Mike Fuljenz's Blog

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*

Commodity % Gain
Tin + 40.8%
Sugar + 40.3%
Lead + 30.9%
Palladium + 28.5%
Nickel + 18.1%
Silver + 17.8%
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.

In the opinion of the Publisher, all statements made herein are believed to be reliable, truthful and accurate to the best knowledge of the Publisher. However, the Publisher disclaims and is not liable for any liability or losses, which may be incurred by anyone relying on information published herein. You are encouraged and advised to independently verify all representations made herein before making investment or collecting decisions. The collectible coin market is speculative and unregulated and recommendations are meant for those who are financially suited for the risks and holding times involved. Past performance is not a guarantee of future results. The Publisher, its principals and representatives do not guarantee a profit, nor do they guarantee that losses may not be incurred as a result of following any recommendations in this report. Readers should not look at this report as giving legal or investment advice. Reproduction of quotation of this report is prohibited without written permission of the Publisher.

Advertisements

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.

In the opinion of the Publisher, all statements made herein are believed to be reliable, truthful and accurate to the best knowledge of the Publisher. However, the Publisher disclaims and is not liable for any liability or losses, which may be incurred by anyone relying on information published herein. You are encouraged and advised to independently verify all representations made herein before making investment or collecting decisions. The collectible coin market is speculative and unregulated and recommendations are meant for those who are financially suited for the risks and holding times involved. Past performance is not a guarantee of future results. The Publisher, its principals and representatives do not guarantee a profit, nor do they guarantee that losses may not be incurred as a result of following any recommendations in this report. Readers should not look at this report as giving legal or investment advice. Reproduction of quotation of this report is prohibited without written permission of the Publisher.

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.

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.