Weekly Market Report 11/5/12

This week I discuss the status of Gold and Silver’s support and resistance levels, and what will happen to the Gold and Silver prices in the short term depending on whether President Obama or Mitt Romney is elected President on Nov. 6th. I also cover the upcoming lame-duck session of Congress and the Fiscal Cliff issues timeline.

GOLD 

The uncertainty of the presidential election, Eurozone debt problems in Spain and Greece, and a stronger than anticipated October employment number have all combined to push up the value of the U.S. Dollar and push down the value of Gold and Silver last Friday.  Friday, based on the above factors, Gold initially fell below the $1,700 per ounce support level, and then technical and computer program traders shorted Gold with the expectations of covering their short positions at lower levels. Many of them covered their shorts near the close around the $1,677 per ounce price level.

Friday’s U.S. Dollar rally marks the highest level for the dollar index since early September. Remember, a stronger dollar puts pressure on commodities, especially Gold.

On Friday, Gold closed at $1,677 per ounce, down $36.70 per ounce for the week, but still up roughly 7% for this year. There is major support for Gold at the 100-day moving average of $1,671, and the 200-day moving average being $1,669.50. These are price levels that will bring in major buying from investors, institutions, and central banks.

WHAT DOES A GOVERNMENT DO WHEN IT’S CONCERNED ABOUT FUTURE HYPERINFLATION?

India’s apex bank, the Reserve Bank of India (RBI), has asked banks not to finance the purchase of Gold. Though the RBI has already halted the banks’ ability to lend money for the purpose of purchasing Gold bars, now the apex bank has slashed lending for Gold in any form. What does this mean? History has shown us that countries with an excellent potential of going into a hyperinflationary economy because of an eroding currency (i.e., the USA) do everything possible to stop Gold investments.

PERTH MINT GOLD AND SILVER BULLION SALES SURGE IN SEPTEMBER

Global physical demand for Gold is growing at a record pace as shown in the following press release, “The Perth Mint of Australia has announced that Gold and Silver coins sold during September 2012 surged to the highest levels since the start of monthly reporting. Sales of Silver coins rose to 1,251,580.06 troy ounces, up 269%, and Gold coin sales rose to 81,095.13 troy ounces, representing an increase of 118% from the prior month.” 

LAST CALL FOR GOLD

Gold at under $1,800 per ounce still represents an excellent entry point for new purchases. However, as we get closer and closer to the all-time highs of $1,920, the risk/reward ratio will not look as good as it does right now.  I believe that we will see Gold above go $2,000 per ounce very soon, so why wait?  Look at the Recommended Investment Commitment and Diversification section below, and if your precious metal commitment isn’t a minimum of 35% of your investment capital, make those purchases now.

SILVER

Silver closed at $30.86 per ounce last Friday, down $1.18 per ounce for the week, but still up over 10% since the first of the year.  Last week Silver broke through the $32 per ounce support level and $30 is the next support level, making the $32 per ounce level the short term resistance. Right now the Silver-to-Gold price ratio is at a very attractive 54.29-to-1. 

SILVER CONFISCATION IN 1934

Many Gold investors know that in 1933 President Roosevelt signed Executive order No.6102, which resulted in U.S. Gold confiscation. However, most investors are unaware of Executive order No.6814. In 1934, President Roosevelt signed Executive Order No.6814, the Silver Purchase Act of 1934, which forced American citizens to turn in their Silver or have it confiscated by the government. The following is a link to an article that provides more information about Order No.6814: http://www.mintstategold.com/investor-education/silver_confiscated_by_roosevelt/

PLATINUM & PALLADIUM

Platinum was down only $1 per ounce last week, while Palladium increased $4.25 per ounce in the same period. Platinum is now trading at $1,545 per ounce, an attractive $130.30 discount to the Gold price. Both metals were helped by ongoing miner strikes in South Africa with the largest Platinum/Palladium mines working at minimal levels or having closed down.

PRESIDENTIAL ELECTION OUTLOOK

There has been a large amount of speculation regarding what will happen to the short term direction of Gold and Silver after the results of the Nov. 6 presidential election are announced.

I think I made it clear in earlier Weekly Market Reports that regardless of which candidate is elected, it is highly likely that a $1 trillion plus annual budget deficit will continue, assuring more debasement of the U.S. Dollar and much higher Gold and Silver prices in the future. See  http://www.mintstategold.com/investor-education/cat/news/post/is_romney_threat_to_gold_price/

The following is my opinion on what is likely to happen within the first few months after the election:

If President Obama wins the election

Gold and Silver should rally immediately if President Obama is re-elected on Tuesday night.  The general feeling is that the Federal Reserve will continue QE3, as well as any additional monetary stimulus required to help the economy to recover. Also, the U.S. national debt will continue to increase, which is an ongoing problem since this administration has a recent history of trillion dollar yearly deficits.

Additionally, I believe the Senate will stay in Democratic control if Obama is re-elected. As Chairman of the Gold & Silver Industries Political Action Committee (G&S PAC) I have spoken with a number of Washington DC insiders that believe the deal will be made during the lame-duck session of Congress which would start Nov. 13, to eliminate the Fiscal Cliff issues.

If Obama is re-elected, I believe that the focus of Congress will be to make the deals necessary to get the economy moving, especially if it is Republican sponsored legislation. The Republican Party will reload for the 2014 and 2016 elections.

We are likely to see a correction in the equity markets, particularly in financial institution stocks. This correction will happen due to concerns of tougher regulations being implemented during a second-term, and the potential that the tax treatment of capital gains, dividends, and carried interest could be unfavorably altered under the current administration.

If Mitt Romney is elected President

What will happen to Gold and Silver prices in the short term if Mitt Romney becomes President of the United States is a big question mark. Romney’s economic advisors have consistently had a very conservative agenda. However, Romney’s positions during the primary debates were ultra-conservative, versus his moderate positions during the presidential election, which is confusing. Yet if there is one thing Mitt Romney has proven during his political career, he is pragmatic.

If Mitt Romney is elected President on Tuesday night, the world’s equity markets should rally immediately, particularly financial institutions, coal, and pharmaceutical stocks.

Whatever direction a Romney administration ultimately decides to take will be helped if the Republican Party takes control of the Senate, in addition to the House of Representatives. Regardless of what happens in the Congress, it is highly unlikely that a deal will be made on the Fiscal Cliff during this year’s lame-duck session. Most Republican’s have signed the Grover Norquist pledge not to raise taxes for any reason. This should cause the new President to direct Republican Party leadership to pass a short term extension of the Fiscal Cliff legislation. The extension needs to be in place until February 2013, which allows three months for Romney’s transition team to build a new solidly conservative administration and establish party leadership in the Congress.

In February 2013, the Congress needs to deal with raising the ceiling on the national debt, an ideal time to deal with Fiscal Cliff type legislation. This will also give the new President the time needed to talk with Tea Party Republicans and put together a deal with Democrats.

CONCLUSION

Regardless of who wins the presidential election on Tuesday, I believe the fundamentals for Gold are still bullish. The only difference is that if Obama wins, you will see a more immediate rally in Gold prices; compared to Romney, where I believe the prices of precious metals will continue to climb in the long run. Either way, Gold and Silver are still your best investment choices, and they will see record highs in 2013.

RECOMMENDED INVESTMENT COMMITMENT AND DIVERSIFICATION:

Precious Metal commitment: Minimum of 35% of investment capital

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

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

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