Metals Market Report Archive

The Mike Fuljenz Metals Market Report

October 2015 – Week 4 Edition

Gold is up $60 so far in October. Some of the reasons include (1) a weaker dollar, (2) a slow-growth economy, which will likely lead the Fed to delay any interest rate increase when they meet this week; (3) unrest in the Middle East; (4) rising demand worldwide, including Wall Street and seasonal buying for jewelry demand in India and elsewhere; (5) More central bank buying in Russia, China and elsewhere. 

Civil War Gold Survives: At Historic U.S. Mint

On the battlefield, the British-made Whitworth rifle was a favorite weapon of Yankee and Confederate sharpshooters during the Civil War.  On the home front, hard money – especially gold coinage – would have enjoyed similar popularity with civilians … if they could have gotten it.  Coins of all kinds virtually vanished from view in both the North and the South because of widespread hoarding during the war.

The Union and Confederacy both issued paper money to keep the wheels of commerce turning and pay their large armies, but almost no one trusted it.   Many remembered hearing the phrase “not worth a Continental” to describe the colonies’ nearly worthless currency during the American Revolution. 

Gold coins were minted during the Civil War, but few found their way into people’s pockets and purses until hostilities ended.  Some turned out to be quite scarce and all are prized today as valuable collectibles.

Recently, we acquired an original collection of popular double eagles - $20 gold pieces - issued during the War Between the States.  Heightening their historical significance all had been stored for many years at the old San Francisco Mint, one of the few major buildings to survive that city’s calamitous earthquake in 1906.  That building, now a museum, is affectionately known as “The Granite Lady” because it withstood the quake and the fires that followed.

This collection contains original double eagles dated between 1862 and 1865, many bearing the coveted “S” mint mark, showing they were made at the San Francisco Mint.  We immediately had them submitted to the respected Professional Coin Grading Service, and Numismatic Guaranty Corporation, which certified their authenticity and grade and sealed them in protective holders displaying their Granite Lady pedigree.  Call us for current price and availability.

Wall Street Continues Their Slow Return to Gold

Through October 20, investors have poured a net $393 million into U.S. precious metals-backed exchange traded funds (ETFs) during October. Bloomberg reported that gold traders are net bullish on gold for the third week in a row. Of the 24 traders surveyed by Bloomberg, 13 hold a bullish outlook on gold. That’s a bare majority – meaning almost half of Wall Street is still skeptical – but after huge gold fund outflows in March, May and July, the gold ETF fund flows have been positive for August, September and October.

Gold demand is also rising in Europe since interest rates there have gone sharply below zero.  Rates have been below zero in Germany since last October.  The rate last week was -0.3%, meaning that a 100 euro deposit falls to 99.7 euros a year later – a guaranteed loss.  In such an environment, gold is very attractive.

Central Banks (Notably Russia and China) are Still Buying Gold

Last Friday, China cut its interest rates for the sixth time this year.  Over the last six months, following a real estate crash and stock market crash in China, the Chinese government has been fueling its economy with more liquidity.  They have sold over $500 billion in foreign exchange holdings, most notably U.S. dollar-based assets, but they have NOT sold any gold.  In fact, they have bought more.

Central banks added 62 tons of gold in July and 47 tons in August, the last month for which global totals are available. China added 50 metric tons of gold to its central bank reserves in the third quarter, at an even pace of at least 15 tons per month, pushing its total gold holdings to 1708 tons, worth $65 billion at today’s prices, but that still represents less than 2% of China’s $3.6 trillion in foreign exchange assets. 

Russia’s central bank bought even more gold than China in September – i.e., 34.2 metric tons vs. 15 tons for China.  That marked the largest single month of gold purchases this year.  Russia has now increased its gold holdings for seven months in a row. Russia’s total gold holdings are 1,353 tons, or $51 billion at today’s prices.  Maybe China and Russia are in a new kind of “arms races,” to see which of the two major Communist powers during the Cold War years can add the most gold to their central bank holdings!

 

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