Weekly Market Report 5/31/16
Links to recent informative articles on precious metals and rare coins:
Platinum shortfall increasing according to most recent projections
Gartman says Switzerland still focal point for Gold but waning
Gold in longest slump since November as Fed signals higher rates
Huge trend changes point to something big in the Gold market
Gold
Gold’s 12 most bullish fundamentals
Silver
Recommended investment commitment and diversification
Last Friday Gold closed at $1,216.70, down $36.20 per ounce for the week, and the worst weekly decline in the Gold price this year. However, Gold is still up $156 (15%) since the beginning of 2016.
After last Tuesday’s break below its $1,250 support level, Gold went into a bull/bear price war on heavy trading volume. I’m sorry to say that based on Friday’s trading, the bears won this short term price battle, and Gold tested the $1,200 per ounce long term support level. I shared my opinion that this would happen in last Friday’s daily blog. Gold reached a low of $1,199 per ounce in Asian and European trading yesterday, during our Memorial Day holiday. This year Gold has rallied from $1,060 to over $1,300 per ounce, and a correction back to the $1,200 support level represents a great opportunity to add to your precious metal holdings.
I believe this decline in the Gold price will be the final clean out before the next major rally, taking Gold over $1,300 per ounce. Let me describe what I believe we will see. Gold will reach or breach $1,200 per ounce in the U.S., and we will see panic selling from retail investors after receiving exchange generated margin calls. Trading volume will spike and the price will close higher. Professional commodity traders refer to this as cleaning out the weak hands, while an inter-day reversal is a very bullish short term signal. This type of trading action puts the professional commodity traders and hedge funds in control of the precious metal exchange’s direction. They have the financial power to meet margin calls and increase their holdings at the lows.
Last week’s Federal Reserve indication that they could raise interest rates in the coming months helped the bears drive down Gold and Silver prices. A one-quarter or one-half percent raise in the Federal funds rate is a short term negative, but it doesn’t affect the long term fundamentals or price direction. Let me remind you that the bullish fundamentals continue to look better and better.
Today: During Asian trading this morning, Gold reached a low of $1,199 per ounce before attracting fresh buying and short covering. Gold quickly moved back up to the $1,213 per ounce level.
Gold’s 12 most bullish fundamentals
- Physical demand for Gold and Silver investment products is at the strongest level in years. Many world mints report record 2016 sales for bullion coins, showing double digit percentage increases this year. Sales of U.S. Eagles to date are up 112% for Gold and 34% for Silver.
- Worldwide interest rates are at historic lows, with nine major countries quoting negative interest rates.
- Global quantitative easing (money printing) in the U.S., China, Japan, and Europe is increasing debt at an unbelievable rate. The U.S. National Debt has passed 19 trillion.
- The World Gold Council is reporting mine production falling dramatically as the cost of production rises.
- Central banks continue to trade their U.S. Dollars for Gold, thus building their Gold reserves.
- Stockpiles of Gold in depositories continues to drop, filling heavy physical demand. This could soon cause a short squeeze on sellers of Gold.
- ETF Gold investors have been aggressively buying in 2016, with GLD holdings up 1226 metric tons since January 1; a 35% increase in less than five months.
- Chinese investors, the world’s most aggressive Gold buyers, are switching out of equities into physical Gold and Silver. Gold buying is continuing to grow.
- The U.S. Dollar is continuing its recent trend of weakening against the Euro, which will increase premiums on Gold, especially on the British, French, and Swiss pre-1934 Gold coins.
- The financial consultants, money/fund managers, and commodity professionals that are being interviewed in the financial media have become bullish on Gold and Silver. Why? Gold is up 15% and Silver is up 18% this year, compared to a 1.5% decline in the NASDAQ.
- More countries are repatriating their Gold being held at the NY Federal Reserve Bank.
- In the Basel III agreement, which is being implemented by the world banking system from 2013 to 2019, Gold will be upgraded from a Tier III asset to a Tier I asset. This will encourage many large banks to increase their Gold holdings.
Silver closed at $16.26 last Friday, down $0.27 for the week, but up $2.48 (18%) since the beginning of 2016. During Asian & European trading yesterday (Memorial Day), Silver reached a low of $15.91 before sizeable bargain buying appeared. If Silver closes below the key $16 per ounce support level today or tomorrow, that would be very negative for the short term price of Silver. However, if Silver could complete an inter-day reversal, similar to what I described about Gold, and quickly move above $16.15 per ounce, it would be a successful test of long term support.
Last week the Silver/Gold ratio closed at 74.82-to-1.
Today: Silver found a sizeable amount of bargain buyers this morning when it reached a low of $15.91, quickly rallying the price. Silver reached a high of $16.19 before settling back to $16.05. Silver needs to move above $16.20 to renew its bullish direction.
Recommended Investment Commitment and Diversification:
Precious Metal commitment: Minimum of 30% of investment capital
Diversification: Gold 50%, Silver 40%, Platinum & Palladium 10%
Diversification includes 50% in long term investment quality rare coins and 50% short term bullion products.
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