The Mike Fuljenz Metals Market Report: August 2011, Week 1 EditionJuly closed with a new intra-day record in Gold, at $1637.50. Gold fell Sunday night, due to the last-minute budget deal in Washington, but the small print of that deal is so disappointing that gold recovered very quickly to start August on a small uptick. July was a great month for gold, even though summer is usually a weak time of the year for gold. Due mostly to the budget chaos in Washington, DC, the S&P and Dow each fell about 2.2% in July, while gold rose 8.5% and silver rose even more, up 13.2% in July. Gold also hit new all-time highs in terms of the euro, British pound, Canadian dollar and Indian rupee.
Last Week In Metals: Gold hit a new all-time high at $1637.50, while stocks fell 4%, due to the chaos in Washington, DC. What Kind of a Budget Deal is this?! Virtually No Spending Cuts Before 2013?! On Monday morning in Asia, most stocks soared and gold fell, due to the last-minute budget deal in Washington, DC, but in the light of day the reverse happened - stocks fell and gold rallied. That's because there are relatively few budget cuts in the next year! Congress keeps talking about a "10-year plan," in which most cuts are scheduled to fall 5-10 years from now, not this year or next. In fact, only a few minor (cosmetic) cuts are scheduled for 2011 and 2012, with nearly all important cuts coming after the 2012 elections. Therefore, if we elect a free-spending Congress and President in 2012, all bets are off. These anemic budget cuts will likely not prevent S&P and/or Moody's from downgrading U.S. sovereign debt from AAA to AA within the coming year. This will have a tremendously negative effect on U.S. Treasury interest rates and the cost of financing our deficit. Meanwhile, Greece has suffered another downgrade to the smelliest "junk" category. Last week, Moody's cut Greece's credit rating another three notches from Caa1 to Ca, which is one notch above "C" (Moody's' lowest grade). It looks like we can all breathe easier now, knowing that Greece's debts can never again be downgraded by more than one notch! Meanwhile, the U.S. Gross Domestic Product (GDP) came in at an anemic 1.3% for the second quarter, while the first-quarter growth rate was revised from 1.9% down to 0.4%. This means the net annualized gain in the first half of the year was only 0.85%, well below "stall speed" and dangerously close to a double-dip recession. With the jobless rate still above 9%, the economy simply refuses to recover. This implies another round of "quantitative easing" (printing-press money), which will boost gold once again. Gold Demand is Rising during these Crisis Times Today's issue of Barron's (Commodities Corner: "Don't Bet on a Plunge in Gold") talks about a global surge in gold demand: "Chinese investors are buying gold to hedge against red-hot food prices. For Germans, it's a shield from Europe's debt crisis, and in the U.S. many have hoarded gold to offset the erosive impact of a slow-growing economy and two rounds of monetary easing, which many fear will debase the dollar...Even emerging-market buyers, who are typically more price-sensitive than their wealthier Western counterparts, remain committed to buying more gold. Chinese buyers are stocking up on gold jewelry, coins and bars at such a fast clip they've outpaced India as the world's top gold buyer." Central banks are also buying gold. The latest central bank to report a major gold purchase is Russia, which announced a 6.2-ton rise in its official gold holdings during June. In the west, the two largest ETFs for precious metals (SPDR gold and iShare silver) have outpaced central bank purchases, especially in the last two weeks. Those funds have added 36.3 tons of gold and 316.7 tons of silver, respectively, to meet that added demand. (That's nearly $2 billion in gold demand and over $400 million in silver in late July.) Gold demand is also soaring in China and elsewhere in Asia. China has already launched two new gold ETFs, and a Reuters report from Singapore says that "gold fever is gripping Asian investors and could spread to central banks as global growth uncertainties tarnish the appeal of other assets, putting bullion on course for more gains but also provoking fears about supply." (China and India accounted for 57% of global consumer demand for gold in the first quarter of this year, according to the World Gold Council.) With gold rising to over $1600 per ounce and the people of China still emerging from decades of poverty, the People's Bank of China (PBC) has tripled its sales targets (from 200,000 to 600,000 ounces) for the more affordable fractional gold Panda coins (including half-ounce, quarter-ounce, 1/10 ounce, and 1/20 ounce gold coins). The full-ounce Panda sales goal is up from 300,000 last year to 500,000 ounces this year. In all, PBC is pushing for a huge 110% increase from 500,000 ounces last year to 1.1 million this year. Considering the rise in gold's price over the last year, this is a near-tripling in volume (by cost). Demand in India is also growing. UBS, the Swiss multi-national bank, reported that gold sales in India are up 23% in the first half of 2011, with the biggest surge in May (when gold corrected below $1500 per ounce). Gold sales in May were 76% higher than in April and 161% higher than in May of 2010. India remains very price-sensitive during seasons of low demand, but buyers are not quite so sensitive during the annual festival season, beginning in August. That's when people buy new jewelry for display or gifts. Gold's current bull market has more staying power than the 1976-1980 rise, when most of Asia was poor or Communist, or both. Americans provided most of the juice for the 1979-80 rush from $300 to $850 an ounce, but now the newly-capitalist "Communist China" and the formerly-Socialist India are growing a huge new middle class, which is hungry for the only real wealth available in this world, gold and silver! Some New (or Revised) Gold and Silver Price Projections Will we see $2,000 gold by year's end? Before then gold will certainly have ups and downs! Some experts believe 2k is in the cards, if not by December then certainly within 12 months. Here are a few recent gold price projections, as compiled by Casey Research: Empire Economics chief economist Clifford Bennett said that he expects gold to come "close to $2,000" an ounce this year and $2,200 an ounce within 18 months. "There is risk in the second half of [2011] of a bit of a ‘panic spike,' if you like, as everyone thinks there isn't enough to go around and starts to hoard. That's when you'll really see gold take off towards $2,000 an ounce." Mike Frawley of Newedge USA predicts $1,800 gold and $70 silver by year-end 2011, due to investors seeking a haven and physical demand from Asia. "Gold is an excellent hedge in troubled times," he said. "Demand will be very strong long-term from Asia, and the economic trend in the West is improving." FX Concepts founder John Taylor predicted that "Gold will climb to $1,900 by October." And finally, the mainstream banks weigh in! Citigroup Global Markets reported that silver may more than double to $100 an ounce if the current bull market follows similar patterns seen between 1971 and 1980. "If the final rally in the last bull market is repeated, then we can expect $100 over the long term." Prices for Many Gold Coins Outpaced Gold Bullion in July Many $20 Liberty, $10 Indian and $5 Indian gold coins rose in price in July, even outpacing gold bullion gains. Contributing to the rise were increased demand and diminished supply in the U.S. and Europe. Dealers reported that their inventories of many of these gold coins are much lower at the end of July than at the beginning of last month. With the highly active fall months approaching, look for prices for many gold coins to continue to rise. $2 ½ Indians are now beginning to stir as many dealers' inventories have diminished over the last month. Since the larger gold coin denominations dominate the trade from Europe, relatively few $2 ½ Indians are imported from abroad to replenish depleted dealer inventories.
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