The Michael Fuljenz Metals Market Report: December 2011, Week 1 Edition

Gold rose $60 last week (+3.5%), gaining ground each day of the week until a small $5 drop on Friday. Silver gained nearly $3 per ounce (+6.1%), while platinum gained $30 (+2%). Stocks had their best week since 2009, due to an apparent "solution" to the European debt crisis (through - surprise - printing more paper money!), plus the release of a series of positive economic statistics. This week, gold fell slightly on the Monday opening, due to hopes that Europe would recover due to a coordinated plan by global central banks to provide cheap paper money to Europe's deadbeat nations. Long-term, that's very positive for gold!

• Gold 52 weeks ago (December 6, 2010): $1415.25
• Gold's average price during 2011: $1566.81
• 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: The metals rose steadily last week. Stocks had their best week since 2009 but are still flat for the year.

Special 2012 Prediction Issue: Gold should surpass $2012 in 2012

Many pundits are predicting $2300 to $2500 gold next year, but we don't see that kind of runaway price on the upside. We see a lot more of the same approximately 20% annual increases we've seen in the last decade. As the table (below) shows, the average gain over the last 10 years has been 20.5%; six of the last 10 years have gained 23% or more. Eight of the last 10 have gained 17% or more. The gains are beginning to accelerate - the last five years have averaged 23% gains - but we'll be happy with a 20% gain in 2012.

Gold's Annual Gains since 2001

*Through December 2, 2011

We don't know what the year-end gold price will be, but if it manages to close over $1855, this will mark gold's best percentage gain since 1979. Taking Friday's London close of $1747, a 15% 2012 gain would be $2010 and a 20% gain would net $2096. Of course, gold could go much higher, but we're not greedy!

Gold's basic fundamentals are seemingly getting better each year. Let's rehearse them one more time:

Fundamental #1: Continuing Investment Demand, Especially in the "BRIC" Nations 

More than 44% of gold purchased last quarter was for investment purposes, according to the World Gold Council's quarterly report. That's up from 39% in 2009 and less than 10% in 2001!

Investment demand is a rolling tsunami: More demand creates more demand. In particular, the innovation of gold exchange-traded-funds (ETFs) created a new form of demand, since the ETFs had to buy and store the underlying gold represented by their paper shares. This buying alone caused gold to rise, boosting the ETF shares.

The emerging middle class buyers in the rapidly-rising BRIC nations (Brazil, India, Russia and China) provided another new demand fundamental for gold in the last decade. Unlike America, these nations have long recognized gold as money, but they didn't have the buying power (or the political freedom) to buy gold in previous decades. Now, they have both the opportunity and the infusion of cash to buy gold. China has a love affair with gold, fanned into white-hot demand by government encouragement as well.

Fundamental #2: Slow Gold Supply Growth, plus Recurring Supply Disruptions

New deposits of gold are getting harder and harder to find. That's one reason why gold mining stocks are performing so poorly, compared with gold bullion. The mining companies are finding it ever more difficult to locate and extract gold from the earth in faraway places, which are often hostile to gold mining operations on their once-pristine lands. Many indigenous movements are protesting these gold mining operations. More and more of them are successful in driving the gold mining operations from their land.

This morning (December 5), Bloomberg reported that protestors "paralyzed Peru's biggest gold project" (operated by Newmont Mining). After two weeks of shutdowns due to violent protests, the Peruvian army was called in to protect the mines, but only after President Ollanta Humala declared a state of emergency in the northern Andes gold mining area. Protesting farmers and others have already attacked four major operations in Peru. In nearby Venezuela, the Chavez government has backed the protestors in driving out foreign gold miners. Social protests over gold mining will continue to grow, limiting new gold supplies.

Fundamental #3: Currency Debasement and Growing Debt Service

Ever since 2001, the U.S. dollar has been on a long downward arc. Some days along the way, you will hear about a "strong dollar" but that is brief and temporary, based on comparisons to the weak euro. For most of the last decade, the euro has beaten the dollar, but not recently. Basically, the German-influenced European Central Bank (ECB) is still scarred by postwar inflation, so they have been reluctant to print money to solve debt problems in Greece, Italy and other nations, but that is changing.

The Federal Reserve is now exporting its inflationary religion to Europe. Last week, in a coordinated action with five other central banks (the Bank of Canada, the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank), our Federal Reserve flooded the European banking system with cheap U.S. dollars via dollar-swap agreements at low interest rates. This sparked a huge stock market rally, but investors should beware of buying stocks based on false promises from printing-press banks!

Don't Forget the Ever-Present Wildcard: The Unknown

It's hard to write about the unknown, since it is so....unknown. But there have always been a few jokers in the global poker deck. It's not hard to see them in today's world - the madmen running Iran, which is on the road to a "nuclear solution" to Israel's existence; a madman running North Korea, within nuclear range of many of the most prosperous Asian nations, with whom they share grudges: Japan, China and South Korea. There's also nuclear-powered Pakistan, our "Ally from Hell" (according to an excellent cover story in the current Atlantic magazine.) Many other nations are also led by well-armed despots.

But wildcards aren't limited to nuclear-armed knuckleheads. We have dignified leaders in many Western countries with lofty-sounding dreams of "social equality" that boil down to class warfare. Most nations in Europe (and the U.S.) promise cradle-to-grave security to a population that becomes wildly indignant, or even violent, when those promises are altered by the realities of finance and demographics. One possible wild card is a 2012 voter revolution which elects responsible leaders but causes social unrest in its wake.

Then, there is the totally unknowable...terrorism or acts of God. In times of crisis, wise investors will keep at least 10% or 20% of their wealth stored in personal gold for protection from unknowns, with the assurance that gold often retains its value no matter what happens next.

Mike Fuljenz's 2011 Money Show of the Southwest Predictions

Saturday, December 3, 2011, I was once again a featured speaker at the largest money show held in the southwest United States. I discussed with the audience the prospects for the rare coin and precious metals markets in 2012. Typically, the rare coin market has had one to two bull markets, over 100% index gains, every decade since I started collecting in the 1960's. For many reasons, a rising precious metals market is often a contributing factor to a bull market in rare coins. As I see gold reaching $2012 or more in 2012, I believe that 2012 will also see price increases in select areas of PCGS and NGC certified gold coins. Market activity and prices often begin rising at the first of the year so purchases made now may save you money. The Money Show was again a success and I want to congratulate and thank all of those who made it happen.

Metals Market Report Archive >