The Michael Fuljenz Metals Market Report: September 2012, Week 4 Edition
Gold closed at $1784.50 in London last Friday, within $4 of its annual high, set last February 29, but silver and platinum retreated from their lofty recent gains. South Africa's striking platinum miners went back to work, so platinum fell, but it is still above its pre-strike levels. Now, it's time for gold to catch up with silver and platinum's 20% year-to-date gains, since this environment is perfect for gold as a crisis hedge, inflation hedge, and a hedge against a weaker dollar. In similar time periods in recent history, gold has soared after the Federal Reserve announced previous rounds of quantitative easing (QE).
In coin news, we have recently seen more European buying than selling of U.S. gold coins. Traditionally, Europeans sell more than they buy. This reversal hasn't happened in a long time. It is very bullish for many $10 and $20 gold pieces that are typically imported from Europe and are becoming tougher to find and more expensive to buy.
- Gold 52 weeks ago (September 26, 2011): $1598
- Gold's ending 2011 price: $1574.00
- Gold's London Low for 2012: $1537 on May 16
- Gold's London High for 2012: $1788 on February 29
$2,400 Gold by 2014 Says BofA Merrill Lynch
QE3 will drive gold prices to $2,400 an ounce by the end of 2014 and will not drop below $1,500 with support from emerging countries. So predicts a report this week from Bank of America Merrill Lynch analysts.
"The Fed's announcement was on the aggressive side of expectations," analysts at BofA Merrill Lynch said in a report. "Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy. In our view, this is unlikely to happen until the end of 2014."
The report reiterated the bank's 6-month price target of $2,000 for gold.
The analysts also said gold prices are unlikely to dip below a support "floor" of $1,500 over the next decade because of demand from buyers in developing countries. "With emerging markets getting richer, their budget allocation to non-essential items such as gold will likely increase in the long-run," the bank said.
The BofA Merrill Lynch report attributed gold's recent surge to a sharp boost in inflation expectations, which the analysts foresee as running above 3% over the five year period beginning in 2017.
India Buying Gold Again...At a Record Pace
Gold demand in India, the world's largest gold consumer, shot up sharply in September in spite of a record high price in rupee terms. This departure in typical consumer behavior is especially notable since Indian buyers are traditionally very price conscious, usually cutting down on gold purchases when prices are high and rushing to buy when prices dip.
India is well into its traditional fall festival season, which historically involves lavish giving of gold gifts. Buying gold during festivals is considered auspicious in the country. Jewelers and investors ramped up gold purchases expecting prices to climb higher as the festival season boosts demand.
Spot gold price in India hit a record high of 32,558 Indian rupees (about $600) per 10 grams last week.
"Buyers were waiting for a correction in prices for a long period. Now they think the correction is unlikely as the U.S. Federal Reserve announced stimulus," said a Mumbai-based dealer with a state-run bank importing the yellow metal. "Some buyers even think price may cross 35,000 rupees."
"Jewelers and jewelry exporters were keeping lower inventory. They were postponing purchases, hoping prices will drop from record level," said a Mumbai dealer with a private bank. "Now jewelers are buying at record high price since festival season is just around the corner. They can't wait further."
The summer slump for gold was aggravated in part by the hiatus in gold buying from India. Indian investment demand plunged 51% percent in the June quarter to 56.5 tonnes but has been surging along with jewelry demand.
Fool's Gold: Counterfeit Bars in New York
A Manhattan jeweler got a nasty surprise this week when he discovered that all that glitters is not gold.
Ibrahim Fadl, bought four 10-ounce gold bars for $100,000. When a colleague tipped him off about counterfeit bars that had been surfacing recently, he decided to check out his gold bars. Drilling into several of them, he was shocked and dismayed to find a core of gray tungsten, which has nearly the same density as gold.
The same thing happened in Great Britain earlier this year, and two years ago a German refiner received a 500-gram bar from a bank that was filled with tungsten.
I was interviewed by NBC News last week on this issue and said that this methodology of counterfeiting has been going on for a long time and "The people who get hit are typically not the bigger coin dealers." The fact that I taught counterfeit detection and grading seminars for the American Numismatic Association is a safeguard our clients get when they do business with us compared to companies that do not employ a recognized expert on premises.
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