May 2015 – Week 4 Edition

Gold fell below $1200 Tuesday morning, dropping $40 in the last 10 days – due almost entirely to a rally in the U.S. dollar. The euro fell 4% last week from $1.1445 on May 15 to $1.1012 on May 22, then it fell another 1.2% to $1.0883 on Tuesday morning, for a 5% drop in 10 days. In those 10 days, gold rose by about 2% in euro terms and fell by 3% in U.S. dollar terms. The dollar rally came after Fed Chair Janet Yellen said last Friday that the Fed would probably raise interest rates sometime this year, despite the fact that the economy is weak. This prospect of one small rate increase strengthened the dollar. The fate of the dollar continues to be the main impediment to gold’s next major up move for U.S.-based gold investors

Four Reasons Why We Could see a New Bull Market in Rare Coins in the Next 18 Months

I have been following the coin market since I was a young boy and I can tell you that there have been at least one – and sometimes TWO – significant bull markets in rare coins every decade since the 1960s. By “significant,” I mean gains of 100% to 500% or more within a year or two. I feel the odds are increasingly in our favor for seeing another bull market in 2015 or 2016, based on these four potentially powerful new trends:

#1: Gold’s basic supply and demand fundamentals, both domestically and globally, are improving. On the supply side, many analysts are pointing to 2014 as the year of “peak gold production,” meaning that the annual supply of newly-mined gold will begin to shrink this year. Meanwhile, demand is increasing in such gold-hungry nations as China, India and Russia. Russia bought 1.3 million Troy ounces in the last two months. India is also stepping up gold demand, importing 85 metric tons of gold in April, up 78% from April of 2014. Gold demand in Europe was up 16% in the first quarter. In this scenario of gradual decline in supply and an increase in global demand, gold prices will eventually rise. Then, leveraged hedge funds and other U.S. trend followers will likely get back into gold, pushing gold higher. By using gold ETFs, Wall Street can leverage the price of gold higher. When gold prices finally break out (say, above $1,400) more customers reply to bullion-oriented advertising, which leads many of these new investors into rare coins as a superior long-term investment.

#2: The stock market will probably flatten out or decline slightly. Stocks have set numerous all-time highs in recent weeks, despite decaying fundamentals in such traditional valuation measures as price-to-earnings ratio and price-to-sales ratio. Earnings have been flat, but stock prices have gone up. The economy is weak, with a flat Gross Domestic Product (GDP) last quarter, and a weak current quarter, which many analysts say could turn negative. With super-low interest rates, bonds and bank deposits have failed to return any meaningful income to investors, so millions have turned to the “only game in town,” stocks. There has not been a 10% correction in stocks for over three years now, so a meaningful correction is long overdue. When that begins, investment capital generally flows to safer alternatives, such as gold, silver, commodities and other tangible investments.

#3: The advance of ISIS in the Middle East and other global threats, including Russia’s potential annexation of Ukraine, could cause a flight to safety in those regions and neighboring parts of the world, including most of Asia and Europe. With the U.S. withdrawal from Iraq, the power vacuum is being filled with the most radical political force the region has ever seen. With few real solutions to stop ISIS currently, they may take over Iraq and Syria, with other national dominoes to fall later. Gold’s biggest bull markets (1976-80 and 2003-2008) came during times of escalating violence in the Middle East – first, when Iran took 53 Americans hostage in 1978 and then Russia invaded Afghanistan (1979), followed by another bull market during Gulf War II, from 2003 to 2011. It’s no coincidence that we also enjoyed big gains in the rare coin market during those times of rising Mideast unrest.

#4: The dollar can’t continue to rise against the euro and other currencies. The dollar may have already peaked in mid-March of this year, but even if the dollar rallies for a few more months, it can’t rally for an extended period of time since the dollar is merely the “least weak” of many competing paper currencies. The euro and Japanese yen are currently sinking because their programs of quantitative easing (QE, or money creation), are proceeding at a far faster pace than the U.S. Federal Reverse created money in its various QE programs from 2008 through 2014. The Federal Reserve keeps delaying any increase in short-term interest rates. Since the U.S. and Europe offer no meaningful short-term interest rates to member banks, there is no incentive to hold cash for income, giving gold an “even playing field” against most of the world’s currencies.

Gold has been rising in terms of most global currencies – all except the recently-strong U.S. dollar. Once the dollar falls, or just stops gaining ground to the euro, then gold should begin rising in terms of the dollar, too.

For these and other reasons, I see more money coming back into the coin market. The rare coin market is a very narrow market with a limited supply of available products. Prices and availability are attractive now, but they will not remain attractive forever. Once prices start rising, new supplies often dry up. Wise investors will get on board now.

Rare coins combine the investment virtues of quality and rarity. Our advice is to insist on coins certified by PCGS and NGC. Only buy them from a true expert who knows how to grade and authenticate rare coins and is recognized by his peers with awards and industry leadership positions.  

Financial Experts are Positive on Gold

Every quarter, U.S. hedge funds must declare their holdings 45 days after the close of each quarter. That date fell on May 15 for first-quarter holdings. In those May 15 filings, we learned that billionaire hedge fund managers John Paulson and George Soros both held on to their gold position from January to March. John Paulson held his large (10.23 million share) position in the SPDR Gold Shares ETF for the seventh straight quarter. Meanwhile, George Soros held on to his stake in the Market Vectors Gold Miners ETF.

In addition, Bank of America Merrill Lynch has issued a client note advising their clients to buy gold due to the likely delay in any big increase in interest rates by the Fed. As for the U.S. stock market, Bank of America says “the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns, and flash crashes” resulting in a “cleansing drop in asset prices.”

Steen Jakobsen, chief economist at Saxo Bank in Denmark, sees gold headed to $1,425 to $1,450 due mostly to China’s plans to use its stockpiled U.S. dollars to invest in major infrastructure development. He says this could send interest rates and commodity prices higher, including gold to $1,400 or higher.

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