October, 2017 - Week 1 Edition

The Dollar Will Eventually Decline as More Money is Printed

The most recent Federal Reserve report on money supply (dated September 7) says that more than $13.67 trillion in M2 – a broad measure including cash, checking accounts, savings deposits, money market funds and dollar time deposits – is currently in circulation.  M2 volume has more than tripled in the last 20 years, rising 245%, at an average annual rate of 6.5%.  A World Gold Council study found that for every 1% increase in M2, gold rises by almost the same amount (+0.9%), usually within six months.

Frank Holmes, CEO of U.S. Global Investors, says, “When more money is printed, gold has traditionally been a beneficiary, for two key reasons: 1) If the money-printing is accompanied by economic growth, greater access to capital might boost demand for luxury items, including gold (the ‘Love Trade’); and 2) If the money-printing isn’t accompanied by economic growth, inflationary pressures might prompt investors to increase their exposure to real assets, such as gold (the ‘Fear Trade’).”

Gold Closed September Up 11.3% for the Year

Gold closed September up 11.3% for the year, vs. a price decline in most other commodities.  Through three quarters, the CRB Commodity Index is down 5%. Natural gas is down 19.3% and crude oil is down 3.8% year-to-date.  Gold slumped this week as the dollar strengthened, but the dollar has no fundamental basis for rising over the longer term. Meanwhile, the tensions in North Korea can resume at any time and there is now another potential global hot spot: The Russians have suggested that if U.S. missiles continue hitting Syrian government targets – or their own positions – they will respond militarily to those attacks.

International Money Managers Favor Gold

Wall Street’s sentiment for gold seems to rise and fall with the gold price.  For instance, the net long position in the gold futures market shrunk for the second straight week last week, but some institutions are still bullish. But foreign banks continue to be more open-minded than U.S. financial institutions:

Canada’s RBC Bank said “We believe that elevated global geopolitical risk factors should provide support for gold near the $1,300/ounce level…. We would take advantage of any pullback in the gold price in late fourth quarter to buy gold stocks ahead of the strong Chinese New Year demand.”

China’s ICBC Standard International Bank sees a short-term dip below $1,300 (which happened), but “looking beyond this potential short-term pressure, we maintain our constructive view on gold.”

Germany’s Commerzbank says the prospect of future Fed rate hikes “would presumably keep the gold price in check,” but “we still expect to see gold trading at $1,300 per troy ounce at year’s end.”

Great Britain’s Rathbone Multi-Asset Strategic Growth Portfolio just invested 1.5% of its funds in gold in late September, the first time in seven years that these funds bought gold. Managing Director David Coombs said, “In each of the funds we are slowly building a position to about 5%” gold.

Fund managers at UK’s Schroders asset management firm agree, saying “Gold remains extremely under-owned by investors despite having a solid track record as a currency of last resort in times of uncertainty, and despite the current global environment being arguably more uncertain than any point since the second world war.” Fund managers Mark Lacey and James Luke wrote in ‘Schroder’s Talk’ that, “Current gold ETF holdings as a percentage of global ETF assets are tiny… So, when investors start meaningfully allocating to gold again, gold ETF holdings have the potential to grow at significantly higher rates than we saw during the 2004 to 2012 period.” (Those were the years when ETFs pushed gold to record highs.)

The Second Annual United States Mint Numismatic Forum

The United States Mint has invited me to attend their second annual Numismatic Forum to be held on Tuesday, October 17, 2017, at United States Mint headquarters in Washington. We will look at the road ahead for the numismatic hobby and see what else we can do as stakeholders to reinvigorate it.

The 2017 Numismatic Forum promises to be a lively, informative, and educational day of discussion focusing on current and future offerings through the lens of a numismatic product’s journey from conception to production. We hope to leave with a much better understanding of the unique, creative and sometimes challenging process resulting in the numismatic products offered collectors.   

During the first Numismatic Forum last year in Philadelphia, we spoke, and they listened! I look forward to updating you on what we discussed in Philadelphia and how they responded. The United States Mint wants to continue to create a more collaborative environment between the public and the Mint.  This year’s forum promises to be another valuable sharing and networking opportunity for all of us. 

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