5/31/11 Weekly Market Report

A weekly review of the Precious Metal and Rare Coin markets providing information and news that affects future values.

GOLD
Last week’s $28.40 increase in the price of Gold ($1,536.60 per ounce) and the rally in the U.S. dollar versus the Euro were tied to the Greek debt issue. As the Greek and/or Eurozone debt crisis continues to worsen, the gold price should rally higher even if the Dollar moves higher.

Because the possibility of a Greek debt default is currently the main catalyst for the direction of the gold price, let me try to provide a short overview of the Greek issue.

On one side, you have the IMF and the European Union who want to continue providing bailout funds to Greece, but have serious objections. Greece needs to adopt fresh austerity steps, more economic reforms, and faster sales of state assets. If Greece cannot seriously provide a plan to accomplish and implement these goals, additional bailout funds would be throwing good money after bad.  On the other side is the Socialist Prime Minister George Papandreou, who has failed to reach past IMF goals or win political support to achieve new goals. He has also been told there will be multiple demonstrations, general strikes, and civil unrest if new austerity steps are implemented.

Another option is to allow Greece to restructure the debt. Neither the IMF nor the European Union will accept that solution and have warned Greece their patience is running thin. If Greece was allowed to withdraw from the Eurozone nations and go back to the Greek Drachma, that would require restructuring the debt.

Some European leaders are calling for unprecedented outside intervention, including international involvement in Greek tax collection and privatization of state owned assets. I believe the Greek debt crisis will come to a temporary resolution this week, but that the Eurozone countries debt problems will continue.

For short term Gold traders, 17 of 19 traders, investors, and analysts surveyed by Bloomberg said Gold bullion will rise this week, while 1 saw a decline and 1 was neutral.  Gold is bullish; I look for Gold to hit the resistance level of $1,546 this week and go considerably higher if the Greek problem worsens. I am still looking for the $1,800 gold price by year end.

SILVER
Silver had its best week since the dramatic correction it suffered earlier this month. Silver was up $2.77 (7.9%) for the week, closing at $37.86 an ounce.  Renewed buying at the $34 support level brought in fresh buying and reports of record Silver Jewelry buying from Asia. Chinese industrial demand has surpassed domestic supply this year and a forecast of 16% annual growth in Silver consumption was a bullish factor. The storage of physical Silver investment product within the U.S. and Asia helped fuel the rally in the Silver futures markets.  The U.S. mint is still 6 weeks late in delivery of Silver Eagles due to very heavy physical demand. Lastly, the Shanghai Futures Exchange, China’s biggest commodities market, is expected to launch silver futures trading by the end of this year. Silver is building an excellent trading range, which is badly needed to build support. We will see major resistance at $39.20 and $40.20, and support needs to continue at the $34 price level. Remember, Silver at current levels is still up 23% year to date, and that is impressive.

PLATINUM & PALLADIUM
The global platinum surplus may jump eight-fold after Japan’s worst earthquake slashed car production, reducing the country’s demand to the lowest level in 28 years. Supply will probably outpace demand by as much as five metric tons this year, compared with a surplus of 600 kilograms last year.

RARE COINS
While the Silver bullion market was declining early this month, the price of certified generic dated MS63 to MS66 Morgan and Peace Silver Dollars declined at a larger percentage. That slide stabilized this week and supplies were quickly absorbed. Better numismatic Silver coins are still in short supply and prices for PQ material is still strong.  Generic $10 and $20 U.S. gold coins are still trading at very low premiums over their gold content. Remember the main driver for $1,500+ gold wasn’t U.S. buying, it came from Asia, the Middle East, and Central Banks. Our domestic gold rare coin market is controlled by U.S. demand. Due to the economy, housing problems, and high unemployment, we haven’t seen that demand yet. Certified MS63 $20 Gold Saint Gaudens, trading for under a 25% premium over spot gold price, is half the historic average. High end Numismatic Gold and Silver coins are still in excellent demand and prices are strong.