The Michael Fuljenz Metals Market Report: March 2013, Week 3 Edition
Gold rose last week, even though silver and platinum fell. On Monday morning, March 18, gold shot above $1600 again, for the first time since February 27, mostly due to yet another euro-zone crisis, this time in tiny Cyprus, a relatively new (since 2008) and very small euro-zone member, but a nation that is requesting a sizeable ($13 billion) bailout. In addition to the Cyprus crisis, last week's strengthening gold market came out of a slight decline in the U.S. dollar and a new wave of perceived inflation - including a 0.7% monthly rise (an 8.5% annual rate) in the two major measures of inflation, both released last week.
Last Week: Gold gained $13 (+0.8%), silver fell $0.23 (-0.8%), platinum fell $12 (-0.7%) and stocks rose 0.6%.
- Gold's London Low for 2013: $1,568 on February 21
- Gold's London High for 2013: $1,694 on January 2
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. Finding authentic, hand-selected, quality product is getting harder and harder. The coin and physical precious metal market is strengthening. Pay attention!
South Africa's Gold Output Slides Again
Production from gold mines in South Africa, once the world's largest gold producer, continues in a downward spiral. Gold output fell more than 8% in January year-on-year.
The pace of the slide slowed from the alarmingly sharp drops of 21.2% in December and 32.2% in November but gives evidence that the gold mining woes in South Africa are not over. Production has been sapped by violent mining strikes and a hostile regulatory environment.
23 Global Bullion Experts Predict a 5.3% Gold Gain and 10% Silver Rise in 2013
The London Bullion Market Association (LBMA) is populated with metals market experts with no inherent bias for a rising market. They study the metals' fundamentals and make an educated guess on the future price based on those fundamentals. They don't always predict higher prices. In 2004, they predicted a decline, which didn't happen. They have been right in their prediction of the direction of the gold market in every other year since 2001. In their just-released survey of metals price predictions for 2013, the average of these 23 analysts - who work in major gold markets around the world - predicts a 5.3% gain in gold this year, to a closing price of $1753, and a 10% gain in the price of silver to $33.21.
These analysts cite the continuing positive fundamentals for the gold price - expansion of the U.S. money supply through quantitative easing (QE3), a slow erosion of the value of the U.S. dollar, increased demand from China, India and global central banks, along with a slow growth in new gold supplies. For silver, these experts see limited supply growth, along with higher industrial and investor demand in 2013.
Although gold and silver are currently down for the year-to-date, gold is typically flat during the opening quarter and stronger for the rest of the year. In several of the last 12 years, gold was relatively flat in the first quarter, then it exploded on the upside for the rest of the year. At the beginning of the bull market, in 2001 and 2003, gold declined in the first quarter, then rose for the next nine months and the full year.
| Year | 1st Quarter | Rest Of Year | Full Year | |||
|---|---|---|---|---|---|---|
| 2001 | -4.9% | +7.3% | +2.0% | |||
| 2003 | -2.6% | +24.3% | +21.1% |
In addition, gold opened 2010 at $1121 and closed March 31 at $1115 for a slight decline in the opening quarter. Then, gold gained 26% for the rest of the year and 70% in the next 18 months, leading up to the all-time high of $1900+ in early September of 2011, so there is precedent for a strong rise later this year.
Both Major Inflation Indicators are Rising at an 8.5% Annual Rate
Last week, we learned that both the Producer Price Index (PPI) and Consumer Price Index (CPI) rose by a hefty 0.7% in February - an annual rate of about 8.5%. Energy prices rose 3% on the wholesale level and 5.4% on the retail level, while gasoline prices rose by 7.2% (wholesale) and 9.1% (retail). The "core" rate of inflation subtracts food and energy costs, so the core rate was only 0.2% (a 2.4% annual rate), but there were signs that high energy costs are causing many other types of goods to rise faster than before.
The Federal Open Market Committee (FOMC) of the Federal Reserve Board meets this week to talk about monetary policy. They meet about every six weeks or so. They don't much care about the rising price of energy and food. They don't even follow the "core" CPI and PPI that closely. Their favorite measure of inflation is the Personal Consumption Expenditure (PCE) index within the Gross Domestic Product (GDP), which measures what people spend, rather than posted prices. In other words, if fish rises in price and shoppers prefer chicken, the PCE will record the price increases in chicken more than fish!
It's safe to say that the Fed will continue its "quantitative easing" policies in their meeting this week, since inflation is not their real concern. They will continue to add $85 billion per month ($1 trillion per year) to their balance sheet, mostly by buying the U.S. Treasury bonds that China and other nations no longer want to touch. The Fed will likely be the last major U.S. institution to see or admit that the U.S. has an inflation problem, since their real motivation is to keep interest rates artificially low, since any increase in the cost of financing the interest service on our $15 trillion (and climbing) U.S. public debt would balloon the federal budget deficit and cause huge (euro-like) financing problems at the Treasury.
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