The Michael Fuljenz Metals Market Report: December 2011, Week 3 Edition
Gold dropped a net $115 last week (-6.7%), mostly due to a much stronger dollar (in terms of the euro). Silver fell $2.22 (-6.9%) while platinum fell $65 (-4.3%). This week, the metals continued their down-trend on Monday morning, with silver falling the furthest (to below $29) on a continued strong dollar, weak euro and a flight to perceived "safety" in the dollar. With year's end approaching, it looks like stocks and silver may be down, but gold is still up 13% for the year. Barring any sudden collapse in the next 10 days, gold will finish its 11th straight year with positive gains.
Gold is 16% off its Peak, in Dollar Terms - But it's only Down 5.7% in Euro Terms!
Gold is down for a variety of reasons. Investors often sell their best-performing asset of the year (gold) to meet margin calls on their weaker investments, or to lock in annual gains. (Gold is still up 13% this year, better than stocks or cash.) But the main reason gold is down is a sudden year-end rush to the U.S. dollar.
The dollar is up sharply to the euro, devaluing most commodities in dollar terms. Nearly all (88%) of global commodities are universally quoted in dollar terms, so the daily ups and downs are magnified (leveraged) when quoted in dollars. When the dollar is weak, commodities soar, and vice versa. The dollar's main "strength" is the weakness of the euro, since the euro represents 60% of the dollar index. With Europe in crisis, currency investors are rushing to the dollar as the "least risky" asset right now.
Events took a turn for the worse in Europe last week. Standard & Poor's warned France of a possible two-notch debt downgrade. Moody's also downgraded neighboring Belgium by two-notches to Aa3, which is three levels below its highest rating. Moody's also lowered its outlook on AAA-rated France from "stable" to "negative," which means that France is in danger of losing its triple-A rating within two years.
Americans, and our financial media, need to think outside the dollar once in a while, for perspective. Americans need to know that gold is NOT in a crisis free-fall in terms of the euro. (Europeans know this!) Last September, when gold peaked at around $1900, the euro was worth $1.46, so the price of gold in euro terms was then 1300 euros. Today, with the euro worth $1.30 and gold at $1594, gold costs 1226 euros. While gold is down 16.1% from its peak in dollar terms, it is only down 5.7% in euro terms - not exactly a "bursting bubble!"
Has Gold Now Become a "Bursting Bubble"?
"Gold is a Bubble Bursting" - Headline on "Forbes on Fox" (TV), Saturday, December 17
With gold's rapid decline last week, there have been many screaming TV and print headlines about gold being a "bursting bubble." The Saturday TV show "Forbes on Fox" is one example among many. They spread disinformation by asking a group of stock-oriented advisors about an investment they don't really understand. Among the false statements on this show were: "Central banks are selling gold" (no, they're not; they are buying gold at record levels); "Gold is only as good as the next investor who is willing to pay for it." (Not so; gold has been money for 6,000 years and most Asians BUY on dips, while we sell). And: "Gold is an unproductive investment" (by that, they mean it doesn't offer dividends, but cash yields are also near-zero and gold produces something cash can't offer: Protection against printing-press money).
These kinds of advisors yearly predictions on gold are currently "Zero for the 21st Century." Whenever you hear people spout these kinds of statements, ask them what they were saying about gold in 2001, 2003, 2005, 2007, etc. Was gold "rising too fast" at $500? Was gold "in a bubble" when it passed $850? Was gold "only as good as the next fool" at $1,000? Chances are they have NEVER recommended gold, so they are still "zero for the 21st Century."
How about Apple or Google stock? Has anyone in the financial media ever called Apple or Google a "bubble" for doubling in the last two or three years? Aren't they in a bubble now? Also ask: "How is your stock portfolio doing?" "How are the portfolios of university foundations doing?" Since 2000, gold is up 450%, while the S&P 500 is down 17% and tech stocks (NASDAQ) are off 37%.
Gold is up every year since 2001 while stocks are down in 5 of the last 12 years and down for the century!
Gold's Annual Gains since 2000 vs. U.S. Stocks
| Year | Year End Gold's Price | Annual Change | S&P 500 | Advantage |
|---|---|---|---|---|
| 2000 | $274.45 | -5.4% | -10.1% | Gold By 4.7% |
| 2001 | $276.50 | +0.8% | -13.0% | Gold By 13.8% |
| 2002 | $347.20 | +25.6% | -23.4% | Gold By 49.0% |
| 2003 | $416.25 | +19.9% | +26.4% | Stocks By 6.5% |
| 2004 | $435.60 | +4.7% | +9.0% | Stocks By 4.3% |
| 2005 | $513.00 | +17.8% | +3.0% | Gold By 14.8% |
| 2006 | $632.00 | +23.2% | +13.6% | Gold By 9.6% |
| 2007 | $833.75 | +31.9% | +3.5% | Gold By 28.4% |
| 2008 | $869.75 | +4.3% | -38.5% | Gold By 42.8% |
| 2009 | $1087.50 | +25.0% | +12.8% | Gold By 12.2% |
| 2010 | $1405.50 | +29.2% | +23.5% | Gold By 5.7% |
| 2011* | 1594.00 | +13.4% | -3.0% | Gold By 16.4% |
| Total Gains: | GOLD: +449.2 | STOCKS: -17.0% | GOLD By 466.2% | |
*Through December 16, 2011; Source: Yahoo for stocks
As the table (above) shows, gold's average gain over the last 10 years has been nearly 20%. Not counting 2011, seven of the last nine years have risen 23% or more. The last five years (2006-10) have averaged 23% gains, and gold has beaten stocks in every year since 2005.
If you had invested $10,000 in gold and $10,000 in stocks on December 31, 1999, your gold would now be worth $54,920, while your stocks would be worth only $8,300. In addition, gold has always been gold, while the S&P 500 index changes stocks each year, trying to rig the game in favor of stocks. Bottom line: Chances are good that today's gold skeptics have been wrong about gold and stocks for 12 straight years.
Summary of What Constitutes a "Bubble" (and why Gold is NOT a Bubble)
As we showed in last week's report, a study of all the major bubbles of history - from the Tulip Bulb craze of the 1630s to Wall Street in the late 1920s and tech stocks in the late 1990s, a bubble ALWAYS consists of a rapid doubling of prices followed by a rapid (2-3 month) 50% haircut back to the original pre-bubble price, followed in most cases by 20 dormant years, while investors lick their wounds. A bubble must also consist of widespread ownership of the asset, even among average working people who are known for getting on the bandwagon late in the game in - the last in & worst burnt - as prices tumble.
The investment media is periodically fond of calling gold's recent rise a "bubble," but gold fits none of these bubble criteria from history. It has not risen rapidly. You can see its gradual price slope in our table of annual gains. Gold has not doubled in the last year or two years, and it has not fallen 50% from its peak within 2-3 months. It is only down 16.1% in the 3-1/2 months since its peak on September 5, and it has only fallen 5.7% in euro terms. Furthermore, gold is not widely owned by the masses. Fewer than one in 10 Americans own any investment (non-jewelry) gold. Test this theory by asking the next 10 people you meet in the office or at a gathering: How many of you own gold coins or bars? Chances are none will own gold. Many Americans still don't trust gold, due to the widespread myths about gold spouted by some pundits on financial TV.* *For a detailed analysis of historical bubbles, see the December 2011, Week 2 Edition of The Michael Fuljenz Metals Market Report.
In conclusion, it looks like some of the financial media has a "bubble" bias against gold and a "bubble" bias for selected tech stocks. Advisors are in love with the newest toys by Apple, and the Google search engine that find facts or contacts friends a micro-second faster, but the quiet gains of the "Golden Constant" have been ignored or dismissed by most analysts this century.
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. This week we learned about an unnamed Wall Street investment firm paying over 7 million dollars for a rare gold coin. We also found out that another major rare coin fund is being launched. This is more good news for 2012.
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