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

Gold fell sharply last Wednesday, after Federal Reserve Chairman Ben Bernanke said that no specific plans for more "quantitative easing" (QE-3) were in the cards yet. But that didn't stop the central banks in both Europe and America from generally promising to do "whatever is necessary" to keep bailing out the sinking financial ship of state in both Europe and America. Fed Chairman Bernanke even said that he has "a number of options" and "at this point," no monetary solution is "off the table." The Fed's Open Market Committee (FOMC) meets next week (June 19-20) and they could opt for more intervention then.

• Gold 52 weeks ago (June 13, 2011): $1526.26
• Gold's average price during 2012: $1659.20
• Gold's London Low for 2012: $1537 on May 16
• Gold's London High for 2012: $1788 on February 29

Last Week In Metals: In London, gold fell $30, but silver rose $0.79 (+3%), platinum rose $10, and stocks rose by about 3.7%.

Harold Bareford - Like Louis Eliasberg - Knew How to Build a Coin Collection

New York City lawyer Harold Bareford assembled most of his own private coin sets from 1945 to 1955. During that decade, he built one of the most stunning collections of U.S. gold coins ever seen. In 1947, he summed up his coin-buying philosophy: "I collect only the finest specimens." He was also meticulous in record keeping, making it easy to track the performance of his rare coins. In 1947, for instance, he paid just $310 for a rare 1933 Eagle gold piece. When his heirs sold it in 1978, it brought $92,500, or about 300 times what he paid. In all, Bareford laid out $13,832 for his gold coin collection. At auction, his coins fetched about $1.2 million, almost 87 times his original outlay. But Bareford made one mistake. He stopped buying coins in 1955, thinking they had gotten too expensive. Instead, he could have added coins to his collection and probably made a second million-dollar fortune from small beginnings.

Is it possible to match Bareford's 8,575% gains in the next few decades? Yes, it's possible, if the U.S. continues to print too many paper dollars, fueling inflation. Harold Bareford offers us another lesson in historical perspective. Tremendous bargains are only available in hindsight, so if you want to look back at 2012 with pride, you can start your rare coin collection today. Perhaps today marks your "Bareford Beginning" in coin buying.

Why Do I Discuss Metals in a Coin Company Newsletter?

Gold prices affect the rare coin market both directly (for bullion coins) and indirectly (for numismatic coins). The impact is more immediate and significant if gold is a major component of the gold coin's market value. For example, a common circulated $20 Liberty gold coin will be more affected than a gem uncirculated $3 gold piece. The more rare and desirable a coin is, typically the less effect modest gold moves will have on its price. However, rising gold prices often result in more customers for coin dealers. During a number of historical bull markets, there has been a secondary impact of a strong metals market on many rare gold coins.

Conversely, declining gold prices over time can reduce advertisement response by new customers and may be a factor in later rare coin price declines. Customers may tend to buy more coins when gold rises than when it falls. The economy can also play a part in whether customers buy as often and spend as much on rare coins. There are no absolutes or guarantees here, just valuable lessons, and opportunities, from history to consider.

Central Banks are Buying Gold Again - Creating a Floor Under Gold's Price

The current edition of Barron's features gold in its Commodities column this week, titled: "Central Banks Snap Up Gold." The article begins: "Big changes are afoot in the gold market. The short take: The new environment will favor long-term investors who buy and hold for years over speculators who try to trade day-to-day gyrations. For one thing, central bankers are buying gold. Think it's no big deal? The last time we saw the so-called official sector as such a consistent and major buyer was in 1965." That was the year silver was taken out of American coins and gold started to hemorrhage from the U.S. Treasury.

Central banks were net sellers of gold from 1966 through 2007. Then, they began buying gold back during the financial crisis of 2008. That pushed gold up rapidly in the strongest leg of gold's meteoric 11-year bull market since 2001. In addition, the Federal Reserve launched a series of monetary rescue plans that year, known by the short-hand terms "quantitative easing" (QE) and "zero interest-rate policy" (ZIRP). Both policies are favorable to gold. One (QE) is inflationary and the other (ZIRP) gives gold a "level playing field" when competing with cash in the bank. Both gold and cash offer near-zero income.

One factor holding gold back is the absence of speculators. The number of gold contracts in managed futures funds (a proxy for speculators) is down 28% since gold peaked last September. That means more volatility, since the major role of speculators in any market is to provide instant liquidity for new buyers and sellers. (If nobody is ready to buy at a given moment, prices can gyrate more sharply.) This means that gold can now shoot up or down rapidly at any given time, like it did in the last week: We saw a $50 rise on Friday, June 1, on the weak jobs report, and a $60 drop on June 6 after Ben Bernanke's speech.

The Barron's article cites World Gold Council data showing that central banks bought 400 tons (about 13 million Troy ounces, worth about $21 billion) of gold in the 12 months ending March 31, 2012. Jeffrey Christian, founder of the CPM Group in New York, predicts a range of 311 to 374 metric tons of central bank demand this year, accounting for about 10% of global supply, putting a floor under gold's price. (The reason they don't buy more gold is that massive purchases could push gold's price up too fast.)

Since March 31, central banks have continued to buy gold, although there is no comprehensive total available from the World Gold Council yet. Clementine Wallop reported in the Wall Street Journal that "central bank buying from countries including Mexico, Ukraine, Kazakhstan and the Philippines, and demand from emerging economies indicates faith in the long-term safe-haven trade." She said that data from the International Monetary Fund (IMF) showed that these countries were gold buyers in April:

• The Philippines added a million ounces in its seventh consecutive month of buying gold.
• Mexico bought a net 94,000 ounces, pushing its official reserves to 4.04 million ounces.
• Kazakhstan added 65,000 ounces, lifting its April 30 total to 3.16 million ounces.
• Ukraine's stockpile rose by 45,000 ounces to 984,000 ounces.

That's at least 1.2 million ounces, or about 37 metric tons, of April demand, with more information likely available after the end of the quarter, June 30. If central banks buy 100 tons a quarter (400 tons a year), that's an average of 33 tons per month, so April's 37 ton provisional total is a 444-ton annual rate.

Summary: The Main Factors Pushing Gold Up, Down and Sideways in 2012

After gold reached $1788 on Leap Year Day, February 29, 2012, gold is down because of a confluence of temporary factors: (1) A stronger U.S. dollar vs. the euro, which results in a sharp decline in commodities in dollar terms, including crude oil at $84; (2) A weak Indian rupee and new import taxes on Indian gold, (3) shorting or selling of gold ETFs on Wall Street and (4) attacks on gold by Warren Buffett and others.

The positive factors we've seen arise lately include: (1) fear over the breakup of Europe and the euro, (2) more central bank gold buying, (3) low interest rates, giving gold a "level playing field," (4) slow growth in newly-mined gold, (5) new buying on dips from "big-name" buyers and (6) rising demand in China.

We still believe gold will close 2012 on a positive note for the 12th straight year, and it could reach $2012 if gold suddenly goes on steroids. Some possible "game-changers" include: (1) More states and nations installing gold-backed coins or bills, (2) an outbreak of war in rogue nuclear powers, like Iran or North Korea, (3) widespread printing of new fiat money to fight the coming global recession, (4) fear of U.S. growing debt, no matter who is elected in November, or (5) another "sneak" terrorist attack on America.

Mike Fuljenz Wins Press Club Awards for Gold Advisories

Michael Fuljenz again has been honored by journalism professionals for his consumer education writings about gold and other precious metals. The Press Club of Southeast Texas presented Fuljenz with a first place Excellence in the Media Award in the brochure category for his Personal Gold Guide and a first place award in the electronic newsletter category for the Mike Fuljenz Metals Market Report.

The prestigious annual awards were announced on June 8, 2012 at the Press Club's 21st Annual Excellence in the Media awards banquet in Beaumont. Last year Fuljenz won a first place award from the Press Club of Southeast Texas for consumer protection work about alleged coin fraud by traveling gold buyers who briefly set up in hotels, then move on to another town.

The Personal Gold Guide, compiled by Fuljenz and other market analysts, provides investors with comprehensive market insights and specific guidance about acquiring gold to diversify and strengthen portfolios. A free copy is available. This Metals Market Report is a weekly analysis of significant marketplace developments and trends for gold, silver and other precious metals as well as rare coins.

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