Weekly Market Report 9/12/11

GOLD

Last week was definitely extraordinary. Gold set a new all-time high of $1,920.80 per ounce Tuesday, and then sold off to $1,793.80 per ounce within 24 hours.  The price range for the four day week was $127 (6.8%), compared to the previous week’s $109, ending with gold closing at $1,859.50 on Friday.  Based upon the U.S. Dollar’s strength and the possibility of equity market margin calls, resulting in some gold selling, I expect to see gold build a base by staying in the $1,800 to $1,900 trading range for a while.

I believe that we will continue to see this type of volatility as Gold moves closer to the $2,000 per ounce mark caused by the following:

1)    The European sovereign debt crisis has worsened. The G-7 ministers met in France over the weekend to deal with this potential disaster. Bloomberg News reported that Germany’s Central Bank is preparing for a Greek default by recapitalizing many German banks.  This would build up the banks reserves should their Greek debt holdings wipe out the balance sheets. The recapitalizing creates more European quantitative easing, driving down the value of the Euro versus the U.S. Dollar.

2)    Asia’s astonishing demand for gold and silver is increasing. Continued high inflation numbers is causing more buying by investors, who are not deterred by the increase in the gold price; they just want to own physical gold and silver and not paper money. Indian demand for gold and silver will be in full swing within 15 days as many of their festivals and weddings begin. That demand is expected to gain pace and peak in October and November before tapering off in December.

3)    Domestically, concerns over a double dip recession and the upcoming elections will stagnate our legislative process, causing a worldwide lack of respect for our currency, similar to what occurred during the U.S. debt ceiling debate in July.  

Last Thursday night, President Obama spoke to the nation and proposed the America Job Act 2011. This is a $447 Billion fiscal stimulus package focused on creating 1.3 million jobs, cutting payroll taxes, and rebuilding the infrastructure of the United States. If Congress passes the act in its entirety, or a significant part, it would show a serious attempt to revitalize the economy.  How would passage of this legislation effect Gold? I think that $447 billion in spending and tax credits/cuts would result in continued higher gold/silver prices because it is inflationary.

Last week the Swiss National Bank (SNB) announced that it will stop the rise in the value of the Swiss Franc and cap it at 1.20 francs against the euro. The Swiss Central Bank, being faced with worries that their ever-strengthening currency could jeopardize the country’s export-based economy, also announced an aggressive cap for the Swiss franc’s value against the euro. The SNB’s move was widely viewed as positive for gold because the metal will gain even more popularity as a safe-haven investment and also as the only viable alternative to all devaluing paper monies.

Last Thursday we also heard from Federal Reserve Chairman Ben Bernanke. While giving his speech at the Economic Club of Minnesota the Fed Chairman stated that a monetary stimulus program (QE3) would be discussed at the upcoming FOMC September meeting. Many economists believe the Federal Reserve’s next move is nicknamed ‘Operation Twist’, where the Fed would buy more long-term Treasuries and sell short-term Treasuries, thereby twisting the shape of the yield curve. This would allow the Fed to purchase hundreds of billion worth of long term treasuries, an excellent way to increase quantitative easing.

SILVER

Silver is building an excellent base, trading above $40 per ounce during the entire week. Silver also showed increased volatility in its price range of $3.06 last week. The high/low range for Silver was $43.44/$40.38 on a heavy volume of trading, especially in the Asian commodity markets. Silver closed the week at $41.62 per ounce, right in the middle of the trading range.

I would be an aggressive buyer at the low end of the trading range.

Reports from the Asian precious metal dealers reveal that many traditional gold buyers are now seeing silver as a better value. Domestic physical demand continues to be strong. The U.S. Mint sold 3.68 million 1 ounce silver eagles last month, a record for the month of August.

Silver has benefited from gold’s rising prices largely because investors, whether in the paper or the physical markets, view it as an attractive leveraged play on gold. Silver offers exposure to the rising demand for safe haven assets at a lower price than gold, earning it the moniker “poor man’s gold.”  Many investors still find silver an attractive investment since it has the potential to bring far greater return on investment. The ROI for silver can surpass gold exponentially as was previously shown with price movements made last year after the Federal Reserve’s QE2 announcement.

PLATINUM & PALLADIUM

Platinum is currently trading at a 1% discount versus the gold price. This represents an excellent diversification opportunity for precious metal investors. Remember, Platinum is 30 times scarcer than gold and historically trades at a 20-30% premium. 

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.

Long Beach Coin Expo

I went to the last major coin show of the summer over the weekend. The show was well attended by national and local coin & precious metal dealers, investors, and collectors.

Although gold and silver bullion coins were actively traded, the shortage of investment quality rare coins was evident. Gold type coins ($1, $2.50, $3, $5, $10 and $20 Gold Liberties, and Saint Gaudens) and U.S. Silver Dollars were in big demand, but there were virtually no serious sellers of any investment quality gold and silver coins at market levels. I also had the chance to spend time with several clients to discuss their precious metal and investment coin strategies.

Heading for Europe

On Wednesday I am leaving for Europe to firm up my supply lines for European gold coins. What I hoped would be a plentiful supply of uncirculated British, French, and Swiss pre-1933 gold coins, is now disappearing.  The ongoing concerns over the Eurozone debt, the possibility of a sovereign default, and a devaluing Euro are driving the Europeans to aggressively purchase gold. European investors don’t want paper gold assets, they want physical gold coins; French and Swiss 20 francs and British Sovereigns are the most popular. This increased demand is driving up premiums and also making it difficult to source these coins.  I’ll be in Europe until the 26th of September to meet with some of my major suppliers. My super wife Lonnie is joining me, and we plan to take a few days of vacation. As usual if you need anything my son, David Stuppler, will be in the office. David is more than capable of helping our clients with any transactions you wish to complete and may even contribute his years of experience to our company news reports. If you have any questions please feel free to e-mail him at [email protected] or call 888-454-0444. Thank you and Au Revoir.

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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.