June 2014, Week 4 Edition

Gold shot back above $1310 on Friday and stayed around $1315 through Monday, June 23. Wall Street analysts typically underestimate the impact global unrest can have on gold. The crisis in Iraq seems to be the main engine for gold's increase, like the crisis in Ukraine was last March. Last weekend, the Islamic State of Iraq and Syria (ISIS) took several more Iraqi towns and cities on the road to Baghdad. So far, gold is up $65 in June, reaching a nine-week high last Friday. This time, silver has followed strongly in its wake, rising to nearly $21, while platinum and palladium are erratic, moving up or down in conjunction with the fate of the labor negotiations with the mining interests in South Africa. Be aware that some scarce U.S. quarter eagle Indian gold coins are on the move again.

Rare Coins are #1 in Canada - and Gold is #1 in Germany

A Canadian poll showed that over 50% of Canada's wealthiest citizens are involved with collectible assets or hobby investing, and their favorite collectible is rare coins. In a survey conducted March 27 to April 11, over 300 Canadians with at least $1 million in investable assets listed their favorite collectible:

The pollsters said that hobby investors "tend to have up to 20% of their assets tied up in them," since "investing in one's passions enables people to be part of something that they feel strongly about, without having to invest a lot of time in it. It allows them to be able to pass on to their heirs something that reflects their personality and interests, thereby creating a legacy" of beauty, history and tangible value. I agree with and appreciate Canadians!

Also, a survey by the Forsa Institute earlier this month showed that gold is the #1 favorite investment in Germany, the largest and strongest of the euro-zone economies. When asked, "If you were to make a choice on an investment, you would draw the highest profit in three years…" Germans answered:

Barron's Says "Gold Seems Headed Higher"

This week's edition of the stock market journal Barron's featured a positive gold review by Michael Kahn: "Gold Seems Headed Higher: The technicals line up to suggest the time is right to nibble." It's interesting that these journals usually seem to wait for a strong price rise before "nibbling," when it would seem more logical to buy gold on dips, but we'll take an endorsement from Barron's any time, thank you!

The article focused on the gold mining shares and ETFs, but that's what stock newspapers do best. The fate of mining stocks, however, rests primarily on the shoulders of the gold price. Unless we see a major rise in the price of gold, most gold mining shares will suffer, whether their "technical" chart lines up well or not, so Kahn says "a decent rally is now in the cards" for gold, and "there's lots of room for growth before the rebound runs into serious resistance." He uses technical terms like the "Fibonacci retracement" and the "inverted head-and-shoulders" chart pattern to make his case that gold has formed a firm bottom.

Federal Reserve Action (and Inaction) also Feed Gold's Surge

The Federal Open Market Committee (FOMC) meets once in every six weeks to discuss and reach consensus on monetary policy. In their meeting last week, they were highly accommodative, providing another boost for gold last week. Federal Reserve chair Janet Yellen stressed the need for more "highly accommodative" monetary policies for a "considerable period" longer. In particular, she said that short-term interest rates should remain near-zero (i.e., zero to 0.25%) for at least another year, until mid-2015. This gives gold an "even playing field" with short-term dollars in the bank, earning close to zero income.

Ms. Yellen also downplayed the news released on Tuesday (when the Fed was meeting), that the Consumer Price Index (CPI) has now risen by 2.1% in the last 12 months - slightly above the Fed's stated 2% limit. The CPI rose at a 4.8% annual rate in May, after rising at a 3.6% annual rate in April. Last month, food and energy prices surged 0.5% (6% annual rate) and 0.9% (11% annualized), respectively. We're likely to see continually rising food and energy prices due to (1) a drought in some key farming regions and (2) the civil war in Iraq, plus news that Canada will ship its shale oil to China, not the U.S.

In the past 12 months, the prices of meat, poultry, fish and eggs have risen 7.7%, exacerbated by a 1.5% rise in April and a 1.5% rise in May. Chicken prices are at an all-time high, but the Fed policy makers mostly monitor the "core" CPI, which excludes food and energy (two primary needs). Still, the core rate rose 0.3% (a 3.6% annual rate) in May, so inflation is clearly spreading beyond just food and energy.

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