Weekly Market Report 03/26/12

This week’s Market Report provides you with an update on the precious metal markets and the reasons why the Baltimore Coin Expo confirmed my feeling that the rare coin market is getting ready to make a sizeable move higher.

The Question

Since November of 2008, starting with the TARP financial institution bail out, plus four annual Trillion dollar U.S. Budget deficits, the U.S. has printed over 6 Trillion paper dollars. This, combined with trillions of British Pounds, Japanese Yen, and the ECU Euro being given to the sovereign countries to help the world’s problem banks. So, other than gasoline and some food products WHY ARE WE NOT SEEING SERIOUS INFLATION?

The Answer:

Government stimulus programs for the private sectors aren’t enough to increase the velocity of liquidity in the large and small businesses to stimulate the economy and increase hiring. Let me explain. Since 2008, the U.S. has spent trillions of the dollars mentioned above just to keep our financial system running and to prepare for any future financial turmoil, not to mention the trillions of Euros spent to keep the European banks out of trouble due to them being extremely over-leveraged as well.  Since their loan to reserve ratios were at all-time highs, these banks have used the funds provided to build up their reserves, increase liquidity, and write off many outstanding bad loans.  For the most part, banks are not aggressively making new business loans.  As the economy recovers and more and more companies become credit worthy, the banks will start lending; that’s when the velocity of trillions of dollars, pounds, yen, and euro will give us serious inflation. If the cost of Oil doesn’t push Europe into a severe recession, I would expect to see official government inflation figures start increasing early next year. By the time serious inflation is being reported by the world’s governments, Gold will already be over $2,000 per ounce and on its way to $3,000, while the investment quality coin market will be up 50% or more from current levels.

GOLD

The gold price just doesn’t want to go down. Last week there was a bunch of global economic news released that should have caused gold to hit the $1,600 per ounce support level. But every time the gold price reached the high $1,630’s or low $1,640’s, we saw sovereign country type buying appear. Considering that there were no surprises in last week’s news, it was surprising to see gold up $20 per ounce on Friday.  Gold closed at $1,662.40 per ounce last Friday, up $6.60 for the week, and up 6.17% since the beginning of the year. I believe gold will test the resistance level of $1,700 per ounce this coming week.

Since early August of 2011 gold has traded from $1,535 on the low to $1.920 per ounce on the high, an extraordinary 25% trading range within eight months, understandable considering the increasing volatility within the precious metal group and the world’s unstable economic developments. However, I have seen a similar event happen before; gold broke above the $1,000 threshold in 2009.  From December of 2008 to September of 2009, a nine month period, gold traded in a $749 to $940 price range (25%) before breaking out above $1,000 per ounce on Sept 8, 2009. I have said numerous times before, gold is building a base for its move above $2,000 by year end. The world’s central bank printing presses are running overtime, and physical demand is increasing daily. 

The London Financial Times reported
Deutsche Bank plans to open a new precious metals vault in London next year, seeking to cash in on booming investor demand for physical gold and silver. In London, center of the global bullion market, vault space is running low even as the growth in exchange-traded funds backed by physical precious metals has led to a steep rise in demand for vaults. A growing number of banks and logistics companies are rushing to break into the precious metal storage market.

SILVER

Silver also had a volatile week of trading and prices. The price ranged from $31.09 on the low to $33.09 per ounce on the high, and closed above the important $32 support level in three of the five trading days. Silver closed Friday at $32.27 per ounce, down $0.33 for the week, but still up $4.39 (15.75%) since the beginning of the year.

Silver Institute Announces Results of Annual Jeweler Retail Survey
77% of jewelry retailers surveyed said that their silver jewelry sales increased in 2011; about one-third of those jewelers had reported increased sales of over 25%. Read the full survey at: http://www.silverinstitute.org/site/2012/03/20/silver-institute-announces-results-of-annual-jeweler-retail-survey/
 

PLATINUM

While gold was up $6.60 per ounce last week, Platinum was down $47.60, closing the week at only $1,627.90 per ounce. This correction provides you a second chance to purchase Platinum at a discount to Gold. Great timing, as the new 2012 1oz Platinum Maple Leafs are being released this week. If Platinum doesn’t represent 10% of your current precious metal diversification, please consider adding it now.

Recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35% 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

RARE COIN REPORT

I just returned from the Baltimore Expo rare coin convention late Saturday night.  Any question about the health of the rare coin market is definitely answered.  Prices at the public auction were setting record highs and most of the dealers on the convention floor were buyers, not sellers, of investment quality gold and silver coins.  After the show started and dealers began learning of the auction results, it was very difficult to purchase high end gold and silver coins at a competitive price.  During the three days at the show I probably looked at over 200 coins, and either the price was substantially over current market prices, or the quality wasn’t up to my PQ standards.  Many of the floor dealers were actively bidding for fresh material from the public. Luckily I purchased two gold and silver coin collections Thursday morning, because I only added 8 more coins in the following three days.

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