The Michael Fuljenz Metals Market Report: March 2013, Week 2 Edition

Gold rose slightly (+$3) last week, while silver and platinum grew more robustly. Gold has remained in a narrow trading range of $1570 to $1610 in the last three weeks. This helps to build a more solid floor for gold at $1570, but it also makes a rise above $1610 more difficult. Gold seems to be waiting for a new crisis or some reason to believe that the Fed will maintain its hyper-inflationary money-pumping plan longer than most investors expect. Last week, we got some good news from Fed Vice Chairman Janet Yellen, who basically told us that the Fed will likely maintain "quantitative easing" for a very long time.

Sell Out

In the last month we sold out of our current inventory of more advertised products (Indian, Bison and certified Silver Eagle coins) than at any time in the history of our company. Recently, many major dealers told me they sold out of most categories of $2.50 Indian gold coins and I have been getting calls from other dealers needing them. The coin and physical precious metal market is strengthening. Pay attention!

Fed Vice Chairman (and Future Chair?) Janet Yellen Is More Expansive Than Bernanke

In a widely-followed speech at a Federal Reserve research conference in San Francisco last week, Janet Yellen, the Fed's current Vice Chairman, assured investors and economists that the Fed's current trillion-dollar-per year monetary expansion will continue for a long time. She said, "I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment." While admitting that there is some inflation risk, she argued that, "at this stage, I do not see any [inflation] that would cause me to advocate a curtailment of our purchase program."

What she is referring to as a "purchase program" is the Fed purchasing $85 billion per month (over $1 trillion per year) in Treasury securities in a plan they call "quantitative easing," plus a zero-interest-rate policy through at least 2015, including a bond-buying scheme they call "Operation Twist," which helps to reduce long-term Treasury interest rates, in line with the Treasury's very low (near zero) short-term rates.

This is important news since Janet Yellen is currently second in command at the Fed and she is viewed as President Obama's most-likely choice as a replacement for Fed Chairman Ben Bernanke when his term expires next January 31. Mr. Bernanke was good for gold, but Janet Yellen would be GREAT for gold.

The Federal Open Market Committee (FOMC) meets about every six weeks. In their next meeting, next week (March 19-20), they will likely vote to keep these inflationary policies in place for a long time - at least until the unemployment rate falls below 6.5%, which could take years to happen. Last week, we learned that the rate "fell" to 7.7%, but it has been at 7.7% or higher for over 50 months, since late 2008.

Gold is Rising Strongly - in Terms of Several Currencies

While U.S. gold investors wonder when the yellow metal will finally break out of its narrow trading range, gold just set a new all-time high in terms of the Japanese yen. Japan is not a Third World (or "emerging market") nation. Although it has fallen on hard times since 1990, Japan still the world's fourth largest economy. The newly-elected government there has pushed the yen down since November by installing their own version of "quantitative easing," which has made gold soar in terms of the yen.

Two years ago, an ounce of gold cost 115,000 yen. Last year at this time, gold cost 137,000, up 19%. Gold now sells for 151,680 yen per ounce after setting an all-time high of 155,000 yen last month.

While gold is up just 12% in the last two years in U.S. dollar terms, gold is up 31% in Japan, 39% in India and 42% in Argentina over the last two years. Gold is also rising rapidly in Brazil (up 23%).

Here are the gold prices in five key nations over the last two years:

Gold's Price on March 11 Each Year

*Gold's price in terms of various currencies on March 11, 2011 and March 11, 2013

So far this year, gold is rising fastest in Japan and Great Britain. Due to a weakening British pound, gold has risen from 1031 pounds per ounce on January 1, 2013 to 1065 pounds today, up 3.3% in 10 weeks. As global currencies keep racing to the bottom, it's only a matter of time until gold rises in dollar terms this year, too.

Morgan Stanley: The Gold Bull Market Isn't Over

The bull stampede into stocks has not been kind to gold, which has been in decline since last October. There's no shortage of pundits declaring the dozen-year gold bull market deceased. But, Morgan Stanley is not among them.

Morgan Stanley has for some time proclaimed gold as its number one asset in the commodity sector. And, despite the period of weakness that gold has suffered in recent months, MS is not ready to throw in the towel.

The company's chief metals economist, Peter Richardson, says, "The reasons for owning gold may be evolving." Richardson's point is that over the past decade, gold has gone through several evolutions.

Also, with the U.S. and Europe already flooding markets with easy cash, Richardson sees Japan as the third part of what he calls "The Great Monetary Easing." To sum it all up, Richardson concludes, "In these circumstances, we believe that gold has demonstrated considerable technical strength, offers good value at current prices both as an entry level to the trading range between US$1,540/oz and US$1,800/oz and as an option on any remaining upside surprise above this range that might result from the third part of the Great Monetary Easing."

So Morgan Stanley is still bullish on gold.

Metals Market Report Archive >