The Mike Fuljenz Metals Market Report
December 20, 2010
Gold Looks To Close 2010 With About A 25% Gain Marking 10 Straight Years Of Rising Prices As Goldman-Sachs Projects Prices Near $1700 in 2011
Gold fell slightly last week, mostly due to a rising dollar, but every time gold falls new buying comes in. With just 10 days left of trading in 2010, gold and other precious metals seem certain to close 2010 with a major gain of 25% or more, a record 10th straight year of rising gold prices. This morning (Monday), gold recovered to $1382, starting with Asian buying. Chen Xin Yi, an analyst at Barclays Capital in Singapore, said that “buyers realize that prices are not going to correct very much.” Long-term, there is no other way for gold to go than up: Miners aren’t finding enough new supply and demand keeps rising. Meanwhile, silver performed much better than gold last week, up nearly 2%. Spot silver is back over $29 an ounce.
Gold 52 weeks ago (December 21, 2009): $1105.50
Gold’s average price during 2010: $1220.47
Gold’s London low for 2010: $1058 on February 5
Gold’s London high for 2010: $1431 on December 7
ETFs Keep Fueling New Gold and Silver Demand
As of last Friday, gold in exchange-traded funds (ETFs) grew to a record 2,113.2 metric tons, while over 15,000 tons of silver are held in silver ETFs as of last Friday. There are now 10 major gold ETFs and several vehicles for trading in paper silver and platinum. These products did not exist a decade ago, when gold was mired at $255 per ounce. In fact, Bloomberg published a fascinating article over the weekend, all about the hatching of the idea of gold ETFs early in this new century, when gold was still ultra-cheap.
In 2002, there were already some quite arcane and quirky Wall Street securities like “wine futures,” which represented shares of stock in a particular future vintage of wine – so the new leaders of London’s World Gold Council, an industry trade group, wondered why gold bullion could not become a tradable security in America. After all, Australia had pioneered the way, launching the first gold ETF in 2003.
The first U.S.-traded gold ETF, called SPDR (“spider”) Gold, started trading November 18, 2004, when gold was $442. After 30 days, the fund accumulated $1.3 billion, making it the fastest-growing ETF in history. Gold rose 58% in the 18 months after SPDR Gold started trading, reaching $700 in May 2006.
The setting up of gold and silver ETFs seems like a simple thing, but it took a long while to get regulatory approval of a gold contract on Wall Street. Now, major institutional investors like the Texas teacher’s pension fund and the University of Notre Dame, as well as billionaire hedge fund managers like John Paulson, Laurence Fink (Black Rock) and George Soros, own gold ETFs as a key part of their portfolios.
The chief investment officer for Notre Dame, Scott Malpass, explains why he moved into gold. At first, he was a gold skeptic, but he began buying into SPDR Gold after Lehman Brothers collapsed in 2008. The Notre Dame fund was worth about $5.5 billion last year, when it started acquiring gold. The school holds about $65.8 million in gold as of September 30, barely 1% of its assets, according to SEC records. Without ETFs as a “paper gold” alternative, perhaps these new gold buyers would not yet own gold.
More of Wall Street’s “Big Names” Praise Gold as a Part of a Balanced Portfolio
As World Bank President Robert Zoellick has said, “Gold is the yellow elephant in the room.” More and more big names on Wall Street are inviting the yellow elephant into the corporate board room, as well:
According to Bloomberg, Byron Wien, vice chairman of Blackstone Advisory Partners LP, says that he is recommending that institutional portfolios put 5% of their assets into gold. He says he’s meeting some resistance to that idea: “People think it’s just another bubble, or it isn’t real,” he said. Wien says he sees gold at $1,500 within two years, although “any potential price gain is less important than having a safety net. I’m recommending gold as a kind of insurance policy against calamity in financial assets,” said Wien.
George Soros famously called gold a bubble earlier this year, at Davos, but he hasn’t sold his gold yet. Maybe he was just trying to talk down the price to make another buy. As of September 30, 2010, SPDR Gold was the Soros Fund’s largest single holding, according to a filing with the SEC. The Soros Fund acquired five million shares in iShares Gold Trust, the SEC filing shows. On November 15, in a speech in Toronto, Soros said, “The current conditions of actual deflationary pressures and fear of inflation is pretty ideal for gold to rise.”
Analysts at Goldman Sachs forecast last week that gold will rise to $1,690 within 12 months. They cited fundamentals of supply and demand: Last year, investment demand overtook jewelry as the biggest part of demand for the first time in 30 years. To meet that demand, mining companies have explored places that don’t make much economic sense, in order to feed new demand. That pushed global gold production to a seven-year high in the first half of 2010, according to GFMS, but the industry’s average cash cost to produce an ounce of gold rose 17% in that digging orgy, as mining companies chased marginal deposits.
Gold is rising (or at least maintaining a strong floor in the $1380s) despite a spectacular rise in the U.S. dollar over the last two months, fueled by the European debt crisis. That means gold is rising in terms of all currencies, not just the dollar. As governments keep devaluing their currencies, it doesn’t really matter if the dollar rises to the euro. What matters is that gold keeps rising in terms of all printing-press paper.
In Europe, Moody’s downgraded Ireland’s debt five notches, from Aa2 to Baa1, last Friday and warned that Ireland’s financial fundamentals could deteriorate further. Ireland’s current credit rating is now just three notches above “junk” status. That will undoubtedly raise Ireland’s credit costs. This situation hit home last week when Moody’s threatened to issue a “negative outlook” on U.S. Treasury securities – a downgrade from its current “stable outlook.” This could potentially lead to a bond rating cut within 12-18 months. In the last month, U.S. Treasury bond yields have risen significantly, mostly over concerns that trillion-dollar annual deficits will become permanent and that our debt burden is spinning out of control.
In an official Treasury report issued last week, we learned that two nations in Asia own about $1.8 trillion of our debt (as of October 31). China controls $906.8 billion and Japan’s owns $877.4 billion in dollars. What if they sold a good share of that debt to buy gold? The dollar would tank and gold would soar.
2011 Top Rare Gold Coin Picks UNDER $25,000 (Part 2)
This week we are posting our second rare gold coin predictions for 2011. More predictions will be released in the weeks that follow. Predictions are not guaranteed and are just our best educated guess or opinion.
- MS-66 $2 ½ Indian Gold Coins (up 10-25% in price)
- MS-63 Type II $20 Liberties (up 10-25% in price)
- MS-66 Type III $20 Liberties (up 10-25% in price)
- MS-64 1912 & 1914 $2 ½ Indian Gold (up 10-25% in price)
- MS-65 1912 $2 ½ Indian Gold (up 10-25% in price)
- MS-65 $3 & $5 Indian Gold (up 10-25% in price)
- MS-66 $10 Indian Gold (up 10-25% in price)
Important Disclosure Notification:
All statements, opinions, pricing, and ideas herein are believed to be reliable, truthful and accurate to the best of the Publisher's knowledge at this time. They are not guaranteed in any way by anybody and are subject to change over time. The Publisher 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. Arbitration: This company strives to handle customer complaint issues directly with customer in an expeditious manner. In the event an amicable resolution cannot be reached, you agree to accept binding arbitration. Any dispute, controversy, claim or disagreement arising out of or relating to transactions between you and this company shall be resolved by binding arbitration pursuant to the Federal Arbitration Act and conducted in Beaumont, Jefferson County, Texas. It is understood that the parties waive any right to a jury trial. Judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. Reproduction or quotation of this newsletter is prohibited without written permission of the Publisher.