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

Gold rose to $1617 in Europe on America's July 4th holiday, but then we saw a $34 drop in gold over the next two days. Gold closed down $16 for the week at $1584. Silver and platinum followed gold's pattern, and so did most stocks. The Dow rose before July 4th and then it fell sharply on Friday, mostly due to the weak jobs report (80,000 new jobs created in June). America averaged a healthy 226,000 new jobs per month in the first quarter of 2012, but added only 75,000 net new jobs per month in the second quarter.

• Gold 52 weeks ago (July 8, 2011): $1541.50
• Gold's average price during 2012: $1649.46
• 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 fell $16 (-1.0%), silver fell $0.39 (-1.4%) and platinum fell $3 (-0.2%), while the Dow lost 0.84%.

Gold Coin Survives Controversy. Drives Investor & Collector Demand.

It was authorized by the Act of April 2, 1792. In 1908, this gold coin sparked controversy and spread fear across our nation. So loudly was the coin condemned, people were scared to save them in their collections for fear of germs spreading from the coin's innovative recessed design.

Over a century later, that unfounded fear has resulted in the Indian Head quarter eagle ($2 ½) becoming a series with relatively few examples surviving in higher grades. Their rarity, along with a historic list of unprecedented "firsts," is driving investors and collectors worldwide to add them to their portfolios and collections:

• First $2.50 design to have the motto "In God We Trust"
• First U.S. coin struck with a fascinating incuse design
• First U.S. coin design that used a true Native American model
• First U.S. coin design by Bela Lyon Pratt, pupil of the famous designer Augustus Saint-Gaudens
• One of the most popular and historic coins of the 20th Century

This week I saw increased dealer advertising for Indian gold coins and over a dozen higher bids posted on certified coin dealer exchanges for $2.50 Indians in mint state.

A complete set of these coins (1908-1929) only has 15 coins. If you are an investor or collector working on this set I advise you to buy now as prices for many of these coins are beginning to rise and dealer inventories are shrinking.

Gold could soon be Deemed Safe ("zero risk") When Held in a Bank

In a big potential "game changer," bank regulators could soon deem gold as good as cash, when held in a bank. A "memorandum for comment" issued by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve is seeking comment from bankers on a move that would place a "zero risk" rating on gold bullion if held in a bank. The specific wording establishes a "zero percent risk" to either cash or "gold bullion held in the banking organization's own vaults or held in another depository institution's vaults on an allocated basis...". This places gold on the same risk level as cash, a move that could increase gold demand among conservative savers and investors, as well as banks.

This move, if adopted, could cause more banks to invest in gold to dress up their own balance sheets. U.S. Treasury Bill rates are so low that many bankers will ask, "why not hold at least 10% in gold, giving us the chance to earn a lot more than 1% per year in a ‘currency' that no government can inflate or devalue?

Currently, gold has a 50% risk-weighting, meaning that banks are only credited with 50% of gold's value on their books, say $800 per ounce, not $1600. Meanwhile, government bonds are given 100% value on bank books, since they carry "zero" risk. In the real world, of course, every investment carries some risk.

If this provision passes, it would not take effect until January 1, 2013, but a move to the new regulation could increase gold demand by both banks and traditional savers, possibly pushing gold over $2,000 and creating a "virtuous circle" of demand increasing prices, which in turn increases demand and typically increases the number of gold coin buyers. In the process, we will take one more step toward a "virtual gold standard," not a sudden change of religion by central bankers, but a way for more and more average people to consider gold as a part of their safe hoard of core savings.

What this new banking regulation means, in practical terms, is that individuals who hold gold in their bank account may soon be able to take out a bank loan using nearly 100% of their gold's market value as collateral (if this new banking provision passes muster).

Unlike some other companies, who stir up fear of gold confiscation, we have long advocated bank safety deposit boxes as one of the best places to store your gold coins and bullion.

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