Weekly Market Report 8/24/15

Links to recent informative articles on precious metals and rare coins:

The Ultimate Insurance Against Financial Disaster

Billionaire Investors Just Made Massive Bets on Gold

Gold Soars as Fear Strikes the Dow

This Week’s Headlines:

Gold
Backwardation and Contango
Silver
Recommended Investment Commitment and Diversification

GOLD

Last week was a great breakout week for Gold. Gold closed last Friday at $1,159.60 per ounce, up $47 for the week and $64 since the beginning of the month. Gold moved above two key short term resistance levels of $1,120 and $1,150 per ounce. The next resistance levels are $1,170 and the major resistance level of $1,200 per ounce.

This Gold rally started when the Central Bank of China began devaluing the Yuan, because of sizeable slowing of economic growth. This devaluation caused the U.S. stock exchanges and the value of our currency to sell off. Compare the prices since the start of August.

Last Friday, the U.S. Dow Jones Industrial average ended the worst week in four years, as it fell by more than 1,000 points. As the Stock Markets drop around the world and the value of the U.S. Dollar declines, demand and the price of Gold and Silver are increasing.

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Backwardation and Contango

The CME exchange contract for Gold is trading with backwardation. This rarely happens with precious metal futures contracts. Backwardation is when front month prices for a commodity go higher than those further out, implying fear of a near term shortage of that commodity. Last Friday the spot Gold price for August 2015 closed at $1,159.60 per ounce, while the September 2015 closed at $1,158.60 per ounce, $1 less. Normally, outside contract dates trade at a premium to the spot price, this is called Contango. Backwardation is considered very bullish for the price of the commodity.

Definition of Contango
Contango refers to a situation where the future spot price is below the current price, and people are willing to pay more (interest on the money and storage costs) for a commodity at some point in the future than the immediate price of the commodity.

Why is the Gold futures price trading with backwardation?

There are three major reasons that spot Gold is trading in backwardation on future exchanges.*

1. Strong physical global demand for Gold investment products, i.e. bars and coins.
2. Sizeable decrease in newly mined Gold is causing a major squeeze on physical supply.
3. Stockpiles of Gold in exchanges and depositories continue to drop to fill consumer demand.

*The U.S. Mint sold 26,000 1oz Gold Eagles in July 2014. In July 2015 the U.S. Mint sold 144,500 1oz Gold Eagles, a 450% increase.

Today: The U.S. Dollar continues to weaken versus the Euro and physical demand for Gold investment products remains very strong for Gold bars and coins. This morning Gold reached $1,170 per ounce on excellent volume, before traders took some short term profits. Equity markets around the globe continue to decline, with the Dow/Jones down another 200 points.

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SILVER

Considering the $47 increase in Gold (4.21%), I am disappointed with Silver’s performance last week. Last week Silver moved up only $0.09 (0.58%) per ounce, closing last Friday at $15.30 per ounce. The Silver to Gold ratio has increased to 75.79 to 1, and could reach 80 this year. Last week Silver’s rallies paralleled the upward move in Gold, but when Gold sold off, Silver moved lower at a higher percentage. Since the beginning of the month Silver has increased $0.56 (3.8%) and is trying hard to stay above the key $15 per ounce support level.

What is really surprising is the poor price performance of Silver in the face of dramatically strong demand for physical investment products. For example: Sales of U.S. 999 Silver one ounce Eagles. In July of 2014 the U.S. Mint sold 1,975,000 Silver Eagles. In July of 2015 the U.S. Mint sold 5,529,000 Silver Eagles. That is a 180% increase in July and the U.S. Mint stopped selling for two weeks because they ran out of Silver Eagles. The U.S. Mint is catching up with its backlog and the Silver Eagle premium is dropping. The real question is: why isn’t the future Silver market not in backwardation?

Today: Silver broke down below its recent $15 per ounce support level, but quickly rallied back above as Gold moved higher. In the U.S. markets, Silver couldn’t hold the $15 level and sold off again when Gold was unable to stay above $1,160 per ounce.

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Recommended Investment Commitment and Diversification:

Precious Metal commitment: Minimum of 45% of your available investment capital

Diversification:  Gold 45%, Silver 45%, Platinum & Palladium 10%

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

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If you want to be updated on what is happening in the Gold, Silver, and Rare Coin markets any weekday, our company offers a daily blog Monday through Friday at www.stupplerblog.com

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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