The Michael Fuljenz Metals Market Report: April 2013, Week 1 Edition

Gold dipped below $1600 last week, mostly on the strengthening dollar. On Monday morning, April 1, gold climbed back to $1600 again, and platinum gained $29 to reach $1600, on par with gold. As a result of the brewing crisis in Cyprus and Italy, the euro has fallen 6% in the last two months, from $1.36 to $1.28, which means gold is rising in euro terms. In the last two months, gold has risen from 1225 to 1250 euros per ounce (+2%), while it has fallen about 4% in dollar terms, from $1666 to $1600.

Guns and Gold: 142nd NRA Annual Meeting and Exhibits May 3-5

The 142nd NRA Annual Meeting and Exhibits, May 3-5, is being held at the George R. Brown Convention Center in Houston, Texas. This year's NRA show will feature over 500 exhibitors, covering more than 400,000 square feet of convention center space. Be sure to stop by booth #4616 to see us. One lucky visitor will win a Guns & Gold commemorative 1871 Colt revolver with a historic 1871-dated U.S. Quarter Eagle gold coin in the grip. See you at the show! Call your account representative for more details.

The "Wealth Effect" is Good for Rare Gold Coin Prices

The next surge in rare gold coin prices may come from the rising affluence of Americans. We now have over nine million U.S. families worth over $1 million, excluding their primary residence. At the end of 2012, according to Spectrem Group, there were 8.99 million millionaire families in America, a rise of 400,000 in 2012 alone. In the first quarter of 2013, with the rising stock market and rising real estate values, the nine million mark is surely surpassed by now. We have to wait for the official tally for this quarter, but we might surpass the 9.2 million peak of millionaire households, set in 2007. In addition, there are 117,000 super-rich U.S. households with $25 million or more in net worth in 2012.

USA Today Editorial Slams Premature, Poorly-Drafted Gun Laws

Last Tuesday, March 27, University of Tennessee law professor Glenn Harlan Reynolds wrote a guest editorial in USA Today, headlined "Laws need waiting period more than guns: Good legislation takes time for deliberation." Reynolds cited the misguided New York State law which forbids selling gun magazines larger than seven rounds - without exempting police, who routinely carry 10-15 round Glocks. Also, amazingly, lawmakers didn't realize that gun makers don't make any 7-round magazines! New York City mayor Michael Bloomberg, who rushed to support gun control legislation in the heat of emotions over the Newtown massacre, had second thoughts: "We've just got to start thinking a little bit more about the implications of things before we rush to legislate." Amen to that! The anti-gun pundits in their "mutual admiration society" failed to consult knowledgeable gun experts before rushing their emotions into law.

The Heavy Taxing of Big Cyprus Bank Accounts Could be Another "Game Changer" for Gold

Last week, the latest decision on the euro-zone's Cyprus rescue plan involved taxing the biggest bank accounts in Cyprus by up to 40%. Banks in Cyprus were closed until last Thursday, as security teams were flown in from Britain to guard Cyprus' bank branches from being mobbed by angry depositors.

Cyprus is an important lesson for all who hold large amounts of money in banks: Not all bank accounts are as safe as we once thought. A senior euro-zone official has said that large bank deposits in Italy, Spain and any other troubled European nations could also be taxed or seized, if necessary, to save failing banks.

European officials blame the bank depositors for not knowing their banks are sick! They seem to think that every depositor should be an amateur bank examiner, knowing the balance sheet and asset quality in the bank. If not, they should not be surprised if they don't get all of their money back. Clearly, most bank depositors are nowhere near being qualified enough to rate their bank, so they'll just take their money out.

With large bank accounts being so heavily taxed, many Europeans are closing out at least part of their bank accounts in order to buy gold. Small depositors are probably not at as much risk, but they don't want to take the chance that their money will be seized in an emergency, so many of them are fleeing to gold as well.

Happy 10th Birthday to the Gold ETFs - Born March 28, 2003

The first gold-backed exchange-traded fund (ETF) was listed 10 years ago last week, March 28, 2003. It was listed on the Australian stock market. Gold was $330 then. At the time, the invasion of Iraq was underway, so the story of gold ETFs was buried deep in the news, if it appeared at all. But 10 years later, gold is nearly five times higher, at $1600, and gold ETFs hold 80.8 million ounces of gold - over 2500 metric tons - almost a full year's worth of newly-mined gold. What role did ETFs play in gold's rise?

ETF demand accounts for only about 6% of total gold demand each year. The fundamentals (rising debts and currency debasement) are the main engine behind gold's growth, but ETFs help gold on the margin by adding this new source of demand to an already-tight market. ETFs have also brought in a new type of gold buyer, the Wall Street professional and the paper-oriented investor who is seeking diversification.

According to ETF Securities, there are now 64 gold-based ETFs in the world holding physical gold. The 80.8 million ounces are worth about $134 billion at $1600 per ounce. Before ETFs, gold investors had to make the effort to take possession of the metal and find a safe way to store it, but ETFs allow investors to just click a computer mouse at their brokerage website to buy some gold. (The ETF is required to hold an amount of bullion equal to the ETF shares sold, so all gold investors benefit from this increased demand.)

Many stock-oriented investors who used to pour their money into gold futures or gold mining shares have opted for the better-performing gold ETFs. This is another reason why gold stocks have fallen so far. But ETFs are not gold bullion. Investors don't own the gold and couldn't claim it as their own. It is owned by the ETF firm. Most investors would like to be able to take possession of gold in a crisis - like a bank run.

The Biggest Gold ETF Now - And In The Future

Today's biggest gold ETF, SPDR Gold Shares (GLD), was formed in late 2004 by State Street Global Advisors, in partnership with the World Gold Council. Many high-profile hedge fund managers own GLD as a trading vehicle, but many average investors also buy and hold their gold through GLD. It is their first step - like training wheels - for owning some real gold bullion coins or rare coins in the future.

The biggest ETF 10 years from now might be in China. The Financial Times says that China will launch their first gold ETF sometime this year. The level of middle class wealth is rising so fast in China that their traditional love of gold could push any China-based ETF into the top rank of gold ETFs within a few years. China's overall gold demand last year was 776.1 metric tons, second only to India's 864.2 tons, according to World Gold Council, but Chinese demand is on the rise while India's demand is sporadic.

Historically, Chinese gold demand was in the form of jewelry, bars and coins. But if China launches its first gold ETF this year, the demand for paper gold could soar, pulling the price of gold up along with it.

Central Bankers Unite to Lower their Currencies Together

Last week, an all-star panel of central bankers met at the London School of Economics. Some of those present were Federal Reserve Chairman Ben Bernanke, IMF chief economist Olivier Blanchard, outgoing governor of the Bank of England governor Mervyn King, the former economic advisor to President Obama, Lawrence Summers, and former head of the German Bundesbank, Axel Weber. At the summit meeting, Mr. Bernanke said that the Federal Reserve's monetary easing policies are saving the world! "Stronger growth in each economy confers beneficial spillovers to trading partners," he said, so monetary easing is not "beggar-thy-neighbor" but "positive-sum, ‘enrich-thy-neighbor' actions." In other words, he is taking credit for saving the world and making us rich through the coordinated printing of more money.

In that light, bear in mind that several central banks will meet this week to decide their next move. On Thursday, the "big three" (outside the U.S.) will meet: The European Central Bank, Bank of England and Bank of Japan. On Tuesday, the Reserve Bank of Australia met and decided to leave rates alone for the time being, but there are some preliminary reports that the Bank of Australia is meeting with Chinese officials to draft an exchange mechanism that could replace the U.S. dollar with the Australian dollar as China's official "peg." For decades, the Chinese yuan has been loosely pegged to the U.S. dollar, but that could change as the new Chinese leader seeks a more confrontational relationship with the United States.

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