Metals Market Report Archive

The Mike Fuljenz Metals Market Report

December 2014, Week 1 Edition

Gold surged over $50 on Monday, even though Switzerland decisively rejected their pro-gold initiatives on Sunday. Gold fell to $1168 at the end last Friday – and crude oil fell to $65, down almost 40% from $107 last June. Gold was “oversold” in advance of the Swiss vote. It turns out that the market had already “baked in” the Swiss “no” vote, so when gold rallied, the “shorts” had to cover their positions by buying gold on the way up. The cause of the fall in oil (and many industrial metals) is partly due to a strong dollar, but also due to slower economic growth in China and an oversupply of crude oil from new sources.

Will Gold Go Lower in December, or Close the Year Above $1200?

It’s not given to anyone to know the future, but we can make educated guesses based on the evidence available at the time. In the week of November 3-5, gold reached a 4-1/2-year low of $1132 in New York trading and $1142 at its lowest London pm price fixing. On November 5, the Daily Sentiment Index survey of traders found that only 3% were bullish on gold. This was the mirror image of the 98% bullish gold sentiment among traders back in late August, 2011, right before gold peaked at $1895. According to contrarian theory, such an extreme level of bulls or bears generally signals a major market top or bottom.

Gold rebounded to $1200 in mid-November and then fell to $1160 on November 28 before rallying above $1210 on Monday, December 1. This amounts to a “double bottom” in the $1140 to $1160 range, which is a bullish technical chart pattern. And now we have the Indian wedding season, Christmas, the Chinese New Year and Valentine’s Day to generate some more gold buying in the traditional holiday seasons.

Another bullish element is central bank gold buying, which totaled 335 metric tons through the end of October vs. 324 tons in the same nine months of 2013. The biggest central bank buyer is the Russian Federation, which bought 150 tons so far this year vs. only 78 tons for all of last year. With their oil income down, they need to protect their foreign reserves in the face of a rapidly falling ruble. In addition, The European Central Bank (ECB) plans to grow its balance sheet by perhaps one trillion euro ($1.25 trillion), and gold could be a part of their plan. The Chinese don’t report their central bank purchases, but we know that the gold withdrawals from the Shanghai Gold Exchange reached 1761 metric tons by mid-November and have averaged 50 tons per week lately, so the annual total could exceed 2000 tons.

At the same time, gold supply from recycling has fallen to a 7-year low through the first nine months of 2014. With mines closing down, demand up and recycling down, gold’s fundamentals are improving.

Gold has already been going up strongly in euro terms, so one popular strategy these days is to trade strong dollars for euros and then buy gold in euro terms. For years, newsletter writer Dennis Gartman has been advocating the purchase of gold in euros or Japanese yen, saying “gold in yen and euro terms are moving from the lower left to the upper right on the chart, and that will continue.” But the key for most investors is not to guess about gold’s price or currency trends but to keep accumulating gold and silver-based investments at these bargain prices – and then accumulate more if gold prices stay low or go lower.

Louis E. Eliasberg – The King of Gold Coins

Louis E. Eliasberg Sr. came to be known as “The King of Coins” after he accomplished a feat many thought to be impossible: Over a period of less than two decades, from 1934 to 1950, Eliasberg assembled the only complete collection of U.S. coins – the only one that contained regular-issue coins of every denomination from every date they were issued and every mint that made them in those years. News of this achievement not only electrified fellow hobbyists, but also impressed the entire nation. It was considered so significant that Life magazine, then required reading for millions of Americans, featured Eliasberg and his coins in a lavish photo layout. Yet, this “King of Coins” didn’t have kingly wealth. He lived comfortably on his income as a Baltimore banker, but his budget for buying coins was not unlimited. Nor was he known as a big spender: Dealer who did business with him found him to be a cautious buyer who took out his checkbook only after careful deliberation. Eliasberg wasn’t even a hobbyist when he started buying coins: He did so as a way to circumvent the Gold Surrender Order of 1933, which required U.S. citizens to turn in their gold coins, but exempted collectible coins. “I realized the only way I could legally acquire gold was by becoming a numismatist,” he explained years later. “So in 1934, to the extent of my means, I started buying gold coins.”

Soon bitten by the hobby bug, he started buying other coins as well, and within a few years he had built a respectable collection. Then, in 1942, came a marvelous opportunity: He was able to purchase outright the outstanding collection of John H. Clapp – in the process acquiring many rare coins he didn’t already possess. That’s when he began thinking seriously of pursuing the impossible dream: a U.S. coin collection with “one of everything.” He prepared a list of coins he lacked and started tracking them down in auctions and dealers’ inventories. “Eliasberg struck me as a gentleman,” one prominent numismatist later recalled. “He was tall, aristocratic, a genius at finance, but he didn’t know very much about coins… He knew more about making money.” His success at making money has become the stuff of legends in the coin collecting community. During the decade and a half it took him to complete his collection, Eliasberg spent less than $400,000. When the collection was sold, at a series of auctions between 1982 and 2005, it realized a grand total of roughly $55 million – more than 100 times what he had paid.

The gold coins he started buying in 1934 not only turned Eliasberg from a numismatic novice into a great collector, but also ended up confirming his status as a very successful investor. In short, even if he had never begun pursuing the seemingly impossible dream of collecting “one of everything,” Eliasberg would have made millions just through his decision to buy gold coins as collectibles.


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