Metals Market Report Archive

The Mike Fuljenz Metals Market Report

August 2015 – Week 1 Edition

Gold reached a 5-1/2 year low on the London morning gold setting last Friday, July 31, at $1080.05 per ounce.  However, the afternoon setting was $18.35 higher (+1.7%), at $1098.40.  In New York, gold rose from $1080 at 8:00am Friday to $1102 at 9:30 before consolidating at $1095 over the weekend. The last time gold closed below $1080 in London was February 12, 2010. However, most of July’s sharp decline was due to a strong U.S. dollar and a general run on all major commodities, due to a credit crisis in China.

Historically, August is the Start of Gold’s Best Four Months of the Year

Historically, June and July have been negative for gold, but the month of August begins the best four calendar months for gold in history. From 2001 to 2011, gold’s best months were (1) November, (2) September and (3) August, and the best four-month total gains came from August through November.

In addition, gold also has managed to maintain a six-year August winning streak. Some of gold’s best monthly gains of the last five years have come in August.  For instance, in August of 2011, gold gained $185. In August of 2013, gold gained $80, and in August of 2010, gold gained $77.

The reason gold tends to rise from August to November is that jewelry fabricators must order their supply of gold bullion to fashion into jewelry for the major world holiday seasons, many of which are tied to gold gift-giving.  These holidays include Ramadan in Muslim lands, the Diwali season in India, then Christmas in the West, the Chinese New Year (in late January or early February) and Valentine’s Day.

Each of these holidays increases jewelry or bullion demand, especially in India and China, the top two nations for gold demand, both of which are nurturing a large and growing middle class – hundreds of millions of people who have been yearning to buy gold their whole lives, and can now finally afford it! 

Gold Isn’t as “Hopeless” as the Press Seems to Think

Everywhere you look these days, the press is piling on gold – even though gold is rising in terms of many other (non-dollar) currencies and gold is one of the better-performing commodities in an otherwise dismal commodity market.  The press seems to treat “gold bugs” like children who aren’t getting their way, so the press tends to “rub it in” when gold goes down.  Here is a typical Monday morning headline on gold:

Why gold has lost its shine for investors: Metal has not reacted to events that would usually push up price” (by Mohamed El-Erian, chief economic adviser to Allianz, Financial Times, Monday, August 3)

These (and similar) articles invariably fail to point out that gold is doing well in other currencies or that gold is falling less than many other commodities.  There was a general collapse of commodities in July and gold was caught up in that decline, but gold fell less than the average commodity in July. 

The most widely-quoted commodity index, the Thomson Reuters/Jeffries CRB Index, consists of 19 commodities. The CRB fell by 10.5% in July, with only one commodity (orange juice) rising.  By comparison, gold fell 6.73% and silver fell 5.01% (less than half of the average decline of the index).

The commodity price plunge stems from fears that China is slowing down.  Since China is the #1 or #2 consumer of most industrial commodities and gold, traders sold off all commodities in a rush for the exits.  This has nothing to do with gold’s fundamentals.  The press misses this connection when they write about gold “failing to rise on bad news” or “falling despite record currency creation by central banks.”  They shouldn’t single out gold when the rising U.S. dollar and falling commodity prices make up the real story.

Wall Street Bails out of “Paper Gold” ETFs

Bloomberg reported that the biggest gold exchange traded fund (ETF), SPDR Gold Shares, unloaded 38.74 tonnes (metric tons) of gold in July to end the month with 672.7 tonnes in storage, the lowest level since March of 2008.  July turned out to be “the worst month of investor ETF redemptions this year since December 2014, when GLD reserves fell by almost 45 tonnes.”  Investor gold flows are now down 69.54 tonnes for the year-to-date as paper-gold investors unload their gold holdings on the recent price declines.

On the Commodity Exchange (COMEX), the same trend is evident among short-sellers of gold futures.  Short-selling (i.e., selling contracts you don’t own but borrow) increased by 1,064 contracts in the week ending July 28, bringing the total short-selling position to 120,917 contracts.  If you subtract the “longs” (bulls), the gold market is in a net short position of 14,633 contracts (one contract is 100 Troy ounces).  This represents the biggest short gold position since the statistical series began to be reported in 2006.

By a similar token, the silver futures market is now net short by 12,995 contracts (a contract is 5,000 Troy ounces.) This is a contrarian signal.  When too many traders occupy the short side of the trade, there are few buyers left, so buyers have an advantage when the short-sellers must “cover their shorts” on a rally.

The Value of Money

There’s a new “must see” in Washington, DC for anyone interested in coins, currency or the history of money.  The Smithsonian’s National Museum of American History has a new Gallery of Numismatics, and my wife, Karen, and I were invited guests at the recent inaugural exhibition of its remarkable display, “The Value of Money.”

The museum’s space designated for coin exhibits now has been enlarged from 300 square feet to an impressive 1,000 square feet.  You enter the exhibit area through a replica of a huge – and heavy!! – vault door.  Inside, there are more than 400 eye-opening objects from the National Numismatic Collection on display. Among the many highlights are a 1933 Double Eagle; a personal check signed in 1813 by President James Madison; and a Series 1934 $100,000 denomination note.  Among the items showing the long history of money are an ancient silver Decadrachm from Syracuse Sicily dating back to 465 B.C. and a Ming Dynasty note from 14th century China. 

During a reception at the exhibition I had the opportunity to talk with U.S. Treasurer Rosie Rios.  Her “autograph” is in your pocket, purse or wallet; her facsimile signature has appeared on our paper money since 2010.  I also met with long-time friend and former Louisiana Congressman Jimmy Hayes.  He’s a coin collector and an important friend to the numismatic hobby and profession when he was in the U.S. House and now as a consultant and lobbyist.  There also were meetings with Smithsonian executives and with Kathy McFadden, Executive Director of ICTA, the Industry Council For Tangible Assets.  ICTA is a crucially important organization that fights daily nationwide to protect your best interests in the buying and selling of rare coins and precious metals. I’ve been on ICTA’s Board of Directors for more than 20 years. 

It was a memorable day of money and movers ‘n’ shakers in Washington!

 

 

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