from its low of $1.19 last June.
Last weekend, at the International Monetary Fund (IMF) meeting in Washington, the Managing Director of the IMF, Dominique Strauss-Kahn, urged global finance ministers to stop trying to manipulate their currencies for economic advantage since the economic recovery is so “fragile.”
The dollar’s decline has led other central banks to lower their interest rates in order to match the dollar’s low returns – so their currency doesn’t rise too far, hurting their exports. This “race to the bottom” has two meanings – a race for the lowest interest rates (0%) and for the lowest value in terms of competing currencies. It’s like a central bank limbo contest (“How low can you go?”)
In this race to the bottom, the Bank of Japan slashed its key interest rate to 0% for the first time in four years and the Australian central bank failed to raise interest rates, even though every market pundit had predicted such a rise. Apparently, the Australian government did not want to attract more buyers to their currency, thereby hurting their resource-based, export-driven metals market.
Massive Gains in Commodities – Due to the Dollar’s Sharp Decline
“As long as governments are in the business of printing more money, metals and commodities in general are poised to do very well.” – Matt Zeman, head of trading, LaSalle Futures Group, Chicago.
Due to the dollar decline, commodity prices are rising rapidly in dollar terms, since almost 90% of the world’s commodities are universally priced in U.S. dollars. Here are some recent gains:
Third-Quarter Commodity Gains*
|Natural Gas||+ 16.1%|
* July 1 to September 30, 2010
Source: Wall Street Journal, October 1, 2010 “Wheat and Gold Stole the Quarter’s Headlines”
Stupid Statements about Gold in the Mass Media
With gold in the news these days, you hear more and more uninformed commentators saying increasingly silly things about a market they don’t really understand and have never studied.
#1: One television critic said, “After all, you can’t spend gold at the grocery stores.” Is that so? Can you spend stock certificates in a store, or Certificates of Deposit? (Don’t forget the “penalty for early withdrawal.”) Can you trade dirt (“real estate”) for goods in a store? Nearly everything we own – stocks, bonds, CDs, real estate and commodities, including gold – must first be exchanged for cash in order to qualify as a “medium of exchange” in a normal store or other retail operation.
#2: A leading stock analyst said, “Gold is clearly a ‘bubble’ market, ready to pop.” Historically, bubbles are based on GREED, the “greater fool” theory of selling a rapidly rising investment in order to make a quick killing. Most gold investors are buy-and-hold savers (hoarders), who are buying gold based on FEAR for the global economy, not greed to make money quickly. As John Roque said to CNBC’s Jim Cramer in late September, gold is generally 1.5 times the S&P 500, which is now at 1165, making a fair gold price $1,750. In 1980, gold was six times the S&P 500.
#3: The CPM Group said, “If gold were only used for industrial and ornamental use, its price would be $600.” That’s like saying if gold weren’t known as money in every major society for the last 6,000 years, it wouldn’t cost so much to fill the cavities in our teeth. Gold’s price is not solely based on jewelry or industrial applications. It is based on its role as “shadow currency” in a world that is devaluing the intrinsic value of all paper currencies, since printing is a “no-cost” solution.
#4: Others warn us that investors will sell for quick cash when prices reach “bubble” peaks. That hasn’t happened yet, and it is not likely to happen in the future. When an asset is rising, people like to hold on to it, not sell it too cheaply. Gene Epstein, writing on page 25 of the current Barron’s, says that investors have only been net sellers of gold in just three of the last 40 years and “in each case on a small scale.”
Remember: Usually, gold’s critics have some other investment to sell. They are stock brokers or bond salesmen, or currency traders, for instance. Ask two questions of gold critics: (1) What other investment are you trying to sell me? And (2) What did you say 10 years ago, when gold was $250, or five years ago, when gold was $450. Were you saying gold was a good value then? Most gold critics are zero-for-the-21st Century, advocating falling stocks, not rising gold.
Rare Gold Coins and Customers Rising
The last two months have seen prices rise between 2% and 15% for many common uncirculated $2.50, $3, $5 and $10 Indian gold coins, as well as $20 Liberties. Many dealers also report a rise in new customers along with the rise in gold prices this year.
The Battle for Gold in History
October 11, 1923: The German mark fell to four billion marks per dollar, in the postwar hyper-inflation which completely destroyed the German currency in the fall of 1923. The nations with a gold standard – mostly Britain and the United States – enjoyed relative currency stability then.
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