Weekly Market Report 01/03/12

GOLD

It’s 2012, and the precious metal professionals, commission houses, and floor traders are back, and they know a bargain when they see it.  Gold, Silver, Platinum and Palladium are all higher on excellent volume.

The week between Christmas and New Years is traditionally a light volume week for commodities, equities, energy, and foreign exchange trading.  Many of the floor traders, commission houses, and professionals take the week off to spend it with family.

Last week, on very light trading volume we saw a major year-end correction in all the precious metal prices.  These corrections were caused by a combination of negative lease rates, light year-end volume, negative technical analysis signs, weakness in the jewelry trade in the U.S. and India, and a stronger dollar. These issues drove down the price of gold to $1,524, and Silver to $26.15 on Thursday morning. I believe that what we saw this week was the “clean out” of the small gold/silver commodity contract owners. This type of volatility happens ahead of a major move higher, as it cleans out the weaker buyers with margin calls and executed stop loss sell orders.

Gold closed the year at $1,565.80 per ounce, up 10.11% for 2011.  Although personally disappointing, (I was looking for gold to reach $2,011 by the end of 2011) considering the other investment options, gold did extraordinarily well.  Most other precious metals, commodities, and equity markets were down for the year, and interest rates are close to record lows. 

2011 reminded me of the precious metal pricing activity in 2008. Remember, 2008 was the year of the financial crisis in the U.S. when the financial markets were threatening to default or lead our country into a prolonged depression. Within a month, the precious metal and equity markets dropped dramatically and then Congress approved TARP, the U.S. bailout and stimulus legislation. In 2012, when the Eurozone leadership bites the bullet instead of playing chicken with the IMF, and agrees to a sizeable bond refinancing bailout for the PIIGS countries, all the precious metals and commodities prices will start the next leg of the long term bull move higher.

The fundamental reasons for gold ownership haven’t changed. The United States, Europe, and many other countries around the world are still printing money to cover sizeable budget and trade deficits.  The value of paper money continues to erode at an incredible pace. Government central banks around the world continue to replace their U.S. Dollar holdings in their national reserves with Gold (The World Gold Council will provide updated 2011 numbers in February).

NOT ALL GOLD INVESTMENTS ARE EQUAL

In my June 13, 2011 Weekly Market Report I said that “I am recommending selling stocks and funds with mining operations in the many countries mentioned above and switching into physical gold and silver. “ In this high volatility year for precious metal prices, physical Gold ended the year up 10.11%.  Major gold mining shares and funds ended 2011 with a loss ranging from 2% to 51% (Newmont Mining -2.31% to Agnico-Eagle Mines -51.63%).  The GDX Mining Share Index was down 16.33%, and the XAU index was down 20.28%. Even GLD, the ETF that is supposed to track the gold price, under-preformed the physical gold price.

This trend was accelerating in the last few months of the year and I expect it to continue into 2012. I continue to read more and more reports in mining publications and global newspapers that precious metal mining companies are lowering production targets and seeing increases in strikes and labor costs.  Adding these negatives to the governmental risks and environmental holdup paints a picture of gold/silver mining stocks underperforming physical ownership.

SILVER

Twice in the last three months Silver hit $26.15 per ounce and then sharply rallied higher. The price performance of Silver for 2011 was disappointing, however, silver wasn’t alone; Platinum, Palladium and other metals and commodities were all down for the year. Silver closed 2011 at $27.88 per ounce, down 9.83% for the year.  Considering that there is major support at $26.15, and my 2012 prediction of $40 per ounce, the risk/reward for silver at today’s price looks very good.

The Silver to Gold Ratio closed the year at 56 to 1.

The European debt crisis weighed heavily on precious metal markets the last half of 2011. Concerns about sovereign debt default and ill-liquidity of European banks drove up the U.S. Dollar and caused serious concerns about a recession in the Eurozone countries.

2012 First Strike U.S. .999 Silver Eagles

We are offering pre-orders for the 2012 First Strike U.S. Silver Eagles. We expect to receive our first shipment of U.S. Mint sealed boxes of .999 U.S. Silver Eagles the week of January 16th, but you can lock in purchases of 100 eagles or more at today’s low prices. First Strike, mint sealed Green Monsters (500 pieces) are very popular for collectors and investors.  Call the office and talk with David or myself for current prices, 888-454-0444.

PLATINUM & PALLADIUM

Platinum was down 20.97% last year, closing at $1399.70 per ounce, while Palladium dropped 18.25% ending at $655.50 per ounce. Both metals declined, suffering from a slowdown in projected industrial output and automobile productions.  The European debt crisis took its toll on valuations, while concerns of a slowing world economy affected potential buyers.

An additional cause of last week’s drop in Platinum prices was a new bullion reporting law in Japan (Japan is a major market for platinum investment coins and bars). This new reporting law, which went into effect January 1, 2012, requires that precious metal dealers report any transactions of over 2 million Yen (US $25,000) to the tax authorities

2012 PREDICTIONS

1. More Government restrictions, reporting, taxes, and limitation on purchasing and selling of Gold
2. Gold will reach $2012 per ounce by the end of 2012
3. More switching out of Gold Stocks, Funds, and ETF into physical Gold coins and bars ownership
4. Federal Reserve will engage in a quantitative easing or economic stimulus program by February.
5. The World’s Central Banks will continue to trade U.S. Dollar reserves for Gold
6. Gold & Silver mining stocks, Funds, and ETFs will continue to under-perform bullion coins and bars.
7. With a Silver/Gold ratio of 56 to 1, we will see continued bargain buying of Silver, driving the price of Silver to over $40 an ounce by the end of 2012.
8. The U.S. economy picks up in 2012 to a 3% GDP.
9. Investment quality U.S. gold & silver rare coins will out-perform the gold/silver bullion prices.
10. The Real Estate Market will bottom out by the Summer of 2012

RARE COINS

I’m heading to Orlando, Florida today for the Florida United Numismatic Coin Convention.   This convention is a major event for dealers, investors, and collectors and I’ll be there for the entire week.  I’m not bringing any rare coins, just a checkbook since I would like to build up my inventory of investment quality rare coins. If you haven’t already updated your numismatic want list with our company, I would recommend that you email me an update.

Recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35% of investment capital

Diversification:  Gold 75%, Silver 20%, Platinum & Palladium 5%

Diversification includes long term investment quality rare coins and short term bullion products.

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All statements, opinions, pricing, and ideas herein are believed to be reliable, truthful and accurate to the best of the Stuppler & Company’s knowledge at this time.  Stuppler & Company disclaims and is not liable for any claims or losses which may be incurred by third parties while relying on information published herein.  Individuals should not look at this publication as giving finance or investment advice or information for their individual suitability.  All readers are advised to independently verify all representations made herein or by its representatives for your individual suitability before making your investment or collecting decisions.