Weekly Market Report 12/10/12

This week I list the four key reasons why Morgan Stanley believes that Gold will be the best performing commodity for 2013, and my thoughts on when Republican and Democratic leadership will reach a deal on the Fiscal Cliff issues.

 GOLD

Gold closed last Friday at $1,703, down $7.20 per ounce. This is the second consecutive down week for Gold as it continues to consolidate its gains from its August- September rally, while still holding its long term uptrend. The current Gold uptrend support level is at $1,654 per ounce. From a long-term perspective the trend is still intact as long as this support level is not breached. The short term resistance level is at $1,796 per ounce, the October 2012 high.

Much of last week’s equity and Gold trading activity was based on the news coming out of Washington D.C. and statements from various Republican and Democratic Party leadership on the status of the negotiations on the Fiscal Cliff issues. Many political experts believe that a last minute compromise will be reached on the key Fiscal Cliff issues which could be announced at a joint press conference as late as December 30, 2012.

RISK/REWARD RATIO FOR GOLD LOOKS EXCELLENT

With Gold trading at $1,703 per ounce right now, the risk/reward ratio is in favor of buying Gold. You risk $17 per ounce if short term support of $1,686 is tested, while your reward could easily be $93 when Gold reaches the current resistance level of $1,796 per ounce. The reward could be greater as Gold climbs to the long term resistance of $1,920 per ounce.

U.S. MINT SETS RECORD FOR GOLD EAGLE SALES

For the past few years physical demand for popular Gold bullion coins, (i.e. Canadian Maple Leafs, U.S. Gold Eagles, and Gold 1oz .999 Bars) has been at record high levels. In Asia, South America, and the Middle East, the demand has been strong; however domestic sales have been disappointing. The 2008 Financial crisis, which lead to a U.S. recession combined with high unemployment and concerns over home loan defaults, has kept demand for physical Gold coins in the United States much lower than International demand.

I believe that the re-election of Barack Obama for another four years has provided the stimulus to increase physical Gold demand. There is a widespread belief, deservedly or not, that Barack Obama represents a threat to our economic freedom and the American way of life. Our country is divided along political and economic lines and the current atmosphere has become extremely hostile. President Obama’s re-election gives individuals who hold deep suspicions about his agenda the encouragement to buy more Gold and Silver.

In November the U.S. Mint sold 136,500 ounces of Gold Eagles, the highest quantity since July of 2010. The bulk of the Gold Eagle sales came after the re-election of President Obama on November 6. 

GOLD IS MORGAN STANLEY’S FAVORITE COMMODITY FOR 2013

The highly respected financial firm, Morgan Stanley, offers the following four excellent reasons why Gold is their favorite commodity in 2013:

• Weaker USD: The U.S. Federal Reserve commitment to a near zero Federal Funds rate through 2014 and open ended purchases of mortgage backed securities should continue to pressure the value of the US Dollar on a TWI basis. At the same time, the ECB’s decision to adopt an unlimited bond purchase program through the Outright Monetary Transactions (OMT) initiative, subject to the conditionality of a full EFSF/ESM facility, reduced downside risks for the Euro and increased the likelihood of downward pressure on the TWI of the USD, via the USD/EUR cross rate.
• Central Bank buying: Central banks’ preference for Gold as a reserve portfolio asset further underpins the continued growth in Gold investment demand. 3QTD, net increases in central bank holdings were 268 metric tonnes, or 8,616 Million troy ounces, led primarily by emerging market central banks. The official sector has now been a net buyer of Gold each year since 2009, as developed economies’ central banks have sold increasingly small quantities of Gold.
• ETF demand: The bedrock of growth in investment and retail demand remains the physically backed exchange traded funds (ETFs). In the 3Q12, global ETF holdings increased by 189 tonnes, a 56% increase year to year.
• Recovery in Indian demand: Moreover, the Indian jewelry and investment market is also showing signs of recovery as Indian purchasers acclimate to recent price trends amid restocking ahead of the Indian wedding and festival season.

Morgan Stanley forecasts Gold to have an average 2013 price of $1,853/ounce.

CFTC FINALLY TARGETING FRAUDULENT GOLD SELLERS

The U.S. Commodity Futures Trading Commission (CFTC) announced last Wednesday that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against 12 firms and their executives for fraudulently marketing illegal, off exchange, retail Gold and Silver contracts.  I believe that there are over 200 fraudulent Gold and Silver companies currently operating within the U.S. and I hope that the CFTC gets active nationwide.

See the complete article at http://www.mintstategold.com/investor-education/cat/news/post/cftc_cracking_down_on_gold_telemarketers/

SILVER 

Silver closed last Friday at $33.08 per ounce, down 17 cents. It has been trading in a consolidation range since September. Long-term uptrend support comes in at $28.50 with a closer support level of $30.68, the November low. Resistance is at $35.36, the October high. It appears that Silver wants to trade in the $33 to $34.50 per ounce price range. The Gold-Silver ratio closed the week slightly higher at 51.51-to-1. We have had a few false breaks mid-week; a clean break above $35.36 per ounce would target the $40 level.

ECONOMISTS BELIEVE QE WILL CONTINUE INTO 2013

Economists are all but certain that the U.S. Federal Reserve will announce at this coming Tuesday/Wednesday’s FOMC meeting an extension of its monetary stimulus (Quantitative Easing) into 2013. Analysts expect the Fed to continue buying $85 billion worth of securities per month.

PLATINUM & PALLADIUM

Since September of 2011 until the present, Platinum has traded lower than the price of Gold.  That discount has ranged from $1 to $230 per ounce, and as of Friday’s close it was at $98.50 per ounce.  Friday Platinum closed at $1,607, up $2.40 per ounce; still an outstanding investment given that the physical shortage of Platinum exists due to South Africa’s mining problems. Palladium closed Friday at $698 per ounce, up 9.80 for the week.

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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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 through 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.