The Michael Fuljenz Metals Market Report: March 2012, Week 4 Edition

Gold fell then rose last week, gaining $6, while most commodities and stocks fell, for two related reasons: (1) The price of oil keeps rising, due to the embargo on Iran's oil and a decline in inventories, while (2) China announced a slowdown in global orders, which pushed most of the industrial metals down, most notably iron, copper, zinc, silver, platinum and other metals used in industry. Stocks also declined, for the same reason - fear of inflation in oil prices amid a deflation in other major commodities.

• Gold 52 weeks ago (March 28, 2011): $1417
• Gold's average price during 2012: $1692
• Gold's London Low for 2012: $1590 on January 3
• Gold's London High for 2012: $1788 on February 29

Last Week In Metals: Gold rose slightly (+$6) on a strong Friday surge, while silver, platinum and stocks declined.

Gold News from Turkey and India Overshadows any "Slowdown" in China

The stock market and metals both suffered sinking spells in the middle of last week over fears of a new "slowdown" in China, but that must have been the fourth or fifth rumor of a Chinese slowdown in the last year - but China never really slows down. China is one of the most energetic economies in the history of man. Anyone who has visited China can see that. A Chinese slowdown is often to grow 7.5% per year instead of the usual 9% to 10%. China will likely keep growing and keep consuming metals for decades to come.

That's why the news from Turkey and India may overshadow any fears of a slowdown in China. Late last week, The Wall Street Journal published two articles about gold. The first, on Thursday, March 22, was titled "Turkey Targets Gold Stashes." The accompanying chart showed Turkish gold demand rising 80% in 2011 over 2010. The Istanbul Gold Refinery estimates that private citizens hold 5000 metric tons of gold, worth about $270 billion. That, in turn, led the cash-starved Turkish government to try to lure gold investors to move their gold into public banks. Incentives include interest-bearing gold deposit accounts.

The Journal also covered the Indian gold market in an article titled, "Indian Strike Weights on Gold Price: Buyers sit on their hands as sellers of the yellow metal close shop in protest of new levies." The basic problem - as we described in last week's Metals Report - involves a doubling in tax levies on Indian gold imports and an added 0.3% tax on gold jewelry sales. Most Indian gold traders say demand will pick up after the initial shock, but dealers are also likely to import more gold from Thailand, due to lower tariffs.

Last year, India and China dominated gold demand, but other nations are rising up to pick up the slack:

*In metric tons; source: The World Gold Council

Right now, India and Turkey - the first and the fifth-place gold demand nations - are trying to take advantage of their citizens' love for gold by taxing it (in India) or luring their gold into the banks, where future taxes or threats of recall (in Turkey) could result. In the end, this will likely cause more people to seek private ways to own gold, skirting the taxman and government regulators, whenever possible.

Another Gold Recall in the United States is Unlikely

These new attempts by governments in India and Turkey to control or tax their national gold markets raise the age-old of question of whether or not a gold recall is possible again in the United States, especially since it happened once before, in 1933, lasting for over 40 years, until the end of 1974.

Last week, the Swiss-born, Hong Kong-based editor of the "Gloom, Boom and Doom Report," Marc Faber, came out with a warning of gold "confiscation," saying, "if I were an American, I would store gold outside the U.S., because in the U.S., it is not completely unlikely that they will eventually take it away." In light of all the recent "soak the rich" campaigns, he said that it would be a very popular move to recall all the gold held by the hated top 1% of Americans - even though most gold owners fall below the top 1% in total net worth. As a non-American, Marc Faber has no problem buying and storing his gold in a foreign country, but for many Americans this is not a practical to buy or store all their gold and silver.

Some coin companies have recently tried to scare customers into numismatic coin purchases by warning them that any future gold recall would likely target bullion, not collectibles. Because of the frequent scare tactics of other companies, I am often asked about the possibility of a gold recall. I think that such a threat is unlikely. These are different times than the Great Depression and the U.S. Mint is in the gold SELLING, not gold recall, business. I think the government knows that most gold owners are independent-minded enough that they would not willingly surrender their gold, as most Americans did in 1933. Still, it pays to keep your gold privately and diversify widely between bullion and numismatics.

I am also asked if gold owners should keep their coins at home, in a bank safe deposit box or in some overseas vault, as Marc Faber recommends. If you are a world-traveling multi-millionaire, perhaps a Swiss bank account makes sense. For most people, however, I recommend bank deposit boxes. There is no need to tell the bank what is in your safe deposit box. You can fill it or empty it in privacy, and a bank deposit box is far safer than gold stored in your home. There have been several recent stories of thieves entering the home of a suspected coin customer or dealer and demanding to know the location of their home safe or any buried gold. A safe deposit box could help to defeat such a robbery attempt.

Warren Buffett - Like Many Stock Gurus - is "Zero for the 21st Century" on Gold

Many stock market investors ignore gold, which is understandable, but when they go out of their way to "dump" on gold, you have to wonder if they are in denial about gold's superiority to stocks in the 21st century. Warren Buffett, the much-quoted "Oracle of Omaha," writes an annual shareholder newsletter that is usually filled with homespun wisdom and detailed descriptions of his latest investment purchases. In this year's letter, however, Buffett went out of his way to disparage gold, calling it a useless asset.

Buffett wrote: "Gold has two significant shortcomings, being neither of much use nor procreative. This type of investment requires an expanding pool of buyers who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce - it will remain lifeless forever - but rather by the belief that others will desire it even more avidly in the future."

Buffett should take a look at gold's track record vs. his own stock in the last 10 to 15 years. Eric Fry of Agora Financial, discovered that "an investor who purchased gold any time after January of 1998 would have received a higher investment return" than an investor in Buffett's Berkshire Hathaway stock.

Looking at the last 14 years, the comparison is dramatic.

*Berkshire Hathaway "A" share prices

So Warren Buffett has beaten the Dow - as he usually does - but gold has grown 5.5 times faster than Buffett. It's time for the Sage of Omaha to realize that gold provides balance to any portfolio, even his.

Gold Coin Prices Have Increased Throughout My Lifetime

I began collecting coins in the 1960s. In 1972, I was president of the Southwest Louisiana Coin Club at age 18 and also chairman of the Louisiana State Numismatic Association Coin Convention. Over the past five decades, I have seen one or two bull markets per decade - exciting times when many gold coins increased 2- to 8-fold over a 2-3 year span. Often times, the high prices in these bull markets exceeded the prices reached in previous bull markets. Patient long-term gold coin collectors like Louis Eliasberg used time to their advantage by building sets of classic gold coins. Eliasberg's gold coin collection, costing less than $400,000, brought about $55 million decades later - more than 100 times what he paid.

I recently reviewed some price charts on Indian gold coins with my staff and showed them that many $5 Indians in MS-62 and MS-63 saw a more than three-fold price increase from 2003 to 2006. In MS-64, they showed more than a three-fold increase from 2001 to 2006. Visualizing these dramatic increases crystallized for them the reason why I have believed in gold coins for almost 50 years. In 1966 at age 12, I won $50 playing Bingo at a club in Lake Arthur, Louisiana with my grandmother. With that money, I bought my first gold coin, a beautiful $5 Indian. I estimate that coin would be worth over 40 times as much today. I bought my first $20 Liberty in 1972 for $50. I estimate that coin's current value would be over 40 times what I paid.

For those with patience, gold coins over time have typically performed well. For more details, consult my award-winning book, "Indian Gold Coins of the 20th Century".

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