Weekly Market Report 11/19/12

This week update the status of Gold and Silver’s support and resistance levels and  discuss what will happen to Gold when the Basel III rules are enacted starting in January of 2013.

GOLD

Last week Gold stayed in its $1,700 to 1,740 per ounce trading range, closing the week at $1,714.70, down $16.20 per ounce for the week. The Gold price was negatively affected by concerns over the Fiscal Cliff crisis and the resulting decline in the world’s financial markets.

During the past ten weeks, ever since Gold went above the $1,700 per ounce level, it has consolidated in the $1,700 to $1,799 price range. After this base building period I think the timing is right for the next leg higher, taking us above $1,800 per ounce.

BASEL III RULES ARE EXTREMELY BULLISH FOR GOLD IN 2013

The Basel Committee for Bank Supervision (BCBS), as part of the Bank of International Settlement (BIS), is arguably the highest authority for world banking supervision. It is their role to define the capital requirements for financial assets, which includes Gold, in their Basel III rules. In short, they are considering making Gold a Tier 1 asset for commercial banks with a 100% risk weighting, as opposed to the way Gold stands today as a Tier 3 asset with just a 50% weighting. At the same time, they are set to increase the amount of capital that banks must set aside. The Basel III rules are potentially a double win for Gold in 2013.

Currently banks have a dis-incentive to hold Gold, while being encouraged to hold assets such as equity capital, currencies, and debt instruments. With this potential change in capital adequacy requirements, bank purchases of Gold would drive up Gold’s value relative to other high-quality qualifying assets. I believe that this should result in Gold setting new records highs (above $1,920 per ounce) in 2013. For more information about Basel III, please read:
http://www.mintstategold.com/investor-education/goldrealmoney.com/  

BIG MONEY STILL LIKES GOLD

Major fund manager John Paulson is bullish on Gold. Paulson & Co owned 2.18 million ounces of Gold at the end of September, unchanged from his stake in the
June 30 holdings report. Billionaire financier George Soros raised his Gold holdings to 130,000 ounces from 88,440 ounces in the 3^rd quarter of 2012.

PHYSICAL DEMAND FOR GOLD IN CHINA KEEPS GROWING

Mainland China’s Gold imports from Hong Kong advanced by 30% month-to-month, to 69.7 tons in September of this year, according to the latest numbers released by Hong Kong’s Census and Statistics Department. China’s imports are on a record pace with a total of 582 tons of Gold in the first nine months of this year, 4.3% higher than the official estimate of 558 tons.

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 go above $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 $32.37per ounce last Friday, down $0.23 per ounce for the week, staying between $32 and $33 per ounce all week. Given that for most of the week there was negative news on the potential Fiscal Cliff, which drove down the DJIA over 220 points and the NASDAQ over 50 points, $32 per ounce Silver has become an excellent support level since September 2012. I believe Silver looks ready to break above the $33 per ounce resistance level given any positive news of a potential congressional settlement on the Fiscal Cliff issues. The Gold-Silver price ratio is currently at 52.97-to-1.

In last week’s Market Report I said “If we go over the Fiscal Cliff, the price of Silver will drop dramatically.” I have since received a number of emails asking why I believe that to be true.

While Gold is your ultimate monetary hedge, Silver is your ultimate inflation hedge. If Congress is not able to settle the Fiscal Cliff issues, the increased taxation and spending cuts to come could quickly push the economy into a recession, or worse. A serious contraction in the U.S. economy would negatively affect both Gold and Silver prices, similar to the financial crisis of 2008. However, in 2008 Gold quickly rallied back, while Silver needed signs of a recovery to move higher. Conversely, if the Fiscal Cliff issues are settled, we should see a rally in both Gold and Silver, with Silver’s price increasing at a higher percentage.

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 up $2.40 per ounce last week, while Palladium increased $15.40 per ounce in the same period. Platinum is now trading at $1,562 per ounce, an attractive $153 discount to the Gold price. Palladium closed the week at $626.45 per ounce. Both metals were helped by ongoing miner strikes in South Africa with the largest Platinum/Palladium mines having closed down or working at minimal levels.

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

REMEMBER THE BLOG

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 to 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.