The Michael Fuljenz Metals Market Report: May 2012, Week 2 Edition

Gold fell the least of any major asset last week, as oil fell 4% on Friday, reaching $98 per barrel; silver also fell 4%, and most stock indexes declined 2.5% to 4%. Part of the impetus for the sell-offs was the anemic jobs data released Friday, as well as the anticipation of the Socialist victory in France on Sunday. In stocks, the mantra "sell in May and go away" sent investors to the exits, while weak industrial demand hurt copper, oil, silver and several other commodities. In that light, gold did well to fall by "only" 1.2%.

• Gold 52 weeks ago (May 6, 2011): $1486.50
• Gold's average price during 2012: $1679.78
• 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 fell $20 (-1.2%), silver fell $1.24 (-4%), platinum fell $43 (-2.7%) and stocks fell 2.4% or more.

Gallup Poll Says Gold Is Best Investment

In a recent Gallup poll, 28% of Americans named gold as the best long-term investment. Real estate was second at 20%, followed by a tie for third place for paper assets like stocks and savings accounts at 19%, and bonds trailing last at only 8%. The findings were reported as part of Gallup's April update of its annual Economy and Personal Finance poll.

This could suggest that a lot of Americans have gold on their minds as they fret about the instability and uncertainty of other assets they hold. When many give up on other assets in frustration, gold would be the most likely to benefit.

French Election Results Could Send the Euro Down, Dollar Up and Gold Sideways

The return of the Socialist Party to the controls of the French government could help send the euro down and the dollar "up" (in euro terms), pushing gold into a continual sideways trading range in dollar terms. The new French Socialist President Francois Hollande wants to raise the top tax rate to 75%, reduce the already indulgent mandatory retirement age from 62 to 60, and to start taking care of French citizens first, thereby pulling the plug on some rescue plans for the euro-zone debtor nations like Spain, Portugal, Italy, Greece (and more to come). Already, 11 European nations are in recession, with record-high euro-zone unemployment at 11% (Spain tops 24%), and a crippling welfare state burden that nobody can afford.

In other European elections, German Chancellor Angela Merkel's coalition suffered defeat in a state election, and Greek voters backed "fringe" parties that mostly wanted out of the euro-zone strait jacket. This may be the beginning of a long-term unraveling of the euro-zone, and hence the euro as a currency.

The euro hit a three-month low against the U.S. dollar Monday, while the U.S. dollar reached a three-week high vs. a basket of currencies (dominated by the euro), sending the price of commodities down (in dollar terms), even though some of those commodities are rising in terms of the euro. Nobody knows where this will end, but the trend in Europe is for an abandonment of the "austerity" plans devised by France's outgoing President Nicolas Sarkozy and German's weakened chancellor, Angela Merkel. In fact, Merkel backed Sarkozy in the French election, so the Socialist victory was a slap in her face, too.

For gold, the outcome might be a delay in its next assault on $2,000. If the dollar remains strong, the price of gold is not likely to soar any time soon, but if gold stays above $1600 per ounce while rising in terms of other currencies (like the euro), demand will continue to lift the price of gold in currency-neutral terms. For instance, if the nations of Europe choose to inflate their currency and "forgive" more debts by writing them further down (giving bond investors 50-cents on the dollar, for instance), there could be a continued run on gold coins and bars among Europe's better-off investors. Other Europeans are occasionally, out of financial necessity, having to sell their long held gold coin treasures. Europe's financial woes could be your gain. If the new French President follows through on his promise of 75% taxation on the rich, then those rich will seek out tax havens and investments like gold, which fall outside tax-reporting requirements when held in private tax havens.

1916 San Francisco Mint $5 Indian Gold Half Eagle MS62

Periodically, I will post graphs of how various coins have performed over time. For many years, I have liked the historic $5 Indian gold coin with the only incused design in our coinage history. I even wrote an NLG award-winning book about the series, titled "Indian Gold Coins of the 20th Century." Currently I believe it is a historically opportune time to acquire better date $5 Indians in better grades. This week's graph shows how multiple coins totaling $10,000 in scarce MS-62 1916-S $5 gold half eagles would have increased in the seven years that I have purchased them. The graph reflects the price gains of actual coins I have been fortunate to buy over the years, showing an increase from $10,000 to $31,000, over three times, in seven years.

As you can see, there are price dips along the way. That's why I recommend at least a 5-10 year hold period on rare coin purchases. In the shorter time frames in this graph, price performance can lag for a few years, only to be followed by impressive gains. We all know that past performance of one coin does not guarantee future performance for all coins, but we can still learn many lessons from history. Many experts recommend buying better dates and grades because of often better long term performance for much of the past 100 years. Read my book to learn about famous very successful long-term gold coin buyers like Louis Eliasberg.

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