August, 2017 - Week 4 Edition

Net Long Positions in Gold Rise 30% in a Week

Traders in the gold futures market are continuing to buy gold – as we had predicted earlier.  According to the weekly Commitments of Traders report from the Commodity Futures Trading Commission (released last Friday), net long positions in gold rose 30% for the week ending last Tuesday.  Net long positions rose from 138,566 contracts the previous Tuesday to 179,537 contracts last Tuesday.  This represents the highest level of net long contracts since last October, before the 2016 Presidential election, and it also marks the fifth straight weekly increase in net long positions.  During the last five reporting weeks (July 10 to August 15), the net long positions in the gold futures market have expanded by almost eight-fold.

Jackson Hole Could Catapult Gold Prices

Gold touched $1,300 early Friday but then fell back to $1,285 over the weekend.  On Monday morning, August 21, gold rose back above $1,290, so another attack on $1,300 is possible this week, especially since the major central bankers of the world will be meeting at Jackson Hole, Wyoming on Thursday.  Mario Draghi, head of the European Central Bank (ECB) and Janet Yellen, chair of the Federal Reserve, will both be speaking, with the world weighing their words very carefully for the direction of interest rates, currency values and – by extension – the price of gold in terms of the leading world currencies. One analyst said that any “surprise out of Jackson Hole is going to bring mammoth moves for the gold price.”

Terror and Threats of War Tend to Boost Gold and Gold Coin Prices

Gold rose above $1,300 Friday morning right after the terrorist attack in Barcelona.  After falling briefly to $1,285, gold prices recovered to $1,290 on Monday based on a new war of words in Korea.  Analysts at Commerzbank commented that the demand for gold is likely to remain high as the U.S. and South Korea begin a joint military exercise early today. “This could rekindle the conflict between the U.S. and North Korea, which had taken something of a back seat again recently.” Meanwhile, North Korea’s dictator Kim Jong-Un recklessly warned the West on Sunday that these annual U.S.-South Korea military exercises are “reckless behavior driving the situation into the uncontrollable phase of a nuclear war.”

After gold popped on President Trump’s war of words with North Korea, gold coin sales rose strongly. Gold coin purchases by collectors, investors and dealers are up dramatically. We and many other dealers across the country – both small and large – have seen an increase in coin sales. We enjoyed a rise of about 40% vs. the average of recent weeks. This is an important early sign for future sales growth, too, since higher gold prices have been the primary reason behind the beginning of past multi-year rare coin bull markets in which prices rise by 100% to 1,000% in only a few years.  Any significant rise in gold’s price builds a base of new customers who will first buy bullion coins, then rare coins – for years to come.

Gold is already up 12% this year, and it has a history of going up strongly in the first year of a new President from a new party.  Back in 1993, Bill Clinton’s first year, gold rose 19.3%.  In George W. Bush’s first year, gold rose only 2.2%, but more importantly the uncertainty after 9/11 gave birth to a major gold bull market running from 2001 to 2011.  Then, in 2009 – Barack Obama’s first year – gold rose 24.4%.  Gold tends to rise in a President’s first year in part because new Presidents tend to face huge problems before they gain the experience necessary to handle those problems wisely.  We’re seeing that happen once again with the threats coming from North Korea, Russia, China and other global hot spots.

This is not the time to be selling gold coins or any other precious-metals-based investment. This is the time to increase your allocation in hard assets.  The kind of chaos you’re seeing in Washington DC and around the world will continue for several years to come.

Gold in History – Three Examples

My friend Gary Alexander was at Freedom Fest and heard a lot of speeches about gold. After the conference ended, he sent me some highlights of the speeches and books about gold he has been reading.

One of the speakers at the Freedom Fest referred to an incident when he was skiing at Vail, Colorado, last winter and ran into a former Treasury Secretary who was complaining about a $165 ski lift ticket. Our speaker was sharp enough to comment back, “I bet this lift ticket is no higher in terms of gold than it was 50 years ago.”  So they checked into the resort’s historical price comparisons and found out that ski lift tickets in 1967 cost just $5, so they did the math – lift tickets are up 33 times higher in 50 years, and that turned out to be the same price in terms of gold, which had risen 33-fold, at the time, to $1,150 per ounce.

The recent book “Before Babylon, Beyond Bitcoin,” by David Birth charts a long-term history of money.  One passage says that Kublai Khan (1215-1294) “created a paper money system through the simple expedient of capital punishment, instituting the death penalty for anyone who tried to use gold or silver instead of accepting his paper money. As Marco Polo noted in The Travels of Marco Polo: ‘Furthermore all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to anyone but the emperor (who) pays a liberal price for them in those pieces of paper… And with this paper money they can buy what they like anywhere over the empire.’”

A very interesting historical novel about the British “South Sea Bubble” of 1720 is called “A Conspiracy of Paper” by David Liss (2000). In the midst of the crisis, a wise old man says this: “Money in England is being replaced with the promise of money…. If value is no longer vested in gold, but in the promise of gold, then the men who make the promises hold ultimate power, no?  If money and gold are one and the same, then gold defines value, but if money and paper are the same, then value is based on nothing at all.”

Quote of the Week

When you are watching out for number one, don’t step in number two!

Rodney Dangerfield
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