Michael Fuljenz's Metals Market Report: July 18, 2011

Gold reached a new high of $1595 last Thursday and then surpassed $1608 Monday morning. Gold has now risen for 11 trading days in a row, something gold has not done since its previous bull market peak in January, 1980. Gold began July at $1,482.60 (spot), so it is up about $125 (+8.4%) in the first 18 days of July. So much for the traditional "summer doldrums" for gold! The main cause of this sharp rise in gold is the continuing financial crisis in Europe (Greece, Ireland, Portugal, etc) and America's budget crisis.

Sports note: Nearly everyone in Japan was up very early Monday morning to watch and celebrate their women's World Cup victory. Then, they turned their celebration toward the gold market. During Monday morning in Asia, spot gold first traded over $1600 in Singapore, then rose across the planet.

• Gold 52 weeks ago (July 19, 2010): $1181
• Gold's average price during 2011: $1452.61
• Gold's London Low for 2011: $1316 on January 28
• Gold's London High for 2011: $1605 on July 18

Last Week In Metals: Gold hit a new high over $1600 and silver rose even faster, surpassing $40, while stocks fell sharply.

Is Gold Money? Let the People Decide

Gold surged to $1595 a day after Federal Reserve Chairman Ben Bernanke told Rep. Ron Paul, in official Congressional testimony, that gold was NOT money. The market apparently voted the other way. Mr. Bernanke gave two consecutive one-word answers, which is very rare for any economist, particularly Mr. Bernanke. As the transcript on You Tube shows, gold is a subject that Bernanke clearly wishes to avoid.

Ron Paul: Is Gold Money?

Ben Bernanke: No

Paul: Then why do central banks hold gold and not, say, diamonds?

Bernanke: Tradition

Ben Bernanke was forced to say that gold is not money, in public. If he had said gold is money, there could have been a panic run on U.S. gold, which was uncoupled from the dollar on August 15, 1971 (40 years ago next month). Since then, the dollar is down 98% in gold terms: $35 vs. $1605 per ounce.

Now, some governments are returning somewhat to gold: Utah recently established gold as legal tender. Montana, Missouri, Colorado, Idaho and Indiana are considering doing the same thing. We probably will not have an official nationwide gold standard in the U.S. any time soon, but we don't really need government approval to vote for gold. The people are creating a voluntary gold exchange standard by exchanging their paper dollars for gold (The University of Texas and the Teacher Retirement System of Texas are two big gold buyers).

Switzerland is another case in point. The Swiss hold the most per capita government gold of any nation on earth, because gold was always a part of their tradition. Switzerland's national gold reserves amount to $6,000 per person, vs. less than $1,000 per person in the United States. Also, the head of the World Bank, Robert Zoellick, has already said it was time to "consider employing gold as an international reference point." With both the U.S. dollar and the euro in serious jeopardy now, gold is an alternative currency for Europeans, Asians, Americans and everyone else. That is the real reason why gold keeps rising in price.

Will the Federal Reserve Start Another Round of "Quantitative Easing"?

The amount of new liquidity added to the system by the Federal Reserve in the last three years has been phenomenal. We are truly in uncharted waters. Federal deficits jumped from $250 billion a year in 2007 to over $1,500 billion ($1.5 trillion) in 2010. The Fed doubled its balance sheet in three months, while keeping interest rates effectively zero. And now, just two weeks after the end of Quantitative Easing round 2 (QE-2), the Fed Chairman is already starting to talk about the next round of printing press money, or QE-3.

In the same testimony in which he said gold is not money, Bernanke also said "the possibility remains that the recent economic weakness may prove more persistent than expected, and that deflationary risks might re-emerge, implying a need for additional policy support." He then said that "we have a number of ways in which we could act to ease financial conditions further." When a Congressman asked if that meant that the Fed could engage in a third round of quantitative easing, Bernanke clearly said "yes."

Gold Price Projections: $1,650 soon, $2,000 next; $10,000 eventually

As often happens when gold reaches a new high, analysts revisit their charts and predict gold's next move.

Natalie Robertson, a commodities analyst at ANZ, expects gold to reach $1,650 per ounce in the short term, based on "political uncertainties in the United States and Europe" causing "safe haven demand."

Richard Russell, longtime editor of the Dow Theory Letters said "the base is now technically strong to support a rise in gold to $1,760 ... to a new high - with no overhead resistance above it."

Ben Davies, CEO of London-based Hinde Capital, sees $2,000 gold within four months, citing the recent rush toward gold: "People are beginning to realize that [gold] is the currency of first resort."

Shayne McGuire, manager of the $500 million GBO Gold Fund of the Teacher Retirement System of Texas, predicted that gold could reach $10,000, since "present financial conditions are about to transform the investment strategies of the world's largest investment funds in a way that will cause gold to surge ..."

10 Reasons Why Rare Gold Coins Are Heating Up!

1. Dealers are currently not able to buy gold coins efficiently in Europe.
2. Europeans are less willing to sell their gold coins due to economic turmoil.
3. United States customers are not selling as many gold coins to dealers as in previous months. Many would rather hold than sell.
4. Dealers across the country report increases in sales.
5. Many dealer inventories are at historically low levels.
6. Advertising by dealers is up in all media. It seems like every day I see gold ads on TV or in magazines.
7. Ad response from new customers is up in many cases.
8. Many old customers are interested in buying gold coins again.
9. Gold breaking all-time records and passing $1,600 creates lots of good gold publicity and public interest.
10. Many gold coin prices are starting to rise, creating an urgency to buy before they go higher.

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