The Michael Fuljenz Metals Market Report: February 2012, Week 4 Edition
Gold rose every day last week, reaching a new four-month high of $1777.50 on the Friday London pm setting. Silver has doubled gold's gains so far this year, up 26% vs. 13% for gold, while platinum is up 24% this year (and +2.1% last Friday), mostly due to a protracted mining strike in South Africa.
Last Week In Metals: Gold rose $55 (+3.2%), silver rose $2.09 (+6.2%) and platinum rose $76 (+4.6%). Stocks rose 0.3%.
February 2012: Month-end Precious Metals Summary
February ends this Wednesday, but we already have a pretty good indication that all three precious metals will rise for their second straight month in 2012. January's gains reached double-digits in all three metals: +10.8% gold, 19.2% silver and 17.6% platinum. February can't match those gains, but as the following table shows, we have seen gold rise another 2%, silver 6% and platinum nearly 6% so far in February.
| Month-End | Gold | Silver | Platinum |
|---|---|---|---|
| Dec. 31 '11 | 1574.50 | 28.18 | 1381.00 |
| Jan. 31 '12 | 1744.00 | 33.60 | 1624.00 |
| Feb 24 '12 | 177.50 | 35.57 | 1714.00 |
| 2012 Gain: | +12.9% | +26.2% | +24.1% |
Part of the cause for the metals' rapid rise in early 2012 is a recent decline in the dollar, pushing up the price of nearly all commodities. For instance, the euro hit a 10-week high last week. Since mid-January, the euro is up 6.3%, from $1.265 to $1.345 and the British pound has risen 4%, from $1.53 to $1.59 in the same six weeks. The metals are up, but crude oil is rising even faster than gold. Oil rose 6% last week to reach $109 per barrel for the West Texas Intermediate crude and $125 per barrel on Brent sweet crude.
The Weak Dollar is Fueling Higher Energy Prices which Tends to Push Gold Up
According to the Energy Information Administration, the average weekly price of a gallon of gasoline is now $3.59, up from $3.18 the week before Christmas and $1.83 the week President Obama took office. According to the Associated Press the average American household spent $4,155 on gasoline last year. That represented 8.4% of the median family income, which is the biggest portion in three decades.
The high cost of oil imports accounts for 60% of our annual trade deficit. We could cut our trade deficit by 60% through a combination of energy conservation and encouraging home-grown energy sources.
The weak dollar adds to the price at the pump - as do tax increases on fuel - but the main culprit is the drive to limit domestic drilling, while adding more taxes and regulations on oil companies. The U.S. Chamber of Commerce reports that EPA alone "is moving forward with 31 major economic rules and 172 major policy rules that affect our energy supply - an unprecedented level of regulatory action." The result is an over-reliance on foreign sources for energy.
The Keystone XL pipeline from Canada could replace all oil imported from Venezuela. More drilling in Alaska and offshore could replace oil from the Middle East, but the President keeps delaying the pipeline decision and throwing down more roadblocks to expanded drilling. For instance, permits for offshore drilling ventures take 50% longer to approve, and only 23% are approved vs. a historical average of 73%.
In addition, we now face a potentially nuclear Iran. Last Friday, a United Nations report said that Iran has significantly increased its production of high-grade uranium, which tends to terrify Iran's neighbors, especially Israel. Last week, Britain and France stopped importing Iranian oil. France's Total, Italy's Eni, the Netherlands' Royal Dutch Shell and Spain's Repsol have stopped importing any Iranian crude oil. Now, Greece, Italy and Spain - which are big importers of Iranian crude oil - say they will stop importing oil from Iran as of July 1st. Even if Israel refrains from attacking Iran, these boycotts could push gasoline over $4 to perhaps $5 per gallon, just in time for summer driving season and the political conventions!
Israel's Defense Minister Ehud Barak has already talked openly about the necessity of striking Iran before Iran buries its nuclear facilities underground, beneath layers of concrete. U.S. Defense Secretary Leon Panetta said that these strikes could come as early as this spring. While not totally unexpected, such an attack could trigger a game-changing event like 1973, another oil embargo - this time initiated by Iran.
(Note: In my opinion, there is a 25% or higher chance that gold, oil, gasoline and many rare gold coins will rise in price by 50% or more in a year for many of the same reasons we saw twice in the 1970s.)
Another Game-Changer: What if China Sells More of its U.S. Dollars?
With or without a nuclear incident surrounding Iran, China has already begun to dump its hoard of U.S. dollars. Bloomberg reported last week that China reduced its holding of U.S. Treasury debt by $31.9 billion last November, a 2.8% decline, pushing China down to its lowest level of U.S. Treasury debt holdings since June of 2010. China owns well over $1 trillion in U.S. Treasury debt instruments, the largest of any nation by far. China apparently does not want to hold so much low-yielding Treasury debt in a currency that is declining in value, long-term. They could buy gold with these dollars, but even if China buys other commodities with their dollars, the very act of selling dollars will push gold prices up.
Carson City Double Eagles Are RED HOT!
One of the most active areas of the coin market is the $20 liberty double eagle market. The most active subset of that area are double eagles minted with the prized "CC" mintmark (1870-1893). These popular coins have low mintages and appeal to collectors and investors who are fond of the old west. They continue to be hard to locate and prices for most examples in most grades seem to rise year after year. Just recently I had to raise my offers by 10% to beat out competitors for a small collection of hand selected CC's.
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