Michael Fuljenz's Metals Market Report
July 11, 2011

Gold & Platinum Surge To Highest Levels Since June 22nd, While Silver
Tacked On A Strong 8% Amidst New Dollar Declines Behind Debt Ceiling Politics

Gold and platinum closed Friday at their highest levels since June 22, while silver closed at its highest level in four weeks, since June 10. There has been a sudden resurgence in the price of most commodities in early July, after some of the commodity "bubbles" (silver, corn and wheat) burst in the second quarter. The dollar has also resumed its decline, since Congress can't seem to agree on any serious spending cuts (a Republican requirement for agreeing to an increase in the federal debt ceiling). Debt problems are growing in Greece and now Italy.

• Gold 52 weeks ago (July 12, 2010): $1205.50
• Gold's average price during 2011: $1447.96
• Gold's London Low for 2011: $1316 on January 28
• Gold's London High for 2011: $1552.50 on June 22

Last Week In Metals: Gold soared (+4%) last week and silver rose even faster (+8%), while stocks rose by under 1%.

Private-Sector Unemployment isn't as bad as it looks...

When the Friday jobs report came out, pundits were shocked at the slow rise in jobs and the slight bump in the unemployment rate to 9.2%, but anyone who has been watching the job cuts in the public sector were not surprised. Due to state and local government cutbacks, the public sector has now lost jobs for 11 straight months. Some states, like Texas, have seen 10% across-the-board job cuts, in some areas of education, and many other states are in much worse financial shape than Texas. Most states have to cut sharply since they cannot print more money or run up huge deficits, or bother with a new debt ceiling, like the federal government does.

However, the private sector is doing better. On Thursday, the monthly ADP report - compiled by the company that processes most of America's payroll checks - claimed that 157,000 private sector jobs were created last month. According to ADP, small businesses were hiring more people than big businesses:

Since collectible coins are for some, a "discretionary" purchase, people without jobs will not usually buy them, but the fact that the private sector is offsetting the government job losses is encouraging.

What are the Greeks doing with their Money?

The big international news last week was a 48-hour siege in Athens, with protestors trying to block access to Parliament, so that legislators could not vote on further austerity cuts. Their plan didn't work, as Greek and other European bankers put together another short-term rescue plan to "kick the can down the road" a bit. In effect, the new rescue package means that the government of Greece is slowly going bankrupt, by staging a fire sale of prime assets to meet the sky-high interest payments on their loan-shark (30%) bonds.

Jean-Claude Trichet, the very conservative and carefully-spoken president of the European Central Bank (ECB), has said that Europe's sovereign debt problem is equivalent to a warning light on a car dashboard "flashing red" - not just for European banks, but for banks beyond Europe's borders. He has not said anything this inflammatory in recent years, so this turn in his official language is extremely significant.

Meanwhile, many Greek citizens are using whatever little excess savings they own to turn their euros into gold. The Financial Times reported last week that "Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and run on the banks."

In the first quarter alone, Greek savings withdrawals totaled a net $3 billion. Harry Krinakis, a Greek precious metals trader, said "When the global financial crisis started, our sales of coins to investors overtook bullion for the first time. Now the sales ratio has reached five to one." The Times quotes one saver, Tomas, a computer technician, who said he keeps his gold coins at home "just like my grandmother did in World War II." Another gold customer, Sakis, a garage owner, said "We can't trust the politicians to get us out of this mess...[we] have to protect our families. A bank collapse has got to be on the cards."

Asian Gold Demand is Also Rising

Asian buyers are some of the most sophisticated monitors of gold and silver price trends. In fact, the women of India are the world's biggest gold buyers. They buy high quality gold by weight. With limited wealth and decades of experience in daily market swings, buyers in India and China - the two biggest nations on earth and the two nations that buy the most privately-held gold - generally avoid gold and silver when their prices rise too fast. They tend to wait for the inevitable correction. Since silver corrected sharply in May, silver demand has been robust in India over the last two months. Gold hasn't corrected much or risen sharply, so demand keeps growing. In April and May, gold and silver imports rose 222% in India.

Turning to China, the People's Bank of China has just announced that it will produce 67% more gold and silver "Panda" commemorative coins this year - that's 500,000 ounces in 2011 vs. 300,000 in 2010. Likewise, sales of the Perth Mint's one-ounce silver coins rose 65% in the last year, escalating from 6.5 million ounces in the year ending June 30, 2010, to 10.7 million ounces in the year ending June 30, 2011.

Chinese citizens are buying gold and silver as an inflation hedge, since China's official inflation rate is more than double that of the United States. Another Asian giant, Russia, is also turning toward gold. The Central Bank of the Russian Federation recently bought another 200,000 ounces of gold in May alone, bringing the Russian official gold holdings to 26.7 million ounces, worth $40 billion at current prices. That's a doubling of total holdings in the last three years. In early 2008, Russia held only 13 million ounces, valued at around $850 per ounce, so their total holdings have doubled while the net value of those holdings has almost quadrupled since 2008.

Update on Gold-Oriented Legislation in Washington, DC

This month marks the one-year anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Some leading Republicans have called for its repeal, but most other lawmakers are simply ignoring the new law! President Obama has yet to nominate anyone to head the Consumer Financial Protection Bureau, mandated by the Dodd-Frank bill. But that hasn't stopped some unscrupulous coin dealers from improperly scaring customers into selling their gold and silver coins at a sacrificial price before a mythical "drop dead" date, July 15. For instance, one dealer inaccurately said that the law prohibits U.S. residents from "trading over-the-counter precious metals, including gold and silver" after July 15.

That is not true. According to lawyers from ICTA, led by David L. Ganz of the New York law firm Ganz & Hollinger, if you deliver gold and silver products in 28 days or less, this Act should not concern you. While the CFTC wanted the time-limit to be an unrealistic two days, ICTA fought for a standard 28-day window for delivery. Besides, the CFTC regulates certain futures trading, not spot markets, so they have no legal jurisdiction over the rare coin market, especially as long as delivery is completed as contracted with the customer within 28 days. Don't listen to the scare-mongers out there, who want you to sell your coins at sacrificial prices.

This is part of a disturbing trend in the past year, as some shady buyers have persuaded collectors and investors to sell their rare coins under false pretenses. First, they claimed 1099 reporting requirements in the new health care bill could drive down coin prices. That ended on April 14, with President Obama's repeal. Yet customers still tell me that shady buyers use this story to coerce coin-selling at lower prices.

I have been on the ICTA Board for over a decade and am proud to say that our organization has had solid legislative input this past year into these issues that protect coin collectors, investors and dealers. So if someone contacts you with "sky is falling" information on the coin market, be careful. The coin dealer has probably never won an award from the Numismatic Literary Guild or been a contributor to leading price guides. They typically just want to buy your coins on the cheap, even if they claim otherwise. These scare tactics have caused extra coins to come on the market, thus depressing price levels at times. But the "outing" of these unseemly buying tactics and dealers has now helped to bolster the coin market and some prices.

I was honored to receive a first place award from the Southeast Texas Press Club this month for my investigative radio show on lowball hotel coin buyers. The Numismatic Literary Guild similarly recognized my KLVI radio show this past year. I also contribute pricing information to leading price guides like the Redbook and The Insider's Guide to U.S. Coin Values. If you are contacted by anyone to sell your coins, please contact me. I would welcome the opportunity to provide an expert second opinion.

Rare U.S. Gold Coin Imports From Europe Slowing

Rare coin dealers who import rare U.S. gold coins from Europe are finding quality and quantity greatly reduced this summer. For this reason, some dealers are not traveling overseas this summer at all. Look for continued demand and reduced supply for many rare U.S. gold coins to put upward pressure on prices.

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