Weekly Market Report 05/07/12

The Market Report provides you with an update on the precious metal markets. This week I discuss the results of an American Investor Gallup Poll and “Why is the new President of France bullish for Gold and Silver?”

GOLD

Another week of base building with gold apparently locked into a trading range of $1,630 to $1,670 per ounce.  It’s clear that the gold market is treading water, awaiting the bullish news that will stimulate the fundamental buyers to drive the price above $1,700 per ounce. Last week, Gold ended the week at $1,645.20 per ounce, down $19.60 per ounce with an active volume of trading on the up and down days. The short term professional floor traders were selling on rallies and buying on dips, ending the week neutral, with no open positions. The opinion from many professional traders is that the market direction is neutral, compared with last week when the majority was slightly bearish.

Gold trading during the past seven months has reminded me of the same things that happened in 2008/09. Let me explain.  On March 17, 2008 gold set an all-time high of $1,011, an increase of over 50% in price in just 6 months.  After breaking above the $1,000 per ounce mark, the price of Gold declined to a low of $712 in six months. During that six month period it was difficult for me to convince our clients that the uptrend was still intact, since CNBC analysts were saying that Gold was on its way back to $200 per ounce.   Well, gold rallied back up and traded between $895 and $980 for seven months, building a base, before breaking out above $1,000 again. Within three months of breaking above $1,000 for the second time, the gold price continued higher, reaching over $1,200 per ounce. 

Why do I think history is repeating itself? 

After reaching $1,920 per ounce on Sept 6, 2011, Gold has traded between $1,524 and $1,800 per ounce, building a similar base for the past seven months. With Gold currently at $1,645 per ounce, I believe that a price move to the higher end of Gold’s trading range should happen very soon.

Can 2 ½ Million Chinese be Wrong?

It was just reported that in 2011 China imported (through Hong Kong) 428 tons of Gold. The latest figures show that the rate of Gold accumulation in China is increasing.  More than 79 tons of Gold was acquired through the end of February, putting China on the path to acquire 479 tons in 2012. Much of this demand is coming from the Chinese Gold Bank accumulation programs.  At this rate, China will be the largest importer of Gold in the world, over taking India (whose government is protecting the rupee and has turned hostile towards Gold importation) even though India’s population is fighting this every step of the way.  

In the past two years, the ICBC Bank Gold Accumulation program in China has grown to 2 ½ million Chinese clients. At the current pace of growth, the bank should have over 5 million Gold accumulation clients by 2015. ICBC bank is currently holding over a billion dollars of Gold in their vaults. Gold Accumulation programs have not only been very successful in making Gold more accessible in cities, but also in more rural parts of China as well, making the owners of these accounts into long term investors.  India has had a similar program in place since 2009 that has been very successful. The India Post retail outlets, in association with Reliance Money and the World Gold Council, launched a program that allowed Indian citizens to purchase gold at India Post outlets in 9 regions of the country.  

April Gallup poll on Investments

According to a recent Gallup poll, Gold leads four other types of investments (when Americans were asked to pick the best long-term investment). The poll found that 28% of Americans view Gold as the best investment vehicle for the long-term, as compared to 20% who selected real estate. Paper assets, like stocks and savings accounts, were tied for third place with 19%, and bonds finished last with only 8%. The new findings were part of Gallup’s April update of its annual Economy and Personal Finance poll.

Why is the New French President bullish for Gold and silver prices?

The new French President, Francois Hollande (a socialist) has campaigned on a promise to promote government stimulus programs rather than focus on harsh austerity measures that Sarkozy had favored. Hollande has said that his first task as President will be to call for a renegotiation of the European budget-trimming treaty, spearheaded by Sarkozy and German Chancellor Angela Merkel. Hollande wants to see more government-funded stimulus programs instead of doing drastic cuts across the board.

SILVER

Silver managed to close above its long term support level of $30 per ounce all five days last week. Silver closed at $30.43 per ounce on Friday, down $0.91 for the week. CME trading volume increased every day that Silver tested the $30 level.  Last week much of our domestic economic news and the U.S. Labor Department’s April jobs report were negative, leading to more talk about QE3.

The Federal Reserve previously said that it would take deterioration in the labor market, with inflation staying in check, as a signal to consider launching a third round of so-called quantitative easing. Additional accommodative policy is seen as unequivocally bullish for Gold and Silver as increased liquidity tends to debase the dollar and create inflationary risks.

PLATINUM

Last week, with Gold down $19 per ounce we saw Platinum drop $39, closing the week at only $1,536 per ounce. Platinum’s discount to the price of Gold is currently at an unbelievable $109 per ounce. This provides you an opportunity to purchase Platinum at a 7% discount to Gold. A discount of this size rarely happens, so I have increased the recommended investment diversification for Platinum to 15% of your precious metal commitment.  The Canadian 1oz Platinum Maple Leaf is the most active platinum trading vehicle, and because it is our #1 selling Platinum bullion item we can offer them at only 5.75% over spot.  For a current quote on this item please visit: http://www.mintstategold.com/platinum-1/bullion-coins-and-bars/platinum-canadian-maple-leafs.html

Recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35% of investment capital

Diversification:  Gold 50%, Silver 35%, Platinum & Palladium 15%

Diversification includes 50% in long term investment quality rare coins and 50% 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.