The Michael Fuljenz Metals Market Report: November 2012, Week 3 Edition
Gold Rose 3.4% in the three days after President Obama's re-election, while stocks fell 3.4%. That tells us the stock market doesn't much care for the election results, while gold investors anticipate more of the same dollar devaluation and quantitative easing we saw in Obama's first term. In addition, the five worst post-election stock market days came after Democrats were elected. The worst post-election day was in 2008, when Obama first won, and the 5th worst post-election day for stocks was last Wednesday. Since Obama was first elected in 2008, gold has risen 116% while silver has nearly tripled (+198%). If we see similar gains in his second term, gold will reach $3,739 and silver will approach $100 by the end of 2016.
As legendary investor Jim Rogers told CNBC, he plans to respond to the Obama victory by selling U.S. government debt and buy precious metals: "If Obama wins, it's going to be more inflation, more money printing, more debt, more spending. It's not going to be good for you, me or anybody else."
$2.50 Indian Demand Rising
Over the past few months we have observed a decrease in dealer inventories of $2.50 Indians, along with increased demand for better-date mint-state specimens graded by PCGS or NGC. This supply crunch is partly due to increased advertising for Indian gold coins on radio, on prominent websites and in print media. I expect prices to begin to rise for many of these $2.50 Indians, since availability is likely to be "spotty" for some key dates and grades.
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Gold's Track Record in the First Year of the 4-Year Presidential Election Cycle
The four-year Presidential cycle is the surest way to predict the stock market, which generally rises in election years and remains relatively flat in non-election years. Recessions tend to come during the first years of Presidencies, so that the incumbent can get the painful medicine out of the way early in his term. The last two recessions were in 2001 (Bush's first year) and 2009 (Obama's first year), for instance.
The gold market is harder to predict, but we have some evidence that the first year of each Presidential term is often good for gold. Here is the record of the first year after the last 10 Presidential elections.
| Year | Gold | Winner |
|---|---|---|
| 1973 | +73% | Republican Richard Nixon (re-election) |
| 1977 | +21% | Democrat Jimmy Carter |
| 1981 | - 32% | Republican Ronald Reagan |
| 1985 | + 7% | Republican Ronald Reagan (re-election) |
| 1989 | - 3% | Republican George H.W. Bush |
| 1993 | +20% | Democrat Bill Clinton |
| 1997 | - 21% | Democrat Bill Clinton (re-election) |
| 2001 | 0% | Republican George W. Bush |
| 2005 | +20% | Republican George W. Bush (re-election) |
| 2009 | +24% | Democrat Barack Obama |
Looking at all 10 of the last post-election years, your odds of gains are about 2 to 1, with six rising years, three falling years and one flat year. The gains during re-election years (1973, 1985, 1997 and 2005) are even more impressive with three out of four re-election years rising. This looks promising for gold in 2013!
China and India are Back in the Gold-Buying Game
While all U.S. eyes seem to be glued on the coming financial "cliff," the rest of the world is going on with its business as usual. The U.S. dollar did not collapse after the U.S. elections last week, which tells us that the rest of the world is not yet unloading dollars or panicking in the face of our financial cliff.
China and India - the world's two most populous nations and the two top gold-buying nations - are growing again, leading to rising demand for gold coins and jewelry in those nations. Last week, we saw four positive numbers come out of China: (1) Industrial production rose 9.6% in October, up from 9.2% in September. (2) Retail sales rose 14.5% in October, up from September's 14.2%. (3) Fixed-asset investments (like construction or plan equipment) rose by 20.7% (year over year), while (4) consumer price inflation rose by just 1.7% (annual rate), a 33-month low, so China is running on all cylinders again.
India isn't growing as fast as China, but India's gold and silver jewelry markets are recovering after a weak summer. Sunday marked the day Indians call "Dhanteras," the first day of the five-day Diwali festival. "Dhan" means "wealth" and "Teras" means the 13th day of the Hindu month of Ashwin. Like the Chinese, Indians believe that riches are glorious. Sales of precious metals typically soar during the five days of the Diwali festival, running this week. Then, the wedding season starts right after Diwali.
Indian jewelry dealers are fairly buoyant about upcoming gold and silver demand. On Monday morning, November 12, we learned that sales rose by about 30% Sunday (over the same day, Dhanteras, last year). "We expect better sales compared to last Dhanteras," said Suresh Hundia, former president of Bombay Bullion Association (BBA). In addition, PP Jewellers Director Pawan Gupta said, "The rush of buyers clearly indicates that high prices have not dampened demand. We expect 25-30% gains," while UT Zaveri retail chain owner Kumar Jain said, "We see 25-30% growth in sales by volume" (i.e., by weight of gold).
Besides purchase of physical gold, investment in gold exchange-traded funds (ETFs) also showed record gains on India's National Stock Exchange (NSE). On Sunday, the NSE recorded traded volume of 1,337 crore* in gold ETFs vs. 636 crore on Dhanteras last year. (*crore is a term meaning 10 million rupees, or about $182,000 at the current exchange rate.) One-day sales of 1337 crore equals $243 million, a 110% gain over last year. As a result of rising demand, India, the world's largest consumer of gold in 2011, is expected to import 750 to 800 tons in 2012. While that's down from a record 969 tons last year, its recent gains might be enough to allow India to maintain its #1 position (over China) for global gold demand in 2012.
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