The Mike Fuljenz Metals Market Report: August 2011, Week 2 EditionGold reached another all-time high last week, before correcting briefly on Thursday, then heading up to another new high over $1,700 per ounce on Monday morning in Asia. Gold futures rose $52 per ounce to $1705 in Asia and to $1709 in New York. Last week, when gold corrected, market pundits were pointing to the U.S. dollar and Treasury bonds as the ultimate "flight to safety," but over the weekend we saw once again that the rest of the world sees gold as its primary source of financial safety. Gold's move is all the more amazing, since silver, platinum and oil are flat or down. This points to gold's unique role as money.
Last Week In Metals: Gold reached another new record high, while the stock market plunged, losing 15% in two weeks. Gold's "Roller Coaster Ride" is more like "Two flights up, one flight down" Gold's recent roller coaster ride was captured in these three consecutive Wall Street Journal headlines:"Central Banks Join Rush to Gold" (Wednesday, August 3): "South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons - more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand also have been major buyers in 2011. This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76 metric ton rise last year, according to the World Gold Council." "Gold Sets Record for Second Day: Investors Seek Safety" (Thursday, August 4): "I think we're going to see $1700," said Adam Klopfenstein, a senior market strategist with MF Global. "Gold is one of the only instruments people feel comfortable buying." Also: "Round numbers are typically areas where the market tends to hang around for a while - but it didn't this time. Once we broke $1600, we didn't look back," said Rob Kurzatkowski, senior commodity analyst with optionsXpress. "It's a scary environment right now," he added. "As long as it stays that way, you're going to continue to see gold move higher." "Even Gold Loses Its Midas Touch" (Friday, August 5): "Gold was rising Thursday morning, benefiting from its safe-haven status .... Then, without warning, bullion started behaving just like another risky asset. The benchmark gold futures contract for August delivery climbed early in the day to as high as $1681.80... then dipping as low as $1640, a swing of more than $40...ending the day 1656.20." That's when pundits piled on gold, saying it's "an asset that gets liquidated in a liquidation environment" (Michael Tiedemann, chief investment officer at Tiedemann Wealth Management). However, it didn't take long for gold to recover strongly over the weekend to pierce another "round number" effortlessly. Gold was $1485 on the July 4 weekend, so gold has broken three such $100 "barriers" in the last 5 weeks. Gold's Strongest Time of Year is Fast Approaching Even though we've seen an unusual mid-summer rally in gold - rising from $1485 on July 1 to $1710 this morning - late August usually begins gold's best season of the year. September has traditionally been the best month for gold on the wholesale level, as jewelers buy raw gold to prepare products for their various holiday seasons. (1) First comes the Muslim holy month of Ramadan, which began earlier than usual this year, in August. Ramadan concludes with generous gift-giving in early September. (2) Then comes India's Diwali, known as "the festival of lights" there, then (3) Christmas in the U.S., and (4) Chinese New Year and (5) Valentine's Day. This is what mutual fund CEO Frank Holmes calls "the love season." The main engine for gold's growth is investor demand in Asia. In India, that demand often takes the form of jewelry. Retail gold purchases have been especially strong in East Asia this year, with tourists from mainland China buying gold in Hong Kong as well as in the government-approved outlets on the mainland. In India, investors are stocking up early to avoid supply shortages and rising prices as happened recently, when gold supplies ran low during May's Akshaya Tritiya holiday. So, even if the financial world miraculously "heals itself" in the next few months, jewelry demand provides a floor for gold. U.S. Treasury Debt Downgraded for First Time since World War I Last April, U.S. Treasury Secretary Timothy Geithner said there was "no chance" that America's AAA credit rating would be downgraded. It looks like he will have to eat his words, since S&P downgraded U.S. Treasury debt to AA+ last Friday. Geithner will have to learn the lesson of avoiding such absolute statements when addressing the press. (He also said that there is "no chance" the U.S. will default on its debt.) Now that the S&P debt downgrade has happened, the Treasury has chosen to nit-pick the S&P over a debatable math error in their report. While the difference in opinion between S&P and Treasury was huge ($2 trillion), it does not negate the analysis behind the downgrade. The S&P has defended their action against the government's appropriate responses and some outright smears from Treasury officials. Over the weekend, Geithner sounded stubborn and a bit unbalanced when he attacked S&P in these intemperate words on NBC: "S&P has shown really terrible judgment and they've handled themselves very poorly... they've shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement." True, the debt ceiling seemed to be "resolved" last week, but the stock market and gold market acted as if there was no solution in sight: Stocks fell 265 points Tuesday, 512 points Thursday and over 300 points this morning, while gold rose. These markets tend to be "truth detectors" to politicians - stocks fall and gold rises when politicians try to bluff the populace, but most politicians blindly keep to their "talking points" while most Americans are sick of their partisan bickering. Both Parties recite talking points, boring us, talking over each other. That leads to market frustration and, eventually, wild volatility. In other news, the Friday jobs report came in better than expected, with a net 154,000 new private sector jobs in July, and increases of 28,000 per month (above previous estimates) for May and June, but the jobless rate stayed stubbornly high, at 9.1%. Texas governor Rick Perry said that we need to see more reliability and efficiency in government regulations if we want to create more jobs. He cited a restaurant chain in California where it takes a year to get permits to build a new restaurant. That firm is now moving their corporate headquarters to Texas, where the same permits can get approved in 60 days. As a result, Texas is gaining jobs at the expense of highly-regulated states like California. When some states are not efficient or reliable in their regulations, companies can move from one state to another. Some regulation is important and necessary, but regulators need to be more responsive to business needs. They should use the free advice of experts in the field they're attempting to regulate, especially when they are not experts themselves in that field. Until they do, we can expect more jobs to come to Texas from other states. Prices for Many Gold Coins Outpaced Gold Bullion in July and Early August Many choice and gem uncirculated $20 Liberty, $10 Indian and $5 Indian gold coins rose in price in July and early August, 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. $2.50 Indians are now beginning to stir and rise as many dealers' inventories have diminished over the last month. Since the larger gold coin denominations dominate the trade from Europe, relatively few $2.50 Indians are imported from abroad to replenish depleted dealer inventories. So far in early August daily price increases for many of these gold coins has been the norm. Buying at current levels may save you money in the future.
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