The Michael Fuljenz Metals Market Report: January 2012, Week 1 Edition

Gold fell to $1531 on the London pm setting on Thursday, December 29, but then it recovered on Friday, rising $37 to close the year at +11.7%, its third straight double-digit annual increase and an amazing 11th straight rising year. Silver fell sharply, closing at $26.16 on Thursday before rising $2 on Friday to close the year at $28.18, down 8% for the year. Platinum continued its losing streak, falling 20% for the year. Stocks were dead-even for the year on the S&P 500 (-0.03%), while the Dow rose and NASDAQ fell.

• Gold 52 weeks ago (January 4, 2011): $1388.50
• Gold's average price during 2011: $1571.52
• 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 fell $33, silver fell $1.02 and platinum fell $55, while stocks fell slightly to end the year flat.

2011 in Review: An Overview

Now that the calendar has finally turned a page from 2011 to enter 2012, we can officially say that gold rose by double-digits in 2011, beating most other investment choices. U.S. stocks were basically flat, European stocks were down 11%, cash offered less than 1% returns, and real estate fell 3.4%, according to the just-released Case-Shiller housing index. Even silver and platinum fell, but gold rose by 11.7%.

Gold began 2012 on the right foot, rising 2% to $1606. Silver is up 5.4% to $29.70 and platinum is up 3.2% to $1425 as of 10:30 am Central time. Stocks are also up about 2% in first few hours of trading in 2012. Part of the reason for gold's recent correction is a reversal of fortune in Asia - India's weak currency and suddenly-weak economy caused a decline in gold demand during wedding season. Also, China started to fear a gold mania among its population, so they cut back on the number of open gold markets in China.

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% plus. 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.

Table of Gold vs. Stocks Over the Last 12 Years

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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