May 2015 – Week 3 Edition

Gold rose $40 last week, its best week since last January.  Silver rose even faster.  The biggest rise came last Wednesday morning after weak U.S. retail sales figures were released.  Gold rose over $20 in four hours Wednesday morning and then rose another $10 late Friday and another $5 on Monday to reach its highest level since February.  

Gold Demand is Rising Strongest in Germany (+20%) and India (+15%)

Last Thursday, the day after gold’s strong upward move, the World Gold Council (WGC) published its widely-followed quarterly report on “Gold Demand Trends.”  The headline number was discouraging – overall demand declined 1% in the quarter, resulting in gold’s small price drop last quarter – but overall “investment demand” grew by 4%.  The biggest increases came from Germany (+20%) and India (+15%).

Due in part to a declining euro and fears about what will happen if Greece is kicked out of the euro-zone, investors in Germany bought 32.2 metric tons of gold last quarter, amounting to 20% more gold coins and bars in the first quarter of 2015 than they bought in the first quarter of 2014.  Beyond Germany, total demand for gold bars and coins rose 16% in Europe during the first quarter. Germany is the biggest and strongest economy in the euro-zone, and they also have a historic fear of inflation.  Even though Europe is struggling with deflation now, the head of the European Central Bank (ECB), Mario Draghi, said last week that the ECB will keep printing new money as part of its stimulus efforts for “as long as needed.”

India’s 15% growth in gold demand last quarter was mostly due to the ongoing reform in their import restrictions on gold. The WGC report examined this trend and predicted that India’s gold demand will continue to rise 15% to reach nearly 1000 tons for the full year, vs. just 842.7 tons in 2014.  India’s new leader, Narendra Modi, is being positioned as a free-market “Ronald Reagan of India.”  Let’s hope so.

There was also a wild card in U.S. demand last quarter. Specifically, U.S. gold jewelry demand increased by almost one metric ton (i.e., 32,150 Troy ounces), the third consecutive increase in first-quarter jewelry demand.  U.S. gold jewelry demand has now increased (year-over-year) in eight of the past 10 quarters.

For the full year, the WGC sees total gold demand rising to between 4200 and 4300 tons, up from 3924 tons in 2014.  The WGC also reported that central bank gold purchases reached 119.4 tons in the first quarter, the 17^th consecutive quarter of net central bank purchases.  The biggest single purchase last quarter came from Russia, which bought 31 tons in March after buying no gold in January and February.

Gold is Finally Rising in Terms of All Three Major Currencies

The dollar peaked in mid-March when one euro cost just $1.05.  Today, the euro trades around $1.14.  Still, the rise of the dollar in the last 12 months remains dramatic.  In May of 2014, the euro peaked at $1.39, so the euro is down 12% to the dollar in the last 12 months.  This means that the price of gold performed about 20% better in euro terms than in dollar terms over the last year.  (In the last 12 months, gold is down about 6% in dollar terms, but it is up 14% in euro terms.)    In addition, the world’s third most traded currency, the Japanese yen, has also dropped to the dollar, lifting gold 9% in yen terms:

Since the dollar’s peak in mid-March, the price of gold has risen from $1142 to $1228 (+7.5%).  Last week, we saw the beginning of a gold recovery in all three major currencies. If the dollar keeps falling to the euro, as it has done since mid-March, gold’s recovery should continue.

Louisiana-Lafayette Fans Sing Spontaneous National Anthem

I’m a graduate of Louisiana-Lafayette, the Ragin’ Cajuns.  I was especially proud that local fans sang the National Anthem spontaneously last Sunday night prior to a softball game against Baylor when they were told that there would be no National Anthem before the game.  The story and cellphone video footage have spread rapidly through Twitter and Facebook accounts.  Officials thought that since the anthem had been sung before the first tournament game of the day, which didn’t involve the Cajuns, it wasn’t necessary to sing it again.  The fans vociferously disagreed.

The stadium announcer said there was no need for fans to stand up and take their hats off, but the crowd had already begun to rise and sing the anthem.  As it turned out, the local team evidently was inspired by the fans: the Cajuns beat the Baylor Bears and moved on to the next round of the NCAA Championship Super Regionals against Auburn.  Cajun Softball Coach Michael Lotief said that hearing the spontaneous anthem gave him “goosebumps,” adding that singing the National Anthem before the game started was “the right thing to do.”  I totally agree – and my hat’s off, too, to the great fans who displayed their patriotic spirit in this very public, truly meaningful way.

The National Motto on our money, “In God We Trust,” was inspired by our National Anthem.  The whole fascinating story is told in detail in my new book, Type Three Double Eagles 1877-1907, Second Edition, which is available from us.

Rare Gold Coin Performance Charts

For decades, I have liked better-date rare gold coins. I even wrote multiple NLG award-winning books about them. Currently I believe it is a historically opportune time to acquire select better-date gold coins in better grades. The percentage movements shown in the charts below are based on the prices I paid for these coins on the dates indicated. Some coins are trending upward and others seem to be at bargain levels to many experts. Segments of this market now remind me of the old oil filter commercial that said “You can pay me now or pay me a lot more later.”

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