Weekly Market Report 06/04/12

This week I discuss last week’s Gold/Silver trading, and provide information on what could be a major bullish game changer for the price of Gold in the near future.

GOLD

Three days after I released my latest Gold fundamentals article titled, “The Right Time to Buy Gold” (http://www.mintstategold.com/investor-education/the_right_time_to_buy_gold/) Gold made the reversal that I had been looking for over the past four months.  On Friday, when Gold hit $1,545 per ounce (at approximately 8am), around that same time the U.S. Labor Department and the Bureau of Labor Statistics released disappointing economic news, and Gold started a major rally. The volume of trading during Friday’s Gold rally was over 30 million ounces ($48 Billion), an extraordinarily high number, especially for Friday trading.

Gold climbed back to $1,622 per ounce on Friday, up $53 for the week, the largest single-session increase since August of 2011; after disappointing US jobs data news, which added only 69,000 nonagricultural private sector jobs, raising the US unemployment rate to 8.2%. This was followed by news of a slowdown in American manufacturing activity. The ISM Manufacturing Index fell to 53.5 in May, down from 54.8 a month earlier. Many precious metal professionals and analysts feel that this news, combined with poor manufacturing data from around the world, is bullish for precious metals. The recent U.S. data, and signs of a slowdown in China and ongoing contraction in the UK and the Eurozone, virtually guarantee that our Federal Reserve will be forced into another round of quantitative easing (QE) at its upcoming June 20^th meeting.

I would like to see Gold stay above $1,600 per ounce for a few weeks so that it can build a firm base before going after the $1,700 price barrier. Considering that the next FOMC meeting is scheduled for June 20^th, the likelihood of another round of monetary stimulus looks good, and we could easily see a move above the $1,700 per ounce level on any Federal Reserve announcement regarding QE. Remember, last year between June and Sept, Gold was up 22%, a similar move would take Gold to almost $2,000 per ounce. 

On Saturday June 2^nd, the Gold price set an all-time record high of 30,260 Indian Rupees for a 10gm .999 Gold bar.  Friday’s dramatic increase in the price of Gold combined with a weak Rupee led to an all-time record high for Gold in India. The Indian Rupee has declined 27% in value against the U.S. Dollar in the past year (44-to-1 in 6/2011, versus 56-to-1 in 6/2012.) India, traditionally the world’s biggest Gold buying nation, shows that the Gold demand for 2012 will fall by 4% in ounces compared to last year - but will be up 4% in terms of value - according to a report published by researchers at Morgan Stanley.

LATEST NEWS ON A EUROZONE DEBT CRISIS SETTLEMENT

Germany is sending strong signals that it would eventually be willing to back ideas such as joint European bonds or some kind of Gold collateralized debt. European leaders need to agree to give up more fiscal sovereignty and transfer significant power over national budgets, including their Gold reserves, over to European Central Bank (ECB) authority. Europe has been blocked from taking bold steps to stem the debt crises in Spain and Greece and calm financial markets, because their leaders can’t bridge two fundamentally different approaches. Countries like France believe that Europe must create instruments like euro bonds to place the debt burden onto the ECB. Others, especially Germany, say that a common currency requires a common fiscal policy and the transfer of national sovereignty over budgets to euro zone leadership. Now, for the first time, Germany is showing signs of giving ground on its position. Berlin wants these issues to be put into a broader discussion about the future of Europe and the structure of the euro zone. This step, if accepted, would redefine Europe’s monetary union and be one of the boldest steps taken by the bloc since the euro was launched.

POSSIBLE MAJOR GAME CHANGER FOR GOLD

A very bullish event for Gold and a possible major game changer is now becoming clear. This could happen in the likely event that the world’s banks change Gold to a Tier I asset from a Tier 3 asset according to the Basel Committee for Bank Supervision (BCBS.) The BCBS, as part of the BIS is arguably the highest authority in banking supervision, and it is their role to define capital requirements through the forthcoming Basel III rules. Click on the following link for more details http://www.mintstategold.com/investor-education/Gold_capital_ratios/

SILVER

Silver also spiked higher last Friday following the disappointing economic news. Silver closed Friday at $28.51 per ounce, up $0.12 for the week. Recently, Silver demand has been picking up, though nowhere near Gold’s demand. When the next round of quantitative easing is announced, I would look for that to change.

RARE COIN UPDATE

I just returned from the Long Beach Coin Expo, one of top 10 major rare coin conventions, with over 300+ of our nation’s largest dealers offering their rare coins. Even with a low Gold price Wednesday and Thursday, the availability of investment quality Rare Gold Coins was very scarce. Dealer, collector, and investor demand continues to be strong, with little to no supply of high grade Gold or Silver Rarities.  

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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