Weekly Market Report 2/11/13

This week’s WMR provides an update on the precious metal markets as well as an excerpt from PIMCO’s Bill Gross interview with Barron’s Magazine on why he selected Gold as his number one investment choice for 2013.

GOLD

Last week Gold traded in a very narrow price range for the entire five days. With daily closes that ranged from $1,667 to $1,678 per ounce, the high/low was only $11. This recent low volatility in the Gold price has not been seen since mid-2005, when Gold was trading at $420 an ounce and quickly moved up 25% in less the six months.

The $1,650 to $1,700 per ounce trading range that Gold has built since Dec. 13, 2012 is about to see a major breakout. I believe that this breakout will happen very soon; definitely by the end of February. Asian Gold trading will be closed this week due to China’s week-long Lunar New Year holiday. This Asian New Year’s holiday could provide U.S. and European investors with an opportunity to purchase precious metals around the $1,650 per ounce support level.

PIMCO BOND-FUND CHIEF BILL GROSS LIKES GOLD

In an interview with Barron’s Magazine, Bill Gross (founder and co-chief investment officer of the bond behemoth --- with $2 trillion in assets under management) of Pacific Investment Management Company (PIMCO) said the number one investment recommendation for 2013 is Gold.

Mr. Gross went on to say,

“Most of us would agree that if the Federal Reserve put an end to quantitative easing and allowed interest rates to rise, financial-asset values would be at risk. To reframe the question, how long will central banks continue to be the buyers of first and last resort? Fed officials have indicated they will continue buying assets until the economy is normalized. That objective might be unattainable, but it is likely the Fed and other central banks will continue to raise prices and lower yields artificially for at least several years, and maybe longer.

The Fed is buying 80% of the Treasury market today. It is remarkable to think that when the Treasury issues debt in the trillion-dollar-plus category, the Fed ends up buying most of it. The Treasury sells it to the banks and primary dealers, who sell it back to the Fed at a higher bid. This is a very different financial system from the free-market capitalism we’ve come to know. And it will continue until inflation exceeds the upper end of the central bank’s target of 2.5% or, by some miracle, we get real economic growth.

The two big holders of bonds are central banks and sovereign-excess-reserve countries. The Chinese and Japanese authorities, who have huge Treasury-bond holdings, might at some point become disenchanted with inflation, or the dollar, or U.S. fiscal or monetary policies. As bondholders, mom and pop and Goldman Sachs and PIMCO have some influence, but are really at the behest of the big buyers. The big risk is that the Chinese would rather own something else. Investors can choose between artificially priced financial assets or real assets like oil and Gold or, to be really safe, cash. The real risk to the financial markets is the marginal proclivity of investors to put their money in real assets, or under the mattress. All central banks are trying to reflate their economies. If they are successful, Gold is an inflationary hedge and bonds, at least long-term bonds, aren’t.”

CHINA IMPORTS 834.5 TONS OF GOLD IN 2012, AN ALL TIME RECORD HIGH

It was announced today that Mainland China imported a whopping 834.5 metric tons of Gold in 2012. This compared to 431.2 metric tons in 2011, which is based on data from the Census and Statistics Department of the Hong Kong government. Imports in December 2012 rose to a monthly record high of 114.4 metric tons of Gold. China also produced the most Gold in the world in 2012, making it the largest producer for the sixth straight year, latest industry association data showed. China’s Gold output increased 11.66 percent from a year earlier to hit a record high of 403.05 tonnes in 2012.

VIRGINIA WANTS TO ISSUE ITS OWN CURRENCY

The Virginia State House voted 65-32 earlier this week to approve the measure that would establish its own state currency, and four other states are considering a similar idea. While it’s unlikely that Virginia will be printing its own money any time soon, the move sheds light on the growing distrust surrounding the nation’s central bank. Virginia Republican Del. Robert Marshall told Fox News on February 5, 2013 that his bill calls for the creation of a 10-member commission that would determine the “need, means and schedule for establishing a metallic-based monetary unit.” Essentially, he wants to spend $20,000 on a study that could call for the state to return to a Gold standard.

For more information, please read the complete article here:  http://www.mintstateGold.com/investor-education/virginia_pushes_for_own_currency/  

SILVER 

Silver closed between $31 and $32 per ounce on all five trading days last week, continuing its recent consolidation. Based on recent trading history, Silver should follow Gold’s lead and break through the $32 resistance level as Gold moves above $1,700 per ounce. Physical demand for Silver bullion investment products remains robust, in the face of serious supply problems. Both the U.S. Mint and Royal Canadian Mint are on allocation for their one ounce .999 Silver coins, meaning they have to restrict the amount of coins that they can offer their distributors in a given week. 

PLATINUM & PALLADIUM

Platinum is the star performer last week closing at $1,715 per ounce, up $27 for the week and above its recent resistance level. Platinum is now trading at a $48 premium to the price of Gold, down from the $200 discount just three months ago. Although I believe Platinum should trade at a minimum of a 10% premium to Gold, it is no longer the ridiculous bargain that it represented in Nov. 2012. Therefore, I have lowered the recommended diversification for Platinum & Palladium to 5%, and I prefer Palladium over Platinum.

Recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35% of investment capital

Diversification:  Gold 55%, Silver 40%, Platinum & Palladium 5%

Diversification includes 50% in long term investment quality rare coins and 50% short term bullion products

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