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

Gold fell below $1700 last Tuesday but then rose sharply to finish the week at $1749, up $8 (+0.5%) for the week. Then, on Monday, gold opened up $30 to $1780, and then it kept rising during the morning to $1791 by 1:00 pm (CST). Silver was up $0.68 Monday, to near $35 again. The primary cause of gold's rise is the renewed collapse of the Greek debt accord in Europe. This weakened the euro, meaning that Monday's gain in gold is entirely due to increased buying, not currency exchanges. Monday's $37 rise is made up of +$40 "due to normal trading" and minus-$3 due to a stronger U.S. dollar. So… last Tuesday, gold touched a low of $1,681 per ounce. Six days later, gold is up to $1,791 (+$110).

• Gold 52 weeks ago (November 8, 2010): $1388.50
• Gold's average price during 2011: $1550.51
• 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 rose by $8 (+0.5%) last week it rose $110 from bottom to top. Stocks fell 246 Dow points (-2%).

Europe Turns to Gold for Safety in Critical Times

Part of Gold's Monday rally followed the announcement by German leaders that the European Central Bank (ECB) marked gold "off limits" for any European rescue plan. Nobody expected the ECB to throw good money (the best money!) after bad, but that statement gave gold a Monday morning shot of caffeine!

The news from Europe changes almost hourly. Last Friday's "Group of 20" (G20) meeting was a total waste of time, as European leaders went begging to China (!) for bailout money, while passing the buck (or euro) to the International Monetary Fund (IMF) for future bailouts in 2012. What a sight that must have been for the rich nations of Europe to go hat-in-hand to a formerly-impoverished China for ready cash. In addition, the leaders of Germany, France and other relatively-solvent European nations know that they cannot ask their voting public for more bailout money for the southern PIGS (Portugal, Italy, Greece and Spain), so they have "kicked the can" to the IMF. Basically, the rich nations want to funnel money to the IMF as middle man, since German, French, Belgian, Dutch and other northern European powers don't want to face their voters with PIGS' blood on their hands. So the IMF must do their work for them.

On top of the financing challenge, Europe is falling into a recession - even while Asian economies are soaring and the U.S. may be slightly recovering with positive jobs growth. Last week, the euro-zone published new unemployment figures at a 10.2% rate and 188,000 jobs lost in the latest month. (By contrast, the U.S. rate dropped a notch to 9% and we added 342,000 net new payroll jobs in the last three months). U.S. manufacturing and productivity are rising slowly while in Europe, the Purchasing Manager Index (PMI) fell to 47.1 for October, down from 48.5 in September. (Any reading below 50 signals a contraction).

As a result of these new challenges, the ECB cut its key short-term interest rate by 0.25% to 1.25% to revive the economy. An interesting sidebar is that the ECB is now headed by an Italian, Mario Draghi, so it will be interesting to see if he will go out of his way to bail out Italy, or to let Italy continue to struggle.

Turning to gold, the average European citizen is not as clueless as their leaders. They know that throwing their hard-earned euros into the Mediterranean Sea will not rescue anyone. Therefore, millions of average European citizens are turning to gold and gold coins for crisis protection, purchasing power and as a portfolio energizer.

According to Peter Hug - a 40-year veteran of the precious metals markets - there is now a six-month backlog for buying gold bars of all sizes, since European refiners are falling farther and farther behind in meeting the rising demand, which, he says, is about 10 times greater in Europe than in America.

Switzerland Faces New Challenges in Meeting Gold Demand

Switzerland is home to most of the world's refined gold: 60% of the world's refined gold comes from just four giant companies in Switzerland, a nation that keeps its gold pure (by law), most commonly in the form of 400-ounce bars. Switzerland is the only country that regulates gold purity by law. Every refinery must have in-house assayers, employed by the state (not the company or the bank), to guarantee the purity of its gold in storage or manufacture. The new European gold demand has created new challenges for Swiss fabricators. According to an article in this week's Bloomberg Businessweek ("It's the Great Gold Bar, Charlie Brown!"), the Swiss are manufacturing "designer gold, devised to appeal to popular taste."

Counterfeit gold products have been a problem lately, even in Switzerland. The Businessweek article cites a recent example: "In 2010, Switzerland's Precious Metal Control bureau searched 12,000 consignments entering or leaving the country. A third contained false or adulterated metals, including fake gold watches and jewelry made with adulterated gold. The Swiss destroyed 4300 watches and 8400 jewelry pieces."

This goes to show that you must deal with reputable dealers who have the expertise to recognize counterfeits and only deal in verified gold products. A good business knows its reputation is always its greatest asset.

Gold Price Projections for 2012

Mary Anne Aden sees $2,500 gold next year, based on a 30% rise from its recent peak of $1925.

Pamela Aden sees $2,300+, since that would mark a new "real" high, after adjusting for inflation.

Mike Fuljenz sees gold reaching $2,000 or higher if major political or economic events occur.

Rare Coin Funds Energize Coin Markets

The great rare coin bull market of 1986-1990 was energized, in part, by rare coin funds operated by small names and by big name brokerages like Kidder Peabody and Merrill Lynch. Now comes word of a second major rare coin fund being launched in 2011 that hopes to reach $250 million. If these funds are successful and get fully funded this should be a huge boost for the rare coin market. In the 1986-1990 bull market it seemed one launched fund led to rumors of other upcoming big name funds and this further lifted the coin market. This has the potential of further drying up supplies of many rare gold coins. The relative lack of gold coins being exported from Europe during their financial crisis is further contributing to supply disruptions. While there are no guarantees, the future of the rare coin market looks brighter due to these events.

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