The Michael Fuljenz Metals Market Report: May 2013, Week 2 Edition
Gold vacillated last week, reaching a one-month closing high last Wednesday at $1474 per ounce, but then it declined to $1449 on Friday and $1435 Monday morning, May 12. Gold's strength early last week resulted from a report on Tuesday that Chinese gold imports from Hong Kong - a major indicator of rising Chinese gold demand - soared in March. Gold's decline late last week and early this week resulted in large part due to a soaring dollar - which depresses gold. The dollar hit 102 yen, a four-year high, plus a 12-month high to the Australian dollar and a one-month high to the euro.
Gold Supply Crunch - Production Declining, Exploration at Record Low
Investors have been bailing out of paper gold (ETFs) while at the same time consumers are scooping up gold coins, bars, and jewelry at a torrid pace. Just when demand for physical gold has soared comes news that there will be less of it to go around.
The U.S. Geological Survey reported in its Mineral Industry Survey that U.S. gold production fell 8% year-on-year in February. That's after production fell 10% in January.
This year's production slump continues the declining trend of last year. USGS said U.S. gold production was down 225,055 ounces in 2012 from the previous year's output.
The United States is the world's third largest gold producer behind China and Australia.
Not only are the mines not producing as much gold, but there's not too much going on to find more gold to replace what is being taken out of the ground now. Mining consultant and research firm IntierraRMG's latest State of the Market report reveals that exploration worldwide for new gold ounces fell to a record low in March, continuing a 17-month decline in the search for the yellow metal.
Cumulatively, IntierraRMG said exploration activity for the first quarter of 2013 amounted to 1,457 prospects, compared with 2,467 prospects in the first quarter of 2012 and 1,959 in the first quarter of 2011.
Asian Gold Frenzy Continues
Gold imports to China are expected to swell even more after a strong surge for the second straight month in March. "Physical demand picked up significantly over the last couple of weeks. Consumers and industrial users tend to see price drops as buying opportunities," said Zhang Bingnan, secretary-general of the China Gold Association. "Investment demand should continue to stay strong through the rest of the year because of limited investment alternatives," said Zhang. He said gold sales and processing volumes both spiked in April.
Net gold flows from Hong Kong to China, the world's No. 2 gold consumer after India, rose to 223.519 tonnes in March from 97.106 tonnes in February, according to the Hong Kong Census and Statistics Department.
Chinese buyers have been swarming gold shops, taking advantage of low prices and worried about the suddenly shaky Chinese economy. In the first quarter, purchases of gold bars zoomed by 49%. Jewelry surged by 16%. Overall gold consumption in China soared 26% in the first quarter.
1991 $25 Gold Eagle Gem Uncirculated 2000 - 2013
For many years I have purchased low mintage Type I, Roman numeral, $25 American Gold Eagles for collectors, investors and placement in IRA's, three important demographics of demand. This week's graph shows how a portfolio of $10,000 worth of historic Gem Uncirculated 1991 $25 American Gold Eagles I purchased in 2000 would have increased in price over the years I have purchased them. This graph shows an increase from $10,000 to about $70,000 in the 12+ years since 2000.
Gold was $290 at the beginning of 2000 and was $1413 as of 4/23/13. This is an increase of 4.9X. While an impressive gain, it falls short of the 7X gain of the 1991 $25 Gold American Eagle that also held its value while gold was recently declining. This is a good example of why every portfolio should include some better-date gold coins.
As you can see, there are price dips along the way. That's why I recommend at least a 5-10 year hold period on rare coins. In the shorter time frames in this graph, price performance can lag for a few years, only to be followed by impressive gains. We all know that past performance of one coin does not guarantee future performance for all coins, but we can still learn many lessons from history.
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