The Michael Fuljenz Metals Market Report: October 2011, Week 2 Edition

Gold and silver soared on the Monday opening, gold rising $33 (+2%) to $1672 and silver up $1 (+3%), to $32.30. Even platinum managed to recover nearly 2% to $1525. The majority of the gains came from the 1.7% decline of the dollar, which is mainly due to the euro rally after France and Germany pledged to do "all things necessary" to support Europe's troubled banks! (When have we heard that promise before? - Europe has been issuing such promises for two years now!)

• Gold 52 weeks ago (October 11, 2010): $1351.50
• Gold's average price during 2011: $1536.47
• Gold's London Low for 2011: $1316.00 on January 28
• Gold's London High for 2011: $1896.50 on September 5

Last Week In Metals: Gold dipped, then recovered to close up for the week, while silver had an even better week, up 4.3%.

Gold and Silver "Fever" are Returning: Especially in Asia and Europe

We have 5,000 years of "Gold fever" in our DNA. This DNA is particularly strong in Asia and Europe. Every time our political leaders start printing money (or clipping coins), gold and silver come back in style. Gold rose over $40 per ounce at one point Monday morning, reaching $1676 per ounce, and silver did even better. Monday morning, ETF Securities (the people who sponsor the exchange-traded funds, or ETFs) said that the net inflow into its physical silver exchange-traded fund reached its highest levels in 18 weeks (i.e. since early June). That's because silver fell so much farther than gold in the recent correction. At its peak $49 price last April, one ounce of gold bought only 32 ounces of silver. Now the ratio is 52-to-1.

After gold's recent price correction, we speculated here that a cheaper gold price would re-kindle demand in China and price-sensitive India. This morning, Ross Norman, CEO of London-based bullion broker Sharps Pixley, said that "Demand in China has been especially strong, with bars selling at more than a $3 premium over London prices." He added that "physical sales in China for Golden Week are 50% higher than levels seen a year ago, when gold was over $300 per ounce cheaper." The fall of the euro also boosted sales in Europe. Norman cited "particularly buoyant physical demand among retail investors" in Europe. He says the mood among buyers is "quietly positive." Translation: Gold fever is back!

Asian Bankers Tell Rich Clients to Buy Gold

Private bankers in Asia are advising their clients this week to buy gold following the sharp correction in recent weeks, according to a Reuters report by Kevin Lim.

"Gold at $2,000 is absolutely, potentially on the uptrack, despite the selloff. That is sort of the immediate target," said Marcel Kreis, Credit Suisse's head of private banking for Asia-Pacific, at the Reuters Wealth Management Summit in Singapore. Kreis noted that $2,000 is his bank's 12-month target for gold.

"It's your insurance policy if all hell breaks loose," said Tan Su Shan, head of wealth management at DBS Group, Southeast Asia's biggest lender by assets. "We did advise caution closer to $1,900 ... but I guess around $1,600 and below would be time to start looking to going back into gold again."

Bank Failures Continue - Two per Week in the United States

Last Friday, October 7, two more U.S. banks failed: Sun Security Bank of Ellington, Missouri (with $290 million on deposit), and RiverBank of Wyoming, Minnesota (with $375 million on deposit) both failed and were taken over by the FDIC, which continues to back those deposits with taxpayer money and bank fees - until the money runs out or is re-printed! We've seen a slowing down of the bank failure pace this year, but it still amounts to two banks per week (26 in the last quarter, from July 1 to September 30). By failing at a slower rate, bank failures don't make headlines, but it amounts to a steady "drip, drip, drip."

The bigger problem is that the largest U.S. banks (like Citigroup and Bank of America) have become giant "Zombie banks." Over the last decade they have accumulated a stuffed closet full of bad assets. For instance, Bank of America paid good money to acquire sick companies like Countrywide Credit and Merrill Lynch. They also hold massive billions of dollars worth of bad mortgage money. The American Bankers Association (ABA) announced that delinquency rates for consumer loans rose in the second quarter to 2.88% of all accounts, up from 2.71% in the first quarter. Yet these big banks are deemed to be "to big to fail," so the Federal Reserve and Congress continue to try to soften the debt load on big banks.

Europe is Solving its Bank Crisis the Old-Fashioned Way - Printing More Money!

The euro and European stocks rallied on news that Germany's Angela Merkel France's Nicolas Sarkozy issued a statement that they will do everything necessary to rescue troubled European banks, but they did not specify the details, only the carrot of a "new plan" to be revealed in three weeks. This is the same old game of "kicking the can down the road," popularized by the U.S. Congress and President Obama in the last few months: "Let's launch a new study on how to cut spending" (like the other 101 studies before it).

This new promise of yet another "new plan" resulted from credit downgrades of European banks last week. On Tuesday, Moody's downgraded Italy's sovereign debt for the second time and issued a "negative outlook" on Italy. (That's a code phrase for "more downgrades are likely" if they don't clean up their act.) Then, on Friday, Fitch Ratings downgraded the sovereign debt of both Italy and Spain and maintained its "negative outlook" for both. In between, on Thursday, the European Central Bank (ECB) announced a 40 billion euro ($54 billion) program to buy bank bonds in an attempt to rescue euro-banks.

The situation is also bad in England, which is not part of the euro-zone. England is responding the old-fashioned way - printing money. Last Thursday, the Bank of England announced that it would add 75 billion pounds ($115 billion) to reach 275 billion pounds ($425 billion) of what is called "quantitative easing" (QE), but which is really more money. Last week, Moody's downgraded several major British banks, including the Royal Bank of Scotland. In response, the head of the Bank of England, Mervyn King, hit the "panic button" by saying that the current European banking crisis is "the most serious financial crisis since the 1930s, if not ever!" That certainly didn't calm the European markets! This boils down to printing more money - in Europe and America - and that means that gold should resume trending higher over the long term in terms of both the U.S. dollar and euro.

NGC President Visits Mike Fuljenz in Beaumont, Texas

Rick Montgomery, President of Numismatic Guaranty Corporation, visited us in Beaumont, Texas on October 6, 2011 to meet sales staff and discuss the importance of third-party authentication and grading for consumer confidence and assets liquidity in the numismatic marketplace. He explained the processes NGC uses to evaluate coins, and said his company now is examining an average of 125,000 coins each month. He also said NGC is working to remove from the marketplace counterfeits being made in China and sold in the United States. It was Montgomery's second visit here, but not the second time he's met with me. Rick and I worked together in the 1980′s as graders at ANACS (then the American Numismatic Association Certification Service), and we taught grading and counterfeit detection classes together for collectors, dealers and even Secret Service and FBI agents. Rick is one of the foremost rare coin authenticators and graders in the country, and we were honored to have him visit. We sell a lot of NGC-certified coins and respect their products. I appreciated and enjoyed Rick's visit. Rick enjoyed the Cajun food at Pappadeaux.

Cougar Wildlife Silver Coin Now Available

The Cougar, the latest issue in a popular series of legal tender, silver bullion coins depicting North American wildlife, is now available. Struck by the Royal Canadian Mint, each of the coins is made of one-ounce of 99.99 percent pure silver. The Cougar is the third in a planned series of six commemorative coins celebrating North American wildlife.

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