Metals Market Report Archive
Metals Market Report 11-11-2014

The Mike Fuljenz Metals Market Report

November 2014, Week 2 Edition

Gold dipped below $1140 last Wednesday, after the Republicans gained ground in Congress, and then gold fell to an early Friday low of $1131.85 on the jobs report, but then gold traders had some “second thoughts” about the future of the dollar, debts and interest rates. Gold rose over $40 later on Friday to close the week at $1172, its highest closing price since October 30. Alas, on Monday, November 10, gold fell to $1150. Silver touched $15 per ounce early on Friday but rebounded to $15.60 Monday.

The Cure for Gold’s Low Price is … Gold’s Low Price

With gold below $1200, many gold mining operations will have to close down. If gold drops to $1100 for an extended time, even more mines will close. This will limit the new supply of gold. With demand staying the same or rising, that means the gold price will rise, so the ultimate solution to gold’s low price is gold’s currently low price. Many mining companies will disappear. Those that survive will likely cut production. Analysts at Citigroup calculate that about 75% of gold mining companies lose money at any gold price below $1200 per ounce on an “all in” costs basis, including mining and administrative costs.

Even though gold bullion is down slightly in price this year, gold mining shares are at decade-long lows. Standard & Poor’s TSX Global Gold Sector Index (containing about 40 gold mining stocks) is at its lowest level since 2001. Gold is up four-fold since 2001, but gold mining stocks are at 12-year lows.

U.S. American Eagle Silver Coins Now “Sold Out”

Last week, we wrote about the strong sales of American Eagle gold and silver coins at the U.S. Mint in September and October. Last week, the silver coins “sold out.” Last Wednesday, November 5, the Mint told authorized coin dealers that “due to the tremendous demand we have experienced in the last several weeks, the U.S. Mint has temporarily sold out of its American Eagle Silver Bullion Coins. We … will advise you when additional inventory will be available for sale.” The Mint plans to strike 2014 coins through the end of the year and begin selling them again.

Chris Carkner, a managing director at the Royal Canadian Mint said “demand for our products has picked up significantly, and supply continues to be allocated to our global network of distributors. We currently continue to produce and take orders for 2014 coins with no anticipated stoppage in shipments.”

German coin retailers were overwhelmed by the sudden flood of demand. Last week, people were lined up waiting to buy silver. “On Thursday and Friday people had to draw numbers in order for us to control the run”, reports Andreas Heubach, CEO of Heubach Edelmetalle in Nuremberg. “On both days we sold each around 40,000 silver ounces – incredible”, he said. “Demand is back – and hysteria as well,” he evaluated.

“The run is tremendous, even today on a Saturday,” Christian Brenner, CEO of Philoro Edelmetalle GmbH in Leipzig and Berlin said. Incredibly, even with high demand in September, demand has already increased by 100% in the stores and online buying has exploded by 300%.

Even though the price of silver is down, due mainly to the leveraged futures traders in New York, there is greater-than-ever demand for physical silver coins, which should help provide a floor for the price of silver and energize many new and experienced coin buyers.

Gold Demand in India and China is also Higher

Some news reports blame the recent decline in gold on lower demand in China and India, but that always depends on the writer’s point of reference. Down from what? Compared to what? Gold fever in India and China never went away. They were temporarily depressed by government regulations. Gold imports to India dropped due to the stiff 10% import duty and other restrictions on gold imports. The smugglers made up some of the difference and the gold market continued to thrive. Now, the Indian government is relaxing tariffs and duties ever so slightly. According to the latest trade figures, Indian gold imports in October rose 16% over September, surpassing 24 tonnes, worth over $900 million. The All India Gems & Jewelry Trade Federation predicts that fourth-quarter gold imports will rise 75% over the third quarter, partly due to wedding season, when gold is a popular wedding gift and gold adorns bridal trousseaus.

Combined, China and India continue to account for more than half of the world’s gold consumption. While China’s consumption may be down year-over-year (we don’t have completely reliable demand statistics from the secretive government in Beijing), China’s gold imports from Hong Kong were 61.7 metric tons in September, the highest import totals since last April. Also in September, the World Gold Council forecast a 20% rise in Chinese gold demand in the next three years.


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