The Michael Fuljenz Metals Market Report: November 2011, Thanksgiving Week Edition
Metals vs. Markets November 21, 2011 ---- Change vs. January 1 Prices in 2000-05 ---
| Metals | End-2010 | November 18,2011 | 2000 | 2002 | 2005 | |
| Gold | $1,410 | $1,719 | +21.9% | $290 (+493%) | $292 (+489%) | $437 (+293%) |
| Silver | $30.63 | $32.25 | +5.3% | $5.34 (+504%) | $4.54 (+610%) | $6.78 (+375%) |
| Platinum | $1,731 | $1,594 | -7.9% | $425 (+275%) | $485 (+229%) | $860 (+84%) |
| Stocks | End-2010 | November 18,2011 | ||||
| Dow Jones | 11,578 | 11,796 | +1.9% | 11497 (+2.6%) | 10021 (+17.7%) | 10783 (+12.7%) |
| S&P 500 | 1257.6 | 1215.6 | -3.3% | 1469 (-14.0%) | 1148 (+10.1%) | 1212 (+4.3%) |
| NASDAQ | 2652.9 | 2572.5 | -3.0% | 4069 (-34.2%) | 1950 (+37.4%) | 2175 (+23.2%) |
Last week: Gold fell 3% last week, while U.S. stocks fell even further on financial problems in Europe and America.
Gold rose early last week, to $1785 last Tuesday, then it fell to $1719 by week’s end, down 3% for the week. Silver fell 4.5% and platinum fell 2.0%. U.S. stocks fell 3.8% (on the S&P 500). On Monday morning, the declining trend continued in all markets, with the Dow down over 300 points in the first two hours of trading and gold down $50 to $1675. In Europe, Spain has joined the “problem child” division of the Club Med southern-European spendthrift community of nations, and in the U.S., the Super-committee super failed. They failed miserably to make any budget cuts.
- Gold 52 weeks ago (November 22, 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
The big question in our minds is – why did gold FALL? Most commentators say that it is a “flight to safety,” meaning that more investors choose the U.S. dollar when Europe is weakening, but that assumes the U.S. financial situation is better than Europe. In terms of budget deficits, the U.S. is in worse shape than most euro-zone nations. The U.S. credit rating has been downgraded by Standard & Poor’s, whereas the northern-tier of European nations (Austria, Denmark, France, Germany, the Netherlands, Norway, Sweden and Switzerland) are still AAA-rated. However, there are new rumors that Austria and France may lose their AAA-rating soon.
Here’s an alternative reason why gold fell on bad news in Europe: The U.S. reported a series of positive economic statistics last week, including falling overall inflation (and flat “core” inflation numbers), along with rising retail sales, industrial production, capacity utilization, positive jobs and hiring numbers, and a large gain in the Index of Leading Economic Indicators. All these figures point to a stronger economy than Europe’s, so investors chose the dollar over the euro last week, sending gold down in dollar terms.
However, if the conservatives in Europe slowly turn their ship around while the U.S. continues to argue in super-committees and interminable election primaries and debates, perhaps the dollar will fall to gold….?
The story in Japan also needs telling. Japan just reported 1.5% quarter-on-quarter GDP growth last week. That’s a 6% annual growth rate, which is unprecedented for Japan in the last 21 years. China is lifting up the whole Asian region, including Japan. The reason this story ties in to gold is that gold must compete against the leading paper currencies for the “flight to safety” trade. The global currency market is a multi-trillion-dollar-per-day casino. There are only three currencies that are traded in enough volume for multi-billion-dollar leveraged trades to happen without friction and instantaneously. Those three currencies are the U.S. dollar, Japanese yen and euro. Now that Europe is having problems, there is a flight to dollars and Japanese yen. This flight to both the dollar and the yen is another reason why gold is down this week.
Central Banks are Buying Gold (i.e., Watch what they DO, Not what they SAY)
Total central bank purchases of gold last quarter rose 123.2% vs. the previous quarter and 556.6% from the same quarter last year, according to a new report by the World Gold Council. Total purchases last quarter were 148.4 metric tons, vs. 66.5 tons in the second quarter and 22.6 tons in the third quarter of 2010. The total central bank purchases in the first three quarters totaled 348.7 tons, a 465 ton annual rate.
Most of the buyers are in the “emerging” economies, former Third World beggars who got smart, by turning their natural resources into gold. The BRIC countries (Brazil, Russia, India and China) are leading the way, while the more “sophisticated” European and North American central banks sold their gold holdings at depressed prices from 1999 to 2002, when gold ranged from $250 to $350 per ounce. As “payback” for their short-sighted anti-gold bias, these rich nations are now going to China to sell bonds!
James Rickards, an investment banker and author of the new book Currency Wars: The Making of the Next Global Crisis, said last week that China is quietly buying gold “in case markets eventually demand that currencies be anchored to a tangible asset.” China does not tell the world what it is buying, but it is a safe bet that much of the huge wave of central bank gold buying in the last quarter came from Beijing.
Is Cash Really “King”
All the headlines this week shout “cash is king,” meaning that commodities and stocks are falling and that cash is “safe.” But is that so. Does short-term cash offer any measurable interest rates, beyond a few pennies per month per $1,000? Is the money safe in the bank, when America suffers over 100 bank failures per year? Is cash safe from capital losses when the Federal Reserve (and European Central Bank) keep printing billions of more of them each month? More to the point, does cash really feel so safe when those apparently “risky” investments (like gold and stocks) start rising in sharp upward leaps once again?
Perhaps cash is more like those Socialist ruling coalitions that are being thrown out all over Europe these days. They (the rulers, and their paper money promises) provide tempting vote-getting gold at the end of the rainbow, but they deliver pain and broken promises in the end, before they are thrown out in favour of politicians who cut spending and counsel austerity, vs. the something-for-nothing socialist promises. Gold is like those now-ascendant truth-telling politicians who are called in when everything else fails.
Just since 1985, over a dozen paper currencies have gone out of existence. The latest is the Zimbabwean dollar, which became the laughing stock of the world in recent years. In South America, we lost the Chilean Peso in 1975, after which the “Chicago boys” (the disciples of Milton Friedman) rebuilt that economy on sounder principles. Since 1985, we have lost the Bolivian peso, the Argentine peso, the Peruvian intis, and the old Brazilian cruzeiero real. In Eastern Europe in the 1990s, we lost the Bosnian dinar, Georgian laris, Ukrainian karbovantsiv, Belasussian ruble, Turkish lira and Romanian lei. And the African paper currencies gone to the “happy hunting ground” are too numerous to count. The same is true of most European currencies after World War II. The losing side’s money always loses (ask the U.S. confederates), and sometimes the winners also lose, as in the U.S. continental and the French livre.
The U.S. dollar won’t disappear overnight, but with 25 years of profligate printing press money under Alan Greenspan and Bernanke, the dollar will most certainly be “worth less” in time and gold should continue to rise in dollar terms.
$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.
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.
Tigers Tailgate “Lardcore”
Hardcore LSU tailgaters don’t just hardcore fry catfish and chicken, they fry “lardcore” with lard! Geaux Tigers!
This season #1 Gold thumped unranked team paper money while the #1 LSU Tigers should pounce on #3 Arkansas, Geaux Tigers!
Party in moderation Tiger fans. The old adage “Beauty is in the eye of the beerholder” is also a statement of caution. Geaux Tigers!
This Thanksgiving, we’re grateful for our customers and friends. May you enjoy your time with family and friends this holiday season!
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