The Michael Fuljenz Metals Market Report: December 2011, Week 4 Edition

Gold rose sharply to $1637.50 on Wednesday, December 21 (at the morning fixing in London), but then it corrected back to $1607 by week's end. With less than a week left in the year, gold now seems assured of reaching its 11th straight rising year, while silver and platinum are down and stocks are narrowly up or down, depending on which index you use. The Dow is up, NASDAQ is down and the S&P 500 is flat.

• Gold 52 weeks ago (December 29, 2010): $1412
• Gold's average price during 2011: $1571.69
• 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 $13, platinum rose $10, silver fell $0.56 and stocks recovered to about break-even for 2011.

2011 in Review: Gold Up; Silver Volatile but Flat; Platinum Down

Gold will likely complete its 11th straight rising year this Friday. The year began with a dip to $1316 (and $26 silver) in late January, then soared in August to an intra-day high of $1923.70 before falling to into the $1500s before rallying near year's end. Much of the recent swoon is due to a rise in the U.S. dollar. In terms of the euro, gold has been in a strong, almost uninterrupted rising trend since 2008. In U.S. dollar terms, gold corrected 16%, but it only fell a little over 5% in euro terms as the euro collapsed.

Silver's global investment demand will reach a record high of $10 billion in 2011, a 66% increase over 2010, according to "The Silver Investment Market - an Update," published by Thompson Reuters GFMS. Silver's price nearly doubled in three months, from $26 in late January to $49+ on April 29, before the most speculative positions were unwound, sending silver back to an intra-day low of $26 in September. Silver will close the year near $30, where it began. It was a wild roller-coaster year for silver investors.

Platinum demand should reach eight million ounces in 2011. This is not quite a record but it is close to pre-2008 levels, according to Johnson Matthey in its "Platinum 2011 Interim Review." New supplies will grow 6% to 6.4 million ounces and recycled supply will add 1.8 million ounces. Overall, the report says, platinum is expected to end 2011 with a small surplus of 195,000 ounces, hence the lower price trend of platinum vs. gold or silver. With the recent recovery in car sales, auto catalyst demand will rise in 2012.

The Case for $2012 (or Higher) Gold in 2012

Despite its ups and downs, gold was one of the few positive performers of 2011. Late in the year, when stocks and other markets turned south, money managers raised cash to meet margin calls by selling their most profitable position - which has been Gold this year - but what about the outlook for gold in 2012?

Some institutional investors are blind trend-followers when it comes to 2012 gold price projections. For instance, BNP Paribas issued their 2012 forecast for $2025 gold (similar to our prediction of $2012) in November, when gold was stronger. But after the recent drop to $1575, Paribas dropped their forecast a whopping $250 to $1775, not much of a bold projection, more like a wimpy reaction to gold's correction.

Others, however, have not yet wimped out! Morgan Stanley, TD Securities, Bank of America-Merrill Lynch and SEB Merchant Banking all see gold averaging above $2000 or trading above $2000 in 2012.

Tom Winmill, portfolio manager of the Midas Fund, forecasts a 2012 gold high of $2200 and a low of $1650 - above current prices! He cites negative real interest rates: While inflation is at 3.2%, short-term cash earns 0.2% on one-year Treasury bills, so your guaranteed loss (negative real return) is 3%. That, he says, is "destroying savings." He thinks that "as people become more aware of the destruction of their wealth, there will be a stampede into hard assets - gold, diamonds, real estate" and other "real" assets.

Since gold recently fell below its 200-day moving average ($1619) for the first time this year, the next support level is $1500. But the technically-oriented Aden Sisters of Costa Rica predict that if gold closes and stays above the $1903 resistance level, the next bull market leg could take gold up to $2000 to $2200 early next year. In New Orleans, the Adens predicted a $2300 to $2500 price peak for gold in 2012.

Gold's "New" 2012 Fundamentals: "Old Wine in New Wineskins"

The case for $2000+ gold rests on the same basic supply/demand fundamentals that have driven gold higher each year since 2001. But for 2012, there are some positive new wrinkles in these basic trends:

Monetary Fundamentals:

• The Fed's zero-interest rate policy (ZIRP) is guaranteed to last through at least 2013 and probably into 2014. This insures that gold will enjoy a "level playing field" with cash, in terms of income.
• And now, the European Central Bank (ECB) has finally joined the Fed in the loose-money camp. Last week, the new ECB head, Mario Draghi of Italy, agreed to loan over $640 billion to over 500 European banks at 1% interest for up to three years. (Low euro rates also benefit gold.)
• The sovereign debt crisis continues in Europe, especially due to new easy money policies there.
• The U.S. debt crisis will grow as politicians pander to voters by spending more and taxing less.

Supply-Demand Fundamentals:

• There are continuing environmental protests against new mining ventures, particularly in this hemisphere. A giant Alaskan deposit is being held up by protestors, while indigenous peoples in South America are holding up production of existing mines. This limits gold's new supplies.
• China keeps growing fast, even though their "slowing" is like a race car going into a turn. In China, "slow growth" means 9%+. This creates millions of new Chinese middle-class (gold buyers) each year. They are further encouraged by their government's easy gold-buying plans.
• India's gold demand rose 38% in 2010 but fell late in the year, due to the weak Indian rupee. If we see a rally in the rupee or in India's economy, we should see a strong rise in Indian demand.

Bonus Book Review

Cities of Gold: Legendary Kingdoms, Quixotic Quests and Fantastic New World Wealth, by Bill Yenne

This new book traces the stories of several expeditions for golden deposits in North and South America during the first century of the Spanish Conquistadores in the New World, mostly in the 1500s. Author Bill Yenne sets the stage by discussing the role of gold as a royal measure of wealth and as a universal dream for the poor working classes since time began. Gold is part of our collective DNA, no matter how much the modern central bankers want to deny that visceral fact.

Since gold is (and was) the ultimate backing for any paper or base metal monetary tokens, the lack of gold in the 1400s after the plagues swept Europe meant that European commerce was starving for the lack of new gold backing. That's why gold became the primary motivation for westward expansion across the Atlantic as part of Spain's attempt to find a new short-cut to China and India. That's why Columbus was able to secure royal funding for his bold expedition. Spain needed, wanted and lusted after more gold.

Upon landing in the Western hemisphere, Columbus' first question to the native Welcome Wagon was, "Where is your gold?" (In terms of sports agent Jerry Maguire and his clients, he said, "Show me the money.")

"Gold is the most excellent of metals. What becomes of those precious stones, which are sought for at the extremities of the globe? They are sold and are finally converted into gold. With gold, we not only do whatever we please in this world, but we can even employ it to snatch souls from Purgatory and to people Paradise." - Christopher Columbus in his last letter to King Ferdinand, July 7, 1503

This influx of gold to Spain is the real story behind Spanish wealth, which funded the Spanish Armada, which in turn fueled the Spanish into thinking they could conquer anyone, including the British Isles.

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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