Weekly Market Report 11/21/11

GOLD

Last week was very difficult for gold investors. The gold price dropped $63 per ounce (3.53%) for the week, ending at $1,725.10 per ounce.  The volume of trading in Asia, Europe, and the United States was higher than average with an $86 high/low price range.  If we don’t see progress on a Eurozone solution or from our Congressional Super Committee, we will likely see gold test the $1,700 per ounce level on Monday. This price level represents the low end of the recent trading range and is an excellent entry point for adding to your gold holdings.

Last week the Eurozone debt crisis caused investors to face liquidity and margin call problems resulting from a global drop in the commodity, equity, energy, and currency markets. Investors needed to sell their precious metals. Considering this massive selloff, I was impressed with the strength of gold, staying above the $1,700 per ounce level. Without a short term solution to the European debt crisis the World’s financial markets will continue to stay highly volatile.  

Gold needs to continue to build a support base in the $1,700 to $1,800 price range; while an inter-week break is OK, closing above $1,700 by week end is important. The fundamentals for a bullish long term gold move to new all-time highs continue to look better and better. Here is my review of last week’s bullish Demand/Supply fundamentals.

Exciting new Gold Demand Information

The World Gold Council (WGC) reported last week that the Global Gold demand rose 6 % in the third quarter of this year as compared to 2010. Europe’s debt crisis spurred investors to accumulate gold as protection of wealth and this pushed the demand to a record high. Global demand rose to 1,053.9 metric tons, worth a record $57.7 billion, the London-based industry group said in a report. Investor purchases of exchange-traded funds and products, bars, and coins outpaced the drop in jewelry demand and increase in recycled supplies. The WGC also stated that during 2011 the World’s Central banks’ gold buying set a 40-year high. The WGC declined to identify the central banks behind the majority of this buying citing “confidentiality restrictions”, and saying only that “a slew of new entrants emerged wishing to bolster gold holdings.”

Gold imports to India, the world’s biggest consumer of bullion, are likely to increase in the last quarter of 2011. Demand is emerging from traders, says The World Gold Council’s (WGC) Managing Director in India and the Middle East, Ajay Mitra. India’s imports from the Oct-Dec 2011 quarter will be higher than last year’s 281 tonnes.

According to the World Gold Council’s “Gold Demand Trends Report” for the third quarter of 2011 released last Thursday, this increase was driven by investment demand which rose by 33% year-on-year to 468.1 tonnes, generating record quarterly demand of US$25.6bn.

Read the complete WGC report at: www.gold.org/media/press_releases/archive/2011/11/gold_demand_trends_q3_2011_pr/

The Movement to physical gold over paper gold is increasing

Major pro-gold hedge fund managers like George Soros, David Einhorn and John Paulson are beginning to move away from Gold ETFs like SPDR Gold Trust (GLD) and instead are purchasing physical gold in allocated bullion storage accounts. Allocated gold bullion accounts offer many benefits over Gold ETFs for hedge fund managers; these benefits include lack of disclosure (no quarterly filings), less counter party risk than a trust with many indemnifications, and you actually own the physical gold.    

Global Supplies of new Gold are plummeting

Jim Cramer reported last Friday that Freeport-McMoRan’s (FCX) Indonesian Grasberg copper and gold mine has cut its production of gold by 3 million ounces per day since their strike started on October 17, 2011. FCX is not alone; other major gold mining properties around the world have similar labor problems, environmental hold ups, and nationalization concerns. That is why last week, with a 3.53% correction in the gold price, major mining company stocks (GG, ABX, NEM, FCX, and GOLD) had price drops from 6.6% to 8.8% in the same week.  The stock price of major gold producing mining companies continues to underperform as compared with the physical spot price of gold.

SILVER

The silver price broke down last week, breaking the important $33 support level. It actually reached $30.92 per ounce early Friday morning before sizeable bargain buying came in to drive it back up to $32.41 at the close.  With Silver down $2.26 per ounce (6.53%) for the week, the Silver/Gold ratio moved to 53 to 1. 

The combination of equity and commodity margin calls, investor liquidity problems, and the on-going debt crisis in Europe took its toll on Silver last week.  2011 will go down as a record demand year for physical silver, but it needs to reach $34 to show a 10% annual return.  The on-going turmoil caused by the European sovereign debt problems and the banking crisis have investors concerned that we are on the verge of global contagion and a serious recession. Finance Ministers around the globe are worried that their economies will suffer if European leaders are unable to unify behind a debt strategy. Remember, with the possible exception of gold, demand and prices for most commodities and precious metals typically drop in a recession.

PLATINUM

Platinum also sold off this past week.  With gold down $63, Platinum only declined $58, and is now trading at a $136 discount versus the current gold price.  I recommend a 10% investment in Platinum as part of a balanced precious metal diversification.

More Quantitative Easing on the way

The Bank of England (BoE) signaled late Wednesday that it was likely to pump billions more into their economy; this after slashing its forecasts for inflation and saying that its output is likely to stagnate until next summer. The Bank is forecasting no growth until next summer and has downgraded its 2012 central forecast from 2.2 per cent in August to 0.9 per cent. The BoE expects inflation to fall rapidly from 5% to well below its 2% target by the end of 2012. Despite the Bank urging caution in the face of huge uncertainty, economists and investors jumped on the low inflation forecasts as a signal that the Bank was planning to increase its money printing operations above the target for £275bn of quantitative easing and is on course to achieve this by February.

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.

Whitman’s Baltimore Rare Coin Expo

Last week I attended the last major coin show of the year.  My hopes to acquire additional CoinStats recommended Investment quality gold and silver rare coins were dashed by the fact that there was a limited supply and the demand was huge. Dealers and investors were encouraged to become aggressive by the announcement of a second $250 million rare coin investment fund that is coming on-line.

I had an opportunity to talk with many of my peers in Baltimore and I didn’t find it surprising that most of them felt the same way about the great values available in U.S. rare coins.  One dealer said it best “Gold and Silver have more than doubled since 2008, and the price of investment quality gold and silver coins is the same, this doesn’t happen”.  I think our recent CoinStats identifies many undervalued U.S. gold and silver rare coins. 

New CoinStats

I believe that my CoinStats report is the best investment tool for rare coin investors. CoinStats is an in-depth statistical analysis of popular rare coin series that allow investors to identify the best values in certified rare coins. I am proud to offer this unique and outstanding investment tool exclusively to our clients. The October 15, 2011 update is now available for $20 Gold Saint Gaudens, $20 Gold Liberties, and Morgan & Peace Silver Dollars.

2012 Hyperinflationary Study Booklet just released

I am very proud to announce that my 2012 Hyperinflation study has been completed. This booklet, named “Is Hyperinflation the US Government’s Only Way Out?” is being mailed out now. The study answers two very important questions, “Is a gold standard possible?” and “Can gold be confiscated again?”

This 32 page booklet is my 2nd edition and completely updated with eight more pages than the 1st edition, which was released last May. A combination of great client suggestions on how to improve my 1st edition, along with all the global and domestic events that have occurred since May 2011, has allowed me to completely update the study.

If you do not receive your copies by next week, please contact my office immediately. Once again, I am asking for your opinions and/or suggestions to improve the 2013 edition.

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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.