July 2014, Week 1 Edition

Gold stayed above $1310 all last week, peaking at $1323 Tuesday and closing the first half of the year at $1327 in the New York spot market, yielding a 10.5% gain in the first half of 2014. Gold rose as high as $1330.50 Monday, before settling down to $1327. Silver closed the first half at $21.01, up 7.7% in the first half of 2014. Platinum rose 9% in the first half of 2014, mostly based on the long strike in the South African platinum mines. These gains in the precious metals complex compare favorably to major stock indexes: The Dow Jones index rose only 1.5% in the first half, while the S&P 500 index rose by just 6%. What’s more, gold will soon enter its best time of the year – based on rising demand for gold jewelry for the holiday seasons in various cultures, running from September to December. Meanwhile, stocks are entering their historical “hurricane season.” Stock crashes most often strike in August through October.

Millionaire Investors Need (and Desire) Diversification into Gold and Rare Coins

With cash in Europe being punished with negative returns, and U.S. banks offering super-low returns for short-term deposits, inflation has made cash savings a guaranteed losing proposition. By contrast, stocks are reaching new highs almost every week, so investors are jumping on the bandwagon of what might end painfully. Now, more than ever, well off investors need to diversify into assets which can protect them in a market swoon. A new study of 880 high-net-worth investors (those with over $1.5 million of investible assets) by the deVere Group showed that their biggest regrets were not diversifying enough by asset class and not having a plan or strategy.

These failures tie in closely with the typical successful American investor who has poured nearly all of his or her nest egg into stocks and bonds or mutual funds that contain mostly stocks and bonds. They need diversification into gold and rare coins and investing with a plan.

Most investors need (and want) a gradual and disciplined plan of adding precious metals and rare coins to a well-balanced portfolio. For some investors 10% is sufficient. Others would feel comfortable with just 5%, while others wouldn’t feel adequately protected without 25% allocated to precious metals and coins.

Penn State economist Raymond Lombra has shown that high-quality rare gold coins have outperformed stocks, bonds and even gold bullion over the last 35 years. His research shows that high-end rare coins not only beat most other investment assets in the aggregate, but they also have the best three-year and single-year performance records during their best market surges. “Nothing else came close,” he said.

Rare Coins are #1 in Canada

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!

The Reasons for Gold’s Recent Rise are “Sustainable” – Dennis Gartman

Dennis Gartman, editor of The Gartman Letter, has long been a thorn in the side of gold bugs, since he trades in and out of the metal instead of making a long-term commitment. However, that makes his bullish comments more credible, since he balances them out with bearish statements when gold is down.

Gartman offered three reasons why gold has risen recently, and he labels all three reasons as sustainable. Gartman said: “If you take a look at gold, you've got three things that are driving prices higher. One, the dollar has gotten weaker. Two, crude oil prices have gotten stronger because of the circumstances politically in Iraq. And three, Dr. Yellen’s comments…were indeed semi-dovish. All of those things together have given you an impetus to take gold prices higher. Yes, I do think this move is sustainable.” In other words, the dollar will keep going down based on Fed policies, thereby boosting the dollar price of gold, and the Middle East will continue to fight, pushing oil and gold higher.

Foreign Demand Continues to Support Gold’s Rise

In addition to the dollar-based reasons Dennis Gartman cites, there is a continuing rise in gold demand in the leading powers of the Eastern Hemisphere, where gold is seen as the most secure form of savings.

China has announced that it will open an international gold exchange in a free-trade zone in Shanghai in the fourth quarter of 2014. This will be in addition to the Shanghai Gold Exchange, which feeds China’s voracious domestic demand for gold. The new exchange will target foreign accounts. Four Chinese banks will be authorized to open accounts for qualified investors there. Hong Kong has been China’s financial window to the world for decades, but Shanghai is gradually becoming China’s leading financial center.

India is gradually unwinding its repressive gold trade regulations, but investors have been holding off on their major purchases, waiting for lower prices later on. For that reason, dealers have been offering some unusual incentives for early buying. Joyalukkas Group, a leading Indian gold retailer, has offered 12 free BMWs and two kilograms (4.4 pounds) of bullion in a drawing for customers who buy gold now. Some other retailers are offering dinner with national movie stars (Bollywood celebrities). This may be good for publicity, but it is likely that most Indians will wait for the full reforms to kick in before buying. Meanwhile, gold smuggling is still running rampant in India, as long as high tariffs remain in effect.

Russia’s central bank, the Central Bank of the Russian Federation, announced that they bought 300,000 troy ounces of gold in May, bringing their five-month purchases to 1.4 million ounces. That compares to only 700,000 ounces bought in the last four months of 2013, when gold’s price was trending downward. Perhaps Russia is building a foreign exchange buffer in case of Western sanctions against them, stemming from the Ukraine crisis. Their May purchases bring Russia’s central bank holdings to 34.7 million ounces (1079 tonnes) of central bank gold, about twice as much as they held five years ago, in early 2009.

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