The Michael Fuljenz Metals Market Report: January 2012, Week 3 Edition

Gold rose to $1661 Thursday then fell to $1635 at week's end. Platinum rose $60 in one day (Tuesday, January 10) and nearly $100 in three days, before correcting on Friday. On Tuesday morning, January 17, the metals resumed their winning streak, rising to $1660 gold, $30.30 silver and $1530 platinum as of noon (Eastern time). The metals are now up an average 7% during another great January. This increase is all the more impressive since the dollar is gaining strength to the euro, which fell to $1.26 last Friday.

Silver coins are leading the way: In the week of January 3-10, the U.S. Mint sold 4.26 million ounces of silver American Eagles, well on the way to beating its monthly record of 6.4 million ounces last January. The platinum market is also soaring, due to supply shortages vs. a rising demand for new vehicle sales.

• Gold 52 weeks ago (January 17, 2011): $1360.50
• Gold's average price during 2012: $1623.28
• Gold's London Low for 2012: $1590 on January 3
• Gold's London High for 2012: $1661 on January 12

Last Week In Metals: The metals beat stocks once again, with platinum soaring the most (for a change), up 5% last week!

Wall Street's Generally Bullish Views on Gold for 2012

Wall Street is not the most popular address in America these days. We've seen the "Occupy Wall Street" banners. This week, Citicorp released terrible fourth-quarter numbers. Four years after the collapse of the major New York banks, they're still in the tank. Morgan Stanley and Goldman Sachs would not win any popularity contests this political year, but perhaps some of their analysts know a thing or two about gold.

We've seen some dramatic Wall Street predictions for gold in 2012, including $2400 by Citigroup, $2200 by Morgan Stanley and $1940 by Goldman Sachs, whose head of commodities research, Jeff Currie, cites the negative "real" interest rate on cash, adding that the sharp drop in price makes gold "more attractive."

Then, on January 9, 2012, The Wall Street Journal asked, "Is the Golden Age Ending?" Author Rob Curran pointed to the more than 40 gold exchange-traded funds (ETFs) holding roughly $132 billion in assets. The largest fund, SPDR Gold, holds about half that amount, $63 billion. It is second only to the $95 billion SPDR S&P 500 (stock fund) in terms of investment size. In 2009 and 2010, gold ETF buying accounted for 13% of demand, according to the World Gold Council. The author fears what will happen when paper investors start selling their gold ETFs. (Perhaps they will exchange paper for the real thing?!)

Barron's January roundtable for January 16, 2012 gave the Journal's Rob Curran a definite answer. First, Felix Zulauf predicted that the monetary authorities would "load their guns again and print more money, which will make investors buy more gold. The gold market is so tiny that when people want to shift just a small piece of their wealth into gold, the price flies to new highs." Then, Marc Faber responded: "It's not that the gold price will go up. It is that the value of paper money will go down. Diversification is important and people should put 15% to 25% of their assets in gold." Later, Faber said, "I recommend 25% of your money in equities, 25% in precious metals, 25% in cash and bonds and 25% in real estate."

In short, the seasoned members of the Barron's Roundtable were able to answer the question asked by its sister publication, The Wall Street Journal. One reason for the two different attitudes under one roof is that the Journal is written by young journalists, while Barron's asks grizzled veterans about their views!

Asian Demand Will Likely Pick Up in the First Quarter of 2012

Last week here, we asked a series of "what if" questions about the chances for a gold recovery based on revived demand in Asia this year. We already have some of our answers coming across the news wires:

According to CNBC, Japanese investors are voting for gold in 2012 above all other investments. Of 164 investors surveyed by Nomura Bank, 19.5% said they would buy gold and hold it to the end of the year. Stocks and highly-rated bonds came next, at 13%, followed by emerging market stocks and funds at 10%.

This trend is also evident from the sale of a record $69 billion of U.S. bonds unloaded in December. The only way that amount of debt could be sold by one region is if the Chinese are selling their U.S. debt. We already know that the Chinese are buying gold in advance of the upcoming New Year. The January gold gain is mostly due to record imports from Hong Kong in preparation for the Chinese New Year.

India is also returning to the gold markets, although more tentatively than last year at this time. Traders said over the weekend that they're seeing fresh buying by jewelers to meet the marriage season demand. The head of India's biggest jewelry retailer said on Sunday that gold jewelry demand in India rose 5% to 7% last year and should grow another 10% to 15% this year, since bullion prices are down since October.

It's a small start, but Asian demand should continue to lift the price of gold and silver throughout 2012.

Gold and Silver are Still Cheap vs. January 18-21, 1980 (Inflation-Adjusted) Prices

This time of year, we like to recall those glorious hours when silver was $50 (Friday, January 18, 1980) and gold was $850 (Monday, January 21, 1980). Silver's record still holds, despite a frantic run to $49.20 last April, but gold has more than doubled its old high, with a $1920 intra-day peak last September 5.

When you put these numbers under the "truth serum" of the Consumer Price Index, however, these record highs escalate, showing that gold is nowhere near a long-term record, and silver isn't within the same area code. The CPI in January 1980 was 78. Today, the CPI is up to 227, or 2.91 times the early 1980 levels. If you multiply 2.91 times $850 gold, you get $2,475 as the price gold needs to reach in order to see a new "real" high. Silver's new "real" high would become an astronomical $146 per ounce.

Rare Coin Funds Impact Early 2012 Coin Market

I just returned from a major Florida money conference, where I attended three separate industry board meetings over a two-day period. While there, we covered the latest information in some of the most important industry challenges, ranging from Chinese counterfeiting to hotel coin buyers.

I further investigated the rare coin funds that could soon pump additional money into the market. There are basically two types of funds interested in coins: Buy and hold funds typically buy popular rare coins and coin sets and hold them for long term appreciation. Trading funds also routinely buy and sell a large spectrum of popular coins that dealers seek to buy in quantity.

Not since the late 1980s has there been so much chatter about the impact of rare coin funds on the market. While these funds were an important factor in the remarkable market gains from 1988 to 1990, they weren't the only factor. I will be closely monitoring some of these funds to see if they raise the capital they expect. If they do, the old adage, "a rising tide raises all ships," may apply.

That was certainly true when I was involved with the Kidder Peabody fund during their record 1989 auction purchase of the Dexter specimen 1804 dollar for $990,000. I later helped sell that coin for well over a million dollars. The 1804 dollar is considered the "Mona Lisa" of coins. Similarly, in early 2012, rare gold and copper coins set impressive price records in private and auction sales.

Metals Market Report Archive >