The Michael Fuljenz Metals Market Report: February 2013, Week 2 Edition
Gold has been "flat" (in a very narrow trading range) for 2013 so far. From Monday, January 7, through last Friday, February 8, gold seemed "trapped" in the high $1600s, trading between $1654 and $1692, but on Monday morning, February 11, gold fell below its $1650 support level, reaching a low of $1642.80. The cause of the decline was a report that the Group of 7 (G-7) leaders were preparing a "statement" in an attempt to stop the trend toward currency devaluations - what we have called "the race to the bottom." However, that is just "talk," not action, and most nations will likely continue to devalue their currencies.
10,000-fold Gains For One Coin!
On January 24, 2013, a 1794 Flowing Hair silver dollar graded Specimen-66 by PCGS brought over $10 million at auction. In the late 1800's, when coin collecting started to sweep the nation, these coins were called the "Dollars of our Daddies." It's not too late to make substantial profits and enjoy doing it with select rare coins.
The 1794 Flowing Hair dollar was first sold in the open market in 1945 for $900. Two years later, it sold for $1,250, so you would think the first buyer would be happy, but he gave up 10,000-fold gains by selling "too soon." In the 67 years since 1945, the 1794 silver dollar has gained a total of 11,130-fold, but that does not make any single year a guaranteed gain.
The person who bought this coin in 1984 for $264,000 made the mistake of selling it two years later for 21% less (at $209,000). The lesson is that it seldom pays to sell too soon. That's why we recommend a five-to-ten year hold to our customers. This 1794 dollar is another example of the value of holding historically important rare coins over time. This is why we continue to recommend, and write about, historically important rare coins of high quality for our customers.
1794 Silver Dollar
| Year Sold | Sale Price |
|---|---|
| 1945 | $900 |
| 1947 | $1,250 |
| 1984 | $264,000 |
| 1986 | $209,000 |
| 1988 | $375,000 |
| 1991 | $506,000 |
| 2010 | $7,850,000 |
| 2013 | $10,016,875 |
Gold & Silver Should Rise Again As Nations Continue Their "Currency Wars"
As we reported here last week, central banks around the world are competing among themselves to lower the value of their currencies to increase their trade advantage. The U.S. dollar is down 12% to the euro since last July, and that has boosted our exports, while lowering our trade deficit. Last Friday, the U.S. Commerce Department said that the U.S. trade deficit was 20.7% lower in December 2012 than in the same month in 2011. This is due primarily to a lower dollar making our exports more competitive.
Japan has adopted the same "winning formula" since last November, boosting exports by devaluing the once-strong Japanese yen. As a result of these currency wars, the G-7 is expected to issue a statement condemning these competitive devaluations. This resolution will not have any teeth. Countries will continue to do what is in their best interest, which is to lower the value of their currency, boosting gold.
Back in the 1930s, when the dollar was devalued 41% (i.e., gold was revalued from $20.67 to $35 per ounce), the U.S. had a mini-boom from 1933 to 1937, in the middle of the Great Depression. Then, other nations retaliated. (In those days, the "race to the bottom" was called a "beggar thy neighbor" policy.)
One unfortunate result of the dollar's relentless decline is that China and the rest of the world won't buy our new Treasury debt, so the Federal Reserve has to buy most of our new debt. As of last Wednesday, the Fed's Treasury holdings are up by $51.1 billion so far this year. Since the Treasury has sold only $47.2 billion in new debt so far this year, the Fed has bought all the new debt plus $3.9 billion more! This simply can't go on. If the Fed buys most or all of our debt, that is effectively "monetizing the debt."
GOLD HITS RECORD HIGH IN YEN
While gold has been treading water in dollar terms, it has hit a new record high in yen terms. At the beginning of February, gold bullion futures for December delivery surged 1.2% to reach 5,000 yen per gram ($1,678 per ounce) on the Tokyo Commodity Exchange.
The reason cited for the gold high is the steady decline of the yen, which fell 2.1%, the weakest it has been versus the dollar since May 2010, to post a loss for the 12th straight week. "The yen's weakness helped boost the yen-based futures contracts," said Kazuhiko Saito, an analyst at broker Fujitomi Co. in Tokyo.
Hedge Funds And Other Big Buyers Are Returning To Gold
Meanwhile, gold is attracting new attention, too. According to the World Gold Council, Japan's pension funds (controlling over $3 trillion) are planning to more than double their gold holdings over the next two years, partly due to Japan's new liberalized monetary policy under their new Prime Minister, Shinzo Abe.
Wall Street funds are also beginning to boost their gold holdings. The Sica Wealth Management fund is raising its gold exposure from the current 7% up to a whopping 25% over the next few months, according to the firm's president and chief investment officer, Jeffrey Sica. In addition, David Donora, head of commodities at Threadneedle Investments, says his firm currently holds 11% of its $1 billion portfolio in gold. Donora may add more holdings this year, since his analysts are "feeling pretty bullish on gold."
Central banks bought 536 net new tons of gold last year. That's up 17% from the 458 tons in 2011 and the highest central bank buying spree since 1964 - the year inflation began to haunt the dollar, leading to a removal of silver from most U.S. coins in 1965. Last year, central banks accounted for almost 20% of newly-mined gold. (Output from all gold mines totaled 2,842 tons last year, up just 0.2% from 2011.)
We're liable to see the same trend continue this year - more central bank buying, perhaps as much as 600 tons, combined with little or no net gain in newly mined gold, resulting in a supply pinch and higher gold prices.
GOLD "PRODUCTION CLIFF" COMING IN 2017
With America's "fiscal cliff" worries on hold for a brief time, now there's the gold "production cliff" anticipated for 2017 to consider.
Canada's National Bank Financial (NFB) says that even with near-record high gold prices, cash flow has stalled for the world's major gold producers, which could push the markets over a production cliff.
Starting in approximately 2017, production declines are in the cards for nearly all companies as the project queue and discovery frequency are projected to be inadequate to replace production.
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