Weekly Market Report 10/17/11

GOLD

Gold got back on track last week after September’s price correction, up $47.20 per ounce (2.8%) for the week. It closed the week at $1,683.80, which is the high end of the recent trading range. Demand is not just coming from Asia at the current price (which is down $240 from the September highs) and buying is increasing globally.

Europeans are concerned about sovereign debt and bank insolvency issues. This concern has motivated them to exchange their Euros for physical gold coins and bars, doubling last year’s record demand.  The most popular modern gold bullion coins will set an all-time minting record for 2011. The most popular European gold coins have simultaneously increased their premium 3-4% due to supply shortages.  While some of the Eurozone countries are trying to slow this move to gold by placing limitations, reporting, and restrictions on cash transfers.

In China, Gold ATM’s are installed to satisfy their growing demand for physical gold and silver coins and bars. Next year, the plan is to have over 2,000 ATMs dispensing physical Gold coins and bars all over China. Their growing inflation rate, currently at 6.1%, has already driven over 2 million Chinese to enroll in monthly gold and silver accumulation programs, creating an ongoing demand for physical gold and silver investment products.

Gold demand from India continues to increase, as we enter the 4th quarter of the year, normally the highest demand quarter by Indian gold buying.  The celebrations surrounding the country’s festival season traditionally results in millions of people buying gold and silver. So far in 2011, physical Gold sales in India are higher by 10% compared to the same period in 2010, a record setting year. "That demand is higher this year despite a rising gold price highlights the impressive adaptability of Indian physical buying interest," UBS says. "We think that demand from India will be resilient to higher gold prices for the remainder of the year on the back of seasonality and increased investment interest."

In Singapore, Gold demand is building even as physical shortages are being reported by Singapore dealers and banks and as the premiums on bullion coins and bars have increased.

Lastly, with gold trading at $240 off of its September all-time highs, I would expect to see Central banks encouraged to increase their holdings to build up reserves before year end, which would push the price higher.

SILVER

Silver is taking direction from the strength in gold. Last week Silver increased $1.18 per ounce with solid demand. It firmed up last week with a $1.91 trading range, making $31.21 the weekly low, and $33.10 the high. Silver stayed above the $30 per ounce level during the past eight trading days, which I believe is very bullish for the metal.  

Major gold and silver mines continue to report disappointing news while shares of mining companies show poor returns in the face of higher physical prices.  The world’s biggest silver producer, Fresnillo, located in Mexico, slashed its full-year output guidance by 3 million ounces to 41 million ounces for 2011. Other Gold/Silver mines have lowered production estimates due to strikes, environmental holdups, or nationalization, resulting in a drop in their stock prices. I continue to recommend owning the physical metal and not mining stocks, funds or ETF’s.

PALLADIUM & PLATINUM

Palladium was the big winner last week, up $34.70 (5.9%) and closing at $620.55 per ounce.

Platinum increased $61.60 per ounce, closing at $1,554.90, and is still an excellent buy considering it is trading at a $128 discount compared to the price of gold.

This Week’s recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35 % of investment capital

Diversification:  Gold 66%, Silver 24%, Platinum & Palladium 10%

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

European Sovereign Debt and Bank Insolvency Crisis Update

Many investors have been indecisive with regard to gold given the market turbulence in the past months, caused by the deepening Eurozone debt crisis, bank and country downgrades and defaults, and fears that the global economy would plunge into another recession.

It seems that every weekend European and World financial leaders are meeting to map out a plan to deal with all of the Eurozone problems. Two weeks ago Angela Merkel and the President of France, Nicolas Sarkozy, met in Berlin. After two days of discussions they reached an agreement on many of the key issues. They both promised to release a 5 point comprehensive package to stabilize the Euro and sweeping recapitalization of the European banks by the end of this month. This plan was promised to be delivered to the Group of 20 Summit in Brussels.

Last Saturday, Finance Ministers and Central Bank Governors of the Group of 20 major economies meeting in Paris stated that they have agreed to take “all necessary measures needed to stabilize the financial system.” They expect to deliver a "decisive address on the current challenges through a comprehensive plan" at the Oct. 23 summit.       

Considering that seventeen nations need to agree before the European Central banks can finalize a comprehensive plan, the Group of 20 and the International Monetary Fund need to all support that plan, and it could be a while before we see action on it.

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