The Michael Fuljenz Metals Market Report: November 2011, Week 3 Edition

Gold shot up to $1800 on Tuesday, but then fell back to $1756 Thursday before closing at $1773. Silver and platinum were fairly flat for the week. The main engine for gold’s rise and fall was the comic opera in Europe, featuring the resignation of leaders in Greece and Italy, followed by a wave of hope about their successors, two aging economists with good ideas but limited power to enact those ideas. Basically, gold rises on each new calamity and then goes down on each new wave of false hope in the European theater.

Gold 52 weeks ago (November 15, 2010): $1368.50
Gold’s average price during 2011: $1555.73             
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 gained $24 (+1.4%) last week, the same gain as stocks. Year-to-date, gold is still leading, up 26%. 

The European Crisis Fuels Wide Swings in Stocks, Bonds and Gold

The wild swings in the gold market – and stock market – are mostly inspired by the unfolding drama in Europe, which is in the process of fighting a bank collapse similar to what America experienced in 2008, during the election of Barack Obama. Last week, the ultimate plot twist involved the near-simultaneous resignation of leaders of Greece and Italy. Imagine what America would have felt like in 2008 if then-President George W. Bush had threatened to resign if Congress didn’t bail out the investment bankers, and then followed through on that threat, leaving America without a leader going into an election! Then, further imagine that the Speaker of the House had appointed Ben Bernanke as our interim President. 

That’s about what happened in both Greece and Italy last week as both Prime Ministers resigned under duress, only to be replaced by two trained economists who had become second-tier politicians later in life. Lucas Papademos, 64, the new leader of Greece, is a former Vice President of the European Central Bank and an MIT-trained economist, while Italy’s new leader, Mario Monti, 68, is a former European Union commissioner. That’s certainly an odd way of trying to solve a financial problem, like bringing in an accountant to balance your all-red budget when it is so far out of balance that politicians simply gave up.

At any rate, the global stock markets liked this solution last Friday, sending the euro and stocks up. But after further reflection, on Monday morning, the dollar rose (sending gold slightly down) and stocks fell, since Europe’s problems are obviously too complex for these two aging economists to fix overnight.

German Bank says Gold Should Profit from European Uncertainty

Even though gold is down today (Monday) in U.S. dollar terms, it is up in euro terms. Over in Germany, a major financial service provider named Commerzbank wrote a report late Sunday saying that “It is still unclear whether a new government in Italy will be able to successfully consolidate its budget without external help. Gold should therefore continue to profit from the persisting high uncertainty …The sovereign debt crisis seems far from resolved…. Gold should therefore remain well supported.”

The Euro-zone contains 17 nations with a combined population identical to America’s 50 states, about 330 million people. But in America, our 50 states are far more united than the 17 euro-zone nations. Washington, DC is not responsible for the debts in California or Illinois. Likewise, the states cannot print money to balance their budget. But in Europe, Italy can run up a huge deficit without the added benefit of printing money or keeping interest rates low on their debt. Italy, for instance, just borrowed three billion euros ($4 billion) in 5-year bonds but had to pay 6.29% interest vs. just 0.89% for U.S. 5-year bonds. Even though the European Central Bank (ECB) keeps its official rates low (1.25%), the troubled member nations must pay higher rates. This is why the sick dollar is considered a “safe haven” vs. the sicker euro.

To make matters worse, European tax receipts are falling while bailout costs are rising. Many European economies are in recession, especially the Mediterranean PIGS (Portugal, Italy, Greece and Spain), while northern Europe is still growing, but slowly. The focus this week will be on Tuesday’s announcement of third-quarter GDP data for the two biggest euro-economies, France and Germany. If they falter, all bets are off in Europe, pushing gold higher in euro terms as Europe’s savers rush to protect themselves in gold.

We’re Entering Gold’s “Sweet Spot” of the Year: November through the Chinese New Year

Gold has already risen three weeks in a row, and November is up 3% so far, following a strong October. Historically, November and December are gold’s second and third best months, after #1 September. Over the past 40 years, since gold was set free in global markets, November and December have accounted for nearly half (44%) of gold’s 40-year gains of 5,000% (rising from $35 to $1785 = +5,000%). Much of this advance is due to Asian buying, particularly the Indian wedding season, which lasts through December. Indian’s wedding season then gives way to Christmas buying, Chian’s New Year and Valentine’s Day.

Gold has risen during November and December in each of the last 10 years, for an average gain of 7%.

Year Gold’s Gains in November & December

2002                                    +9.6%
2003                                    +7.8%
2004                                    +2.4%
2005                                    +9.0%
2006                                    +4.7%
2007                                    +5.6%
2008 (crisis year)                 +19.0%
2009                                    +4.6%
2010                                    +4.3%
2011 (so far)                        +3.0%

In addition, Frank Holmes of U.S. Global Investors points out that, “November has historically been the strongest month of the year for gold equities, with mining stocks increasing 8.1%.” So far this year, gold mining stocks have underperformed bullion, but gold fever can lift gold’s secondary markets (like coins, as well as stocks).

The early months of 2012 should also be strong for gold. In China, 2012 is the “Year of the Dragon,” so we can expect a wide array of golden gifts in dragon shapes, whether it be on jewelry, icons, pendants or coins. The Hong Kong government said that China imported a record 56.9 tons in September, a six-fold increase over September of 2010. In the third quarter (July, August and September), China imported 140 tons, which is more than the 120 tons for ALL of 2010, according to Financial Times. This is the time of year Chinese merchants must import their gold in order to have it in time to fabricate the Year of the Dragon gifts.

$10 Indians in the Spotlight

I routinely monitor advertising related to coins and precious metals. Recently I’ve noticed an uptick in the advertising of $10 Indians nationally, especially on radio. I called a couple experts who serve with me on national industry boards. They confirmed that they have also noticed increased demand for this popular series designed by the great sculptor Augustus Saint Gaudens. This coincided with another major dealer requesting a case of my 2010 NLG award winning book on $10 Indians. If you have been waiting to acquire a key date $10 Indian for your set, now may be the time to act as rarer examples are selling quickly and once sold they may not appear again for awhile even at higher prices.

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