Weekly Market Report 8/1/11

GOLD

It appears that the President, the Congressional Republicans, and the Democrats have finally come to an agreement to settle the debt ceiling crisis. As expected, both gold and silver have sold off on this news. In Asia, Gold dropped $20 and Silver dropped $0.70 after President Obama’s debt ceiling announcement, but they quickly rallied back to virtually unchanged after the ISM numbers were released.

July 2011 went out with a memorable blast. Gold ended the month at an all-time high of $1,628.30 per ounce. Between July 1st and July 31st the Gold price increased $145.50 (9.81%). Investors in physical gold coins should be very happy.  However, investors in Gold mining stocks or funds should be a little disappointed. The mining stock index (GDX) was only up 5.86% and funds like the Fidelity Select Gold Fund (FSAGX) had only increased 4.88%. Many of the popular gold mining stocks did substantially worse. Newmont Mining (NEM) was up 3.48%, Gold Corporation (GG) up 0.80%, and Agnico-Eagle Mines was down 9.45%. To add insult to injury, most of the Gold mining companies are down 15-30% off of their 52 week highs, with gold trading at a record all-time high! As I stated in my June 13, 2011 Weekly Market Report, I believe that for many reasons this trend will continue. (Article available to read at http://www.mintstategold.com/investor-education/cat/markets/)

If you own gold and silver mining stocks or mutual funds, whether they are in a personal brokerage account or in an self-directed IRA, you can convert to physical gold coins. Please contact [email protected] if you want information on a precious metal IRA.

Many believe that much of the increase in the gold price for the past month is due to the on-going debate over raising the U.S. debt ceiling in Washington D.C.  This same issue caused our American Stock Market (DJIA) to drop every day last week, down a total of 537.92 points for the week. The U.S. Dollar, meanwhile, was losing value worldwide. Whether you are a Republican, Democrat, Independent, or Libertarian, you have to agree that our government is dysfunctional and needs to focus on issues that affect the next generation, not the next election. It is well understood that the primary issue in Congress over raising the U.S. debt ceiling is the massive size of the U.S. $14.3 Trillion dollar debt and its increasing growth trend.  According to Bill Gross of PIMCO, the United States is a “Debt Man Walking” because of our over $60 Trillion (yes, Trillion with a “T”) in debt created from the current national debt, plus all of our commitments to entitlement programs for the future.

 

SILVER

Precious Metal Investors profited from Silver closing at $40.10 per ounce, up $6.40 (18.97%) for the month of July. Like Gold mining stocks, many of the Silver mining stocks and funds under-performed against physical silver. The Silver mining stock index was up for the month, but 35% below physical silver’s performance. Pan American Silver, a popular silver mining stock, was down for the month, with silver up $6.40 per ounce! I believe that Silver will be substantially higher by years end. To profit fully from this uptrend you need to own physical silver investment products. The Gold/Silver ratio is now 40.60 to 1, and I feel that with gold trading at all-time highs, silver should be trading at a minimum of $43 per ounce.

With Silver up 18.97% and Gold up 9.81% for the month of July, it’s difficult for me to say I was disappointed with silvers performance for the month. I believe that we are seeing some reluctance from investors to purchase silver because of the possible outcome of any U.S. debt default if the Congress does not lift the debt ceiling by August 2nd.  Remember that while Gold is a currency hedge, silver is primarily seen as an inflation hedge. If we have a recession as a consequence of a debt default and failure to pay our bills, closing down government agencies will be a major negative for silver.  When and if Congress resolves the issue of the Debt Ceiling crisis, we should see a slight correction in the precious metal markets.

 

This Week’s recommended commitment and diversification:

Precious Metal commitment: Minimum of 33 1/3 % of investible capital

Diversification:  Gold 60%, Silver 40%

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

 

RARE COINS REPORT

With July’s sizeable increases in Gold & Silver prices, we saw heavy investor demand for bullion plus items.  Premiums on MS60 to MS64 $20 Gold Saint Gaudens and Liberties have increased 3-5% in July, and demand for investment quality U.S. Morgan and Peace Silver Dollar singles and rolls are currently driving up prices.

The next major numismatic event is the American Numismatic Association’s World’s Fair of Money Convention in Chicago from August 15th to 20th. This is the largest coin and precious metals trade show and convention of the year.  I’ll be flying to Chicago on August 11th to look at some possible purchases, so if you haven’t already updated your rare coin Want List with me, please do it as soon as possible and email me a copy by August 5th. I am hoping to purchase two large collections of U.S. Gold and Silver Dollars while I’m in Chicago.

 

It’s GOLD, so it is OK to average UP

When gold broke out above $500 per ounce in late 2005, one of the most popular lines that I heard from past clients regarding my recommendations to add more gold to their holdings was “let me wait until gold corrects so I can average down”.  Remember that back in 2005 the U.S. Debt was under $7 Trillion and growing sharply, and the U.S. dollar was being devalued at a fast pace.

A $10,000 investment in 1oz. .9999 Gold Maple Leafs every year for the past 10 years would total $100,000.  If that investment was made on the 31st of December of 2001 to 2010, the value of this investment would now be worth over $300,000. A combination of cost averaging, and averaging up, would have resulted in owning over 180 1oz gold coins, worth $303,450 today. There are not that many proven investments with a track record of appreciating ten years in a row, averaging 20% per year. The fact that demand for Gold keeps rising, and production continues to diminish, guarantees prices will be higher. Countries like China and India have stepped in to also drive up demand for gold.

Back in June 2008 I wrote an article entitled “Gold, $2011 by 2011”.  At that time gold was trading at $860 per ounce, the U.S. Debt Ceiling was $9.6 Trillion, and the Worlds Central Banks were continuing to sell Gold to build up their currency reserves. In June 2008 my research caused me to believe that the third phase of gold’s upmove would spike up sharply in late 2011, with gold topping at $2,011 or above before correcting back to $1,600 or $1,700. I explained these three bull phases of gold in my May 2011 Hyper-Inflation booklet, which is available upon request.

 

Have circumstances changed since my 2008 article, YES. 

In October 2008, the World Financial Crisis hit. It was followed by TARP, QE1, QE2, and last month the Eurozone initiated a European quantitative easing program (QEE) to bail out Greece, Portugal and Ireland. The U.S. Dollar and Eurozone Euro are being devalued at lightning speed, while at the same time World Debt is spiraling higher. Just today, Congress is about to agree on increasing the U.S. debt by $2.4 Trillion and raising the debt ceiling to $16.7 Trillion. It is now believed that the ceiling will need to be raised once again in early 2013. To quote Jim Rogers “They are just printing more paper.”

There are a few BRIC countries (Brazil, Russia, India and China) with current budget surpluses whose currencies has been increasing in value against the Euro and the U.S. Dollar.  No surprises, that all four of these countries have been aggressive gold and silver buyers for their central bank reserves. 

Demand is now increasing dramatically; the World’s Central Banks are buying gold to replace U.S. Dollars and Euro for their countries reserves. China and India’s citizens and governments have become the world’s most aggressive gold and silver buyers, consuming 58% of total worldwide demand. The Central Bank of China currently has less than 1% of its countries reserves in Gold, with strong indications that they plan to build up their gold reserves significantly.

On the supply side, things have really improved for investors. The World Gold Council reports that in the face of all-time high prices, gold mining production is down. With Nationalization concerns, environmental restrictions, labor and union problems, and the lack of new mining properties coming online, gold production has been down for the past two years and is projected to remain the same for the next few years.

I’m saying that it is OK to average up with gold at $1,600 per ounce. These supply/demand fundamentals are why I am so bullish on Gold and I believe that we will see the spot price of Gold at $5,000 by the end 2014.  Any US Government decision to adopt a gold standard, or start a gold confiscation program, would accelerate this timetable. Even the most conservative precious metal analysts believe that we will see gold hit $3,000 by 2014, and with alternative investments earning less than 2% annually, a double up in three years has to be extraordinary.

With the Debt Ceiling issue behind us, I am expecting another round of monetary easing (QE3) to be announced by the Federal Reserve by month end.  We need to stimulate our economy ASAP… there is an election coming next year! Silver should rally more than Gold when the next quantitative program is presented by Ben Bernanke.

Always remember that Gold has proven to be the best store of value for centuries. For thousands of years currencies have come and gone, but Gold continues to be the best vehicle to preserve wealth.

 

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.

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