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

Gold staged a spectacular $75 rally on Friday, rising sharply in the New York market, from a base of $1550 at 8:00 am to reach $1627 by 2:00 pm. During the same hours, stocks fell 2.5% after the terrible May jobs report revealed only 69,000 new jobs vs. 150,000 expected and over 200,000 jobs per month in the first quarter of 2012. Both trends came in the wake of a terrible jobs report, which will serve to give the Fed the leeway (excuse) it needs for more quantitative easing (money printing) in order to avoid a recession during an election year. The most amazing fact about gold's strong rise last Friday is that it rose while the dollar was rising to the euro, due to the increasing likelihood of a euro-zone divorce.

• Gold 52 weeks ago (June 6, 2011): $1549.00
• Gold's average price during 2012: $1660.71
• Gold's London Low for 2012: $1537 on May 16
• Gold's London High for 2012: $1788 on February 29

Last Week In Metals: Gold rose $53 (+3.4%), silver rose $0.21 (+0.7%), platinum rose $19 (+1.3%), while stocks fell 3%.

Louis E. Eliasberg, The King of Gold Coins

Louis E. Eliasberg Sr. came to be known as "The King of Coins" after he accomplished a feat many thought to be impossible: Over a period of less than two decades, from 1934 to 1950, Eliasberg assembled the only complete collection of U.S. coins - the only one that contained regular-issue coins of every denomination from every date they were issued and every mint that made them in those years. News of this achievement not only electrified fellow hobbyists, but also impressed the entire nation. It was considered so significant that Life magazine, then required reading for millions of Americans, featured Eliasberg and his coins in a lavish photo layout.

Yet, this "King of Coins" didn't have kingly wealth. He lived comfortably on his income as a Baltimore banker, but his budget for buying coins was not unlimited. Nor was he known as a big spender: Dealers who did business with him found him to be a cautious buyer who took out his checkbook only after careful deliberation.

Eliasberg wasn't even a hobbyist when he started buying coins: He did so as a way to circumvent the Gold Surrender Order of 1933, which required U.S. citizens to turn in their gold coins, but exempted collectible coins. "I realized the only way I could legally acquire gold was by becoming a numismatist," he explained years later. "So in 1934, to the extent of my means, I started buying gold coins."

Soon bitten by the hobby bug, he started buying other coins as well, and within a few years he had built a respectable collection. Then, in 1942, came a marvelous opportunity: He was able to purchase outright the outstanding collection of John H. Clapp - in the process acquiring many rare coins he didn't already possess. That's when he began thinking seriously of pursuing the impossible dream: a U.S. coin collection with "one of everything." He prepared a list of coins he lacked and started tracking them down in auctions and dealers' inventories.

"Eliasberg struck me as a gentleman," one prominent numismatist later recalled. "He was tall, aristocratic, a genius at finance, but he didn't know very much about coins...He knew more about making money." His success at making money has become the stuff of legends in the coin collecting community. During the decade and a half it took him to complete his collection, Eliasberg spent less than $400,000. When the collection was sold, at a series of auctions between 1982 and 2005, it realized a grand total of roughly $55 million - more than 100 times what he had paid.

The gold coins he started buying in 1934 not only turned Eliasberg from a numismatic novice into a great collector, but also ended up confirming his status as a very successful investor. In short, even if he had never begun pursuing the seemingly impossible dream of collecting "one of everything," Eliasberg would have made millions just through his decision to buy gold coins as collectibles.

This is Your "Eliasberg Moment"

Eliasberg specialized in rare numismatic coins because gold bullion was off limits, by order of the President in 1934. As we enter another economic slowdown in 2012, today's investment world feels a lot like the 1930s, when Louis Eliasberg started his collection. From 1934 to 1950, when Eliasberg bought the bulk of his collection, the stock market was basically flat, like it is today. With today's market feeling so much like the 1930s all over again, wise investors might once again make money and have fun collecting coin sets that might yield up to a 100-fold gain in the course of their lifetime.

Lloyd's of London Preps for Euro Collapse

The renowned insurer-of-all-things from movie stars' legs to the RMS Titanic since the 17th century is bracing for the collapse of the euro. "The chief executive of the multi-billion pound Lloyd's of London has publicly admitted that the world's leading insurance market is prepared for a collapse in the single currency and has reduced its exposure ‘as much as possible' to the crisis-ridden continent," reported Andrew Cave in the Telegraph this week. "I'm quite worried about Europe," Lloyd's CEO Richard Ward said in one of the first admissions by a major UK business leader of the scale of the crisis that would be prompted by a eurozone collapse.

The U.S. Economy is Suddenly Weak, Giving the Fed Fuel for an Inflationary Fire

After gold peaked at $1900 last September, the stock market recovered along with the economy. In the six months from October 3 to April 2, the stock market gained 30%. The U.S. economic indicators were surprisingly strong during those six months, but during the current quarter (April-June), the American engine has started to sputter again. With the economy heading south going into an election, President Obama could lose his job. More importantly, this decline in the economic indicators will give the Fed a good excuse to inflate the money supply over the summer months, to avoid returning to a deep recession.

Consider these indicators: (1) Only 69,000 payroll jobs were created in May, far below expectations of 150,000 jobs. Meanwhile, the previous two months (March and April) were revised down by 49,000 jobs. For the first time since last summer, the unemployment rate rose. The broader "U-6" unemployment rate (including "marginally attached workers") rose to 14.8%, while the average workweek fell to 34.4 hours.

Other indicators mark the same trend: (2) Consumer confidence fell sharply in May, despite lower gas prices. That was the third straight monthly decline. (3) First-quarter GDP fell to a 1.9% gain, down from the initial report of +2.2%. (Conditions in Europe are even worse). All this evidence gives the Fed an excuse to ease money supply, perhaps fueling the same kind of strong gold move we saw last summer.

Barron's Publishes Two Positive Articles on Gold

Now that gold has risen again, the press is suddenly favorable on the metal. Barron's, a leading weekly financial newspaper, published a very strong article on gold in their Monday (June 4) edition: "Going for Gold in a Dangerous World." It's an interview with Simon Kikhailovich, co-founder of Eidesis Capital.

Simon Mikhailovich escaped the Soviet Union in 1979 with $100 in his pocket and since then has built a financial empire in America. He is investing a large portion of his portfolio in gold bullion as a substitute for cash and as a store of value. Furthermore, he likes "physical gold bullion - not paper or derivative instruments - held securely outside the financial system" in several locations, for geographical diversification during the crisis he expects to see soon. He pointed out that the Swiss National Bank stores its gold in several locations, as does the U.S. Treasury, which holds gold at Fort Knox and at West Point.

Mikhailovich believes that we will see another financial crisis, like 2008, perhaps resulting in the death of the euro and a sharp decline of the dollar to gold. "Gold can produce tremendous real returns," he says, because it is not tied to paper money. Other assets lose value but "gold is ubiquitous. It's divisible. It's measurable. It's testable. There is a global market." In the last decade, he said, "80% of physical demand for gold came from emerging markets." When Western investors "realize the need to diversify into assets that can protect against devaluation, demand for physical gold has the potential to rise dramatically."

The second Barron's article, "Ugly Week Shoves Dow into Red for Year" by columnist Kopin Tan, covers the gold market in comparison to stocks, featuring an excellent chart, which shows that "Gold has far outgunned other commodities since 2007, and the ratio of gold prices relative to the CRB all-spot commodities index has leapt far ahead of year-over-year inflation...Gold has also benefited from the surge in liquidity and emerging-market wealth, with demand especially rabid in India and China."

In the meantime, the weekend edition of The Wall Street Journal (a sister publication to Barron's) printed an investment column titled, "How Much Gold Do Investors Need? Zero Should Suffice." This is another one of those gold-bashing articles which create a "straw man" argument against gold.

The Wall Street Journal can keep interviewing advisors who don't fully understand gold, but the truth is that the price of gold doesn't depend on Wall Street falling in love with the metal. As all studies show, 80% of investment demand comes from "emerging" (poor) markets, with 60% of total demand coming from India and China alone.

Vietnam, a sore spot in America's recent history, is now joining the gold-demand bandwagon in a big way. Vietnamese investors have stored over 1,000 tons of gold (worth over $50 billion) in private hands.

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