Weekly Market Report 9/06/11

GOLD

I was beginning to think that we were going to build a new price base around the $1800 per ounce level. Friday’s employment report was released, along with negative news regarding the Eurozone debt problems, causing the gold market to rally to above $1,880 per ounce. Although volume was light due to the long holiday weekend, there was a strong move upward.  On Monday the Asian gold market opened and quickly moved higher, reaching $1,890 before we saw significant profit taking drive the gold market back to $1,873 per ounce.  When London opened Tuesday morning, gold quickly moved up to $1,920 on good volume; when profit taking hit the market, gold traded down to $1,860 before significant buying came in and took the market back to $1,875.

Last week the gold price range was $109.30, having started from a low of $1,778.10 per ounce on Monday, Aug. 29th, to its high of $1,887.40 on Friday, Sept. 2nd.  Since having entered Phase II of this gold rally, I am expecting to see this type of price volatility to continue for at least the next year as the market moves higher. I defined what I believe Phase II actions will achieve in the Gold market in my May Hyperinflation booklet, available at www.coinmag.com.

Physical demand for Gold has been strong worldwide and is picking up domestically. The U.S. Mint announced their August sales figures were 112,000 troy ounces of gold eagles; the highest demand since January.

We are seeing a worldwide increase in investors exchanging paper assets into physical precious metals. Even mining stocks and funds, along with precious metal ETF’s, are seeing withdrawals and transfers into physical metals because of the stock market and counterparty risks. 

The Gold holdings of the European PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) have been in the news prominently as the Eurozone debt crisis continues to worsen. German government officials are calling for the debt ridden countries to sell their gold. The following are three explanations that would prevent gold from being sold off by the European PIIGS countries:

1)    The total debt held by the five PIIGS countries amounts to $4.67 Trillion Dollars, and the current value from their 3,233 tonnes of gold is $190 Billion. This debt dwarfs any possible gold sales.

2)    Selling off the countries’ gold reserves would be seen as an act of desperation in selling off their prized asset.

3)    The Gold reserves are not the property of the PIIGS governments. All foreign exchange reserves are held and managed by the independent Central Bank as an asset which defends their currency, not to pay off the debt.

Since selling off the gold will not solve the debt problem, I believe it is more likely that we will see Eurozone and British quantitative easing announced very soon, to bail out all of the European banks holding PIIGS debt. 

SILVER

This past week was very bullish for Silver as it stayed above the important $40 per ounce level for the entire week. The lowest price for Silver during the week was $40.35 on Monday. The high reached $43.50 on Friday, closing at $43.07 per ounce, up $2.11 (5.17%).  Trading on Friday was very light on pre-weekend volume. On Monday and Tuesday morning the Asian and European Silver markets traded actively between $41.80 and $43.44.

The current Silver to Gold ratio is 43 ½ to 1, and I believe that the next round of fiscal and monetary easing will happen this month. I am therefore increasing my investment diversification recommendation for Silver to 40%. 

Why do I think that there will be another round of quantitative easing announced during the FOMC September 20th and 21st meetings?

We currently have a terrible U.S. job market, a patch-work recovery in the housing sector, and damage from Hurricane Irene. We also continue to have serious worries about Europe’s sovereign debt crisis. The U.S. economy, as measured by the GDP, has grown at only 1 percent in the second quarter, after a statistically insignificant 0.4 percent rate of growth in the first quarter. The economy hasn’t demonstrated that it can create the minimum 150,000 to 200,000 new jobs per month required to lower our nation’s high unemployment rate, presently at 9.1 percent. On Thursday we learned that consumer confidence in August dropped almost 15 points, the lowest level since April 2009.  Finally, on Friday we heard the most devastating news yet, hiring in the United States unexpectedly ground to a halt in August.  Now, even the most moderate of experienced economists believe that to get our economy moving forward there must be a fiscal and/or monetary easing program announced by the White House or Federal Reserve in the month of September.

PLATINUM & PALLADIUM

I have recently added Platinum and Palladium to the recommended precious metal investment diversification for good reasons:  VALUE and potential return.

Platinum is 30 times scarcer than gold and historically trades at a 20-30% premium. With gold at $1,880 per ounce, this puts Platinum at $2,250 to $2,440 per ounce.  Right now Platinum is trading at a 1% discount to the price of gold, and this unique opportunity has only happened 4 times in my 50+ year career. The past has shown that this anomaly doesn’t last long. 

I remember back in February of 1997, both Gold and Platinum were trading at the same price of $350 per ounce. I sent out a fax and email blast to clients saying it was a good time to trade gold bullion coins (i.e., Maple Leafs, Eagles and Krugerrands) for Platinum Koalas or Platinum Maple Leafs.  By yearend, the Platinum price had increased to a 25% premium over gold.  Then in December 2000, when Platinum was trading at $620 per ounce and Gold was at $270, I emailed/called clients again and recommended that they trade back their Platinum and get more than two ounces of gold for every ounce of Platinum. 

Now, fourteen years later, I see history repeating itself! Platinum is trading for the same price as Gold, and NOW is a great time to add Platinum to your holdings. You can trade some of your modern gold bullion coins for Platinum, or use your personal or IRA funds to increase your holdings.  I think this is an excellent diversification for your precious metals investment.

The primary buyers of Platinum have traditionally been auto manufactures for their catalytic converters, and the Japanese for investment purposes. With record low above ground supplies of Platinum, we are hearing that Japanese demand has doubled in the past months as their country continues to recover from its recent tragedies. Demand for the new Australian minted Platinum Platypus is my recommendation for any Platinum investors. It is available now at a low premium over spot and has a worldwide market.

Why Palladium?

I could never recommend Palladium in 1997 because we didn’t have a trading vehicle. There were no actively traded Palladium bullion coins, and Palladium bars had problems with the premium, the supply, and liquidity.

Now, we have a 1 ounce Canadian Palladium Maple Leaf. The U.S. mint will soon be minting a Palladium Eagle, and this will surely increase demand. 

Palladium historically trades at around 40 to 50% of the Platinum price, and I remember that in December of 1999 Palladium actually traded even higher.  We are seeing increased usage of Palladium in automobile catalytic converters and consumer electronics due to the lower price of Palladium over Platinum.  The best Palladium investment coin is the Canadian 1oz Palladium Maple leaf which trades at a very small premium over the spot price.

This Week’s recommended investment commitment and diversification: 

Precious Metal commitment: Minimum of 35 % of investment capital

Diversification:  Gold 50%, Silver 40%, Platinum & Palladium 10%

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

RARE COIN MARKET

Next week I am going to the Long Beach Coin Expo, the last major coin show of the season. I’m hoping to pick up investment quality gold and silver coins to replenish my inventory, and to fill the many want lists that I have recently received.  With Gold and Silver prices at or near record levels we are seeing an increased demand for rare coins since they represent excellent value.  I will provide an update about the convention in the Sept. 12th Weekly Market Update. 

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