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The Mike Fuljenz Metals Market Report

Spring 2011

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A year ago I predicted gold would reach $1,500 an ounce in 2010. At the time, gold was hovering around the $1,080 mark, so I expected about a $400 per ounce gain during the year.

Gold came tantalizingly close to my forecast, setting new price records throughout the year and topping out at an intraday all-time high of $1,431.30 in early December before settling to a year-end close of $1,421.60. Even though gold didn’t ring the $1,500 bell, it sure made it hum.

Peering deep into 2011, I see further increases for gold this year, though at a slightly more deliberate pace and not without pitfalls along the way. I expect gold to reach at least $1,600 an ounce in 2011. That’s about a $180 gain per ounce for the year.

However, numerous indicators strongly hint that gold prices could soar well beyond $1,600, depending on how a number of variables fall into place.

Without question there will be ups and downs. It’s never a straight line. Along with the exciting bull rallies will come gut-turning corrections at times. The year has begun with sharp pullbacks in gold (silver, too). This should be no surprise nor should it be cause for alarm. And it almost certainly won’t be the only time this year when heart-in-the-throat dives in the gold market take place. Gold investors need to keep the long view in mind to keep from getting whipsawed into selling low and buying high. Hang onto your core holdings and ride the waves.

In the last half of 2010, gold raced through a relentless surge to successive record highs in the last quarter, gaining 30% for the year. A healthy pullback was inevitable and should be welcomed. There was too much speculative froth in the gold market, and if it had continued, the gold market would eventually have collapsed under the weight of its own enthusiasm.

A good solid correction will clean out the weak money and leave a strong base for the next leg up. The correction could last through the first quarter of this year, then we should see a more orderly, sensible climb to new highs as the year progresses. The odds – and technical indicators – favor the long term trend that has been in place for ten years and shows no signs of weakening in the intermediate to long term. The pullbacks should be temporary and short (great opportunities to grow your gold portfolio).

Of course, the gold-bashers and perma-bears will trumpet the correction as the end of the gold bull market. You’ll see headlines like these at times in the Wall Street Journal [WSJ] proclaiming “Gold Continues to Lose Luster” or “From China, Signs That Gold's Rally Isn't Endless.” The gloomy tone of these ominous-sounding commentaries could make the uninformed investor nervous about holding onto gold. But, you’ll also see more balanced headlines there like “The Power of Gold: The Risk and Rewards.” This WSJ Smart Money article quotes me and is very balanced.

And you’ll likely see comments from fair-weather gold buyers like Dennis Gartman, a hedge-fund manager and author of the Gartman Letter. Gartman says he has sold two-thirds of his gold holdings over the past few weeks because it wasn’t making new highs and he thought the gold market was too crowded. “Everywhere you went, everyone you knew was aggressive long,” he said. “That's a bad sign, because that means everybody has already bought.”

No, not everybody. Only the market insiders and traders like Gartman. The institutional and public retail investor has, for the most part, not discovered gold yet.

By Mike Fuljenz

Despite the occasional corrections, the long term bullish trend line has not been violated and shows every indication of remaining intact through 2011 and well into 2012. It has actually been turning dramatically higher but hasn’t gone hyperbolic yet. That will be the time to get out of gold because it will indicate that the mania has started and the end of the long gold bull market is near. That’s still a good ways off.

One thing I can predict with virtual certainty is that after the first quarter you can expect the return of recurring headlines later in the year proclaiming “a new record high for gold.” That sounds great, and it helps stir up interest among mainstream public investors who may not be all that familiar with gold. Just keep in mind that what they’re talking about is a nominal new record high in dollar terms. In inflation-adjusted terms, though, gold won’t reach a real-money record high until it gets to $2,250 in today’s dollars. That’s how much it will have to cost to equal the value of gold’s high of $850 in 1980 dollars. But what about all that talk you hear about a “gold bubble” that’s about to pop? Not going to happen, period. Why? The facts say otherwise. I’ll give you a dozen reasons why the bull market for gold (and for that matter, silver and most all commodities) will continue to flourish in 2011…



The U.S. national debt has swelled to almost $14 trillion, a figure that numbs the brain for most of us. The debt is growing at the rate of $1.4 trillion a year – 10% annually. At that pace, the national debt will double before this decade ends.

As it stands now, if we incurred not another penny of debt and just paid off what we owe right now, this minute, at the rate of $1,000,000 a day – that’s a million dollars a day – it would take 38,356 years to pay off the U.S. debt!

When the world can’t trust the U.S. government to pay its debts fairly, then what can investors trust in? For 5,000 years, people have been trusting gold over governments at different times.



The sovereign debt crisis in Europe refuses to go away. No sooner had the furor over Greece sort of died down than Ireland tripped over its Blarney Stone. And before that crisis was calmed down, worries about Portugal and Spain percolated to a simmer. Italy is in none to sturdy a shape, either, though it hasn’t slipped into crisis mode…yet. France looks shaky, too.

The hard reality is that the European Union has finite resources and simply can’t keep bailing every weak-sister spendthrift country that can’t manage its finances. And throwing money at the problem doesn’t cure what causes it to begin with – nanny-state cradle-to-grave social welfare spending. The Europeans have long been smug about their vaunted social safety net, but now the real cost of the socialist ideal is coming clear. As Margaret Thatcher once observed, “The trouble with socialism is that eventually you run out of other people's money.”

“The European crisis is most likely to heat up again several times more before it comes to some kind of conclusion,” says Filip Petersson, a commodity analyst at Swedish bank SEB.

If some of the world’s major currencies collapse, the money that most can trust will be gold.



It is doubtful if Washington has either the ability or the intention of paying back what the U.S. owes our creditors. Democrat or Republican, it doesn’t matter who’s in charge – the debt is nearly impossible to repay. It is simply more massive than we have the means to pay or possibly ever will have. But Washington won’t default on the debt as many other countries commonly do when they drown in red ink.

No, Uncle Sam will instead shrink the dollar, which will therefore shrivel the debt. Washington nags China to boost the value of the yuan, which is just another way of saying “We need to debase the dollar.” It’s all part of the “race to the bottom” that infects most major fiat currencies these days…a limbo game of how low can you go to get lower than somebody else’s currency bar.

And because there’s no accountability for monetary policy – like a gold standard – the Capitolmen can simply keep printing lots more dollars out of thin air and pay back the debt with cheaper dollars. But the Washington insiders Bernanke and Geithner get away with it because many in Congress, the President, and the Supreme Court seem to look the other way.

Your cash is losing value even while you’re reading this. It will lose much more.

As cash shrinks in purchasing power, gold gains muscle. Gold most often rises as the dollar falls…and falls…and falls. Gold is the ultimate store of wealth when paper currencies cave in.



The increase in the headline CPI remains tame at 1.1%, so the Labor Department tells us. And if you believe that, best avoid realtors offering great deals on beachfront property in Kansas. The Consumer Price Index is one of the biggest inaccuracies perpetrated by the government, manipulated and massaged to minimize reported inflation.

Why cook the books? Maybe because of all those Cost of Living Adjustments (COLAs) for social benefit (like Social Security) and entitlement programs that are tied to the CPI. If inflation goes up, the government has to pay out more in cost-of-living raises.

The CPI is also heavily weighted toward real estate, and home prices continue to plunge, according to the most recent Standard & Poor’s Case-Shiller report showing home prices down 28.6% from the July 2006 peak. That artificially depresses the CPI even as most commodity-based products are seeing increases.

According to John Williams’ Shadow Government Statistics, actual inflation is running close to 7% annually, more than six times what the government is reporting or using for cost of living adjustments.

The flood of money supply already spewing out of the Fed and the likelihood of chronic quantitative easing for the foreseeable future virtually guarantees serious inflation ahead and very possible hyperinflation.

Then there’s inflation imported from China. Not so long ago, China exported deflation with its cheap goods that became a staple on the shelves of many U.S. retailers. Now China’s success has caught up with it in the form of escalating inflation in commodity prices that drives up the price of its goods. U.S. retailers Wal-Mart, Gap, and J.C. Penney have warned that they expect Chinese clothing goods to cost 30% more because of zooming cotton prices.

Cotton isn’t the only commodity setting record highs. The real cost of living is embedded in the soaring prices for raw materials and energy necessary to make goods. Through the ages, gold has been the traditional favorite hedge against inflation.

“Inflation is like fuel on gold’s fire.”



Keep in mind that most of the financial media reports you read or see on TV deal almost exclusively about what’s happening in the U.S. But the U.S. is no longer the center of the financial universe. If you really want to know what to expect from gold, forget about what’s going on in the U.S...Asia is what counts where gold is concerned.

Asians are buying gold in record numbers, especially as the price softens. If it weren’t for eager gold buyers in China, India, and the rest of Asia, the gold market might well fall on hard times now, but they provide a solid floor of support that largely offsets the risk-chasing American gamblers who have been switching from the safety of gold for the stock market crapshoot.

China is the world’s biggest gold producer and still can’t dig up enough of the yellow stuff to satisfy demand. China and India jockey neck and neck for the title of biggest importer and consumer of gold. Other Asian countries are just as enthusiastic about gold as are China and India; just not on the humongous scale of their giant neighbors.

Soaring commodity prices and rapidly rising labor costs have driven up Chinese production costs dramatically in the last year, generating an unwanted problem they hadn’t had to deal with before – inflation. Beijing has raised interest rates twice in just a couple of months to try to put the brakes on inflation, but now concede they will have to raise their target inflation rate to 4% for 2011, up from 3% for 2010. The Chinese CPI for November ran more than 5% higher than a year earlier.

So the Chinese people are buying gold to protect themselves from inflation…and the government is officially encouraging them to do so! Beijing has been vigorously promoting private ownership of gold and introducing programs to make it easy for citizens to stock up on the yellow metal.

“Gold's perceived property as an inflation hedge is making the metal an attractive investment in the country, particularly as the other popular inflation hedge, property investment, has already achieved stellar price increases in the past two years,” says BNP Paribas precious-metals analyst Anne-Laure Tremblay. “Everybody in the gold market knew there was a surge in investment demand, but they didn’t know it was China,” said Jeff Christian, managing director at CPM Group.

“The big picture is that China is continuing to relax the rules governing the domestic gold market,” said Martin Murenbeeld, chief economist of Dundee Wealth. “What we are seeing is the latent demand that has been there all the time and now can be exercised in the market because now the market is freed.”

China figures prominently in gold demand in another major way: central bank purchases. China is the world’s biggest holder of U.S. debt. Concerned about the decline of the dollar’s value (and thus the value of their reserve holdings), the Chinese have quietly been diversifying into other financial assets, including gold. They’ve been very discreet in their gold purchases, knowing that word of huge Chinese buying would send gold prices into the stratosphere. They have to do it slowly and silently. Even subtly, though, it takes gold off the market table and reduces supply, which maintains a steady support for gold markets.

If you really want to know what to expect from gold, forget about what’s going on in the U.S... Asia is what counts where gold is concerned.



Central banks, which in recent decades had been selling off gold reserves to buy dollars, now have reversed course, trading dollars in for gold and becoming net buyers of the once scorned metal. China, India, Saudi Arabia, Russia have been the largest central bank gold buyers this year. They haven’t stopped buying gold because of the latest correction, nor are they panicking and selling gold from their vaults.

While China has been subtle about its gold acquisitions, the Russians have been blatantly demonstrative about converting its reserve dollars to gold. Prime Minister Vladimir Putin loathes the U.S. dollar and wants the world to know it in no uncertain terms. The Russian central bank has very publicly been buying hundreds of thousands of gold ounces every month over the past year.

Economists at the Dubai International Financial Center Authority (DIFCA) have urged Gulf States banks to boost their gold reserves to protect their huge dollar assets from global currency turbulence. The Persian Gulf Cooperation Council includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. “When you have a great deal of economic uncertainty, going into paper assets, whatever they may be - stocks, bonds, other types of equity - is not attractive,” said Dr. Nasser Saidi, the chief economist of DIFCA. “That makes gold more attractive.”

“What we’re seeing now is emerging-market central banks stepping in as new buyers of gold for the first time, while developed-market central banks have stopped selling,” said Jorge Beristain, Deutsche Bank Securities analyst.. “So we’re seeing central banks going from a net supply position to a net demand position, and that could be termed as additional investment demand as well, and one of amore long-term nature.” Beristain notes that China, Brazil, and Russia each hold less than 10% of their assets in gold, compared to two-thirds by central banks in developed markets. As these markets develop, gold demand is predicted to increase further.

“As emerging market countries become wealthier both from a balance of trade and simply continuing to maintain a relative similar percentage of gold, that could be a driver for increased gold demand, ”Beristain said. “But additionally, we think that these central banks are re-evaluating how much gold they want to hold as a percentage of their overall assets, which could be a further driver.”



The introduction of gold exchange-traded funds (ETFs) in recent years opened up the yellow metal to a whole new audience of investors who either didn’t know how to buy physical gold or weren’t interested. ETFs made it easy for investors to participate in gold with a point-and-click on the computer. The popularity of ETFs has been a driving force pushing up physical gold prices. Shares in ETFs represent fractional ownership in actual gold purchased by the fund and stored in a vault (though questions have been raised about whether there’s actually as much gold in the vaults as the shares represent). As more shares are bought, more gold has to be bought and stored to back it up. As enthusiasm for gold ETFs continues to rise, more gold supply is taken off the market to be put into the fund vaults.

Sure there have been some outflows from the ETFs in the early part of this year as the correction unfolds. There may even be more over the next month or so. Yet the largest gold ETF, SPDR Gold Trust (GLD) is still the sixth largest holder of gold in the world, bigger than all but five central banks and the IMF. The popularity of gold ETFs should continue to explode as gold prices erupt upwards.



During the two decades when gold was in the doghouse, producer hedging was the bane of gold bugs worldwide. Producers would sell their supply forward to lock in prices they hoped would be better than in the future as gold values dropped week by week. Gold bugs claimed hedging artificially kept a lid on prices by upsetting the supply/demand balance.

With gold prices relentlessly climbing year after year, producer hedging in gold is now essentially a thing of the past. More than a year ago, Newmont Mining unwound its entire hedge book and was followed soon after by Barrick Gold, long known as the largest of the producer hedgers. Last year, Anglo Gold Ashanti, the last of the big hedgers, closed out its hedge book, paying a hefty premium to get out from under its futures contracts. Now there are no major gold producers with active hedge books.

The only remaining hedgers are smaller producers who mostly retain the practice as required as a condition of loans from bankers who want to have some security locked in for their collateral.



Public investors – that is, the mom-and-pop players – haven’t as yet discovered gold in large numbers, though a few are beginning to get the word. Institutional buyers have been dabbling in gold but not charging into it full bore, except for some aggressive hedge funds and a few forward-thinking institutional buyers like the huge Teacher Retirement System of Texas. When public buyers and institutions catch on to gold in a big way, get ready for a wild ride.

However, it’s not likely to happen this year. There’s plenty of room and time for mainstream investors to come on board. The smart money is saying gold will see markedly higher prices in 2011. A poll by Wall Street Journal revealed that nearly 85% of respondents expect gold to top $1,500 in 2011, and a whopping 41% believe gold will soar higher than $2,000 during the year! Only about 15% of the voters in the poll think gold has topped out.



At a time when gold demand is soaring, supply isn’t keeping up. South African production has been in decline, and global production remains essentially flat. Quality of ore mined continues to decline.

Investment manager and natural resources guru Rick Rule says the easy gold has been found. Any new gold fields will be harder to find and more expensive to mine.

Even if and when a promising big new gold discovery comes along, it would be nearly ten years before it would contribute any new supply to the market, and the way demand has been soaring, it would more than offset the new source of supply by then.

But finding a huge new gold field is a mighty big if. Realistically, the more likely case is that global gold production will stay flat for a while longer and then begin to decline. Growing demand and no growth in supply points to higher gold prices.



Mary Anne and Pamela Aden, co-editors of The Aden Forecast, pioneered technical analysis applied to precious metals and natural resources. They continue to declare that even as gold sets new record highs, it is historically a bargain within what they call the “commodity super-cycle.”

Looking past the day-to-day seesaw price gyrations, the Adens look at long term cycles for gold, silver, and other metals. According to their interpretation of the charts, the commodity super-cycle is still in the early stage of a bull market that has a number of years left to run.

The same basic story goes for most all other commodities as well – oil, copper, coal, cotton, and all that other stuff that China, India, and the rest of the emerging nations need to modernize their economies and infrastructure.



The potential for a global catastrophe and unrest hangs always near and can happen at any time. There’s no shortage of catastrophes lying around to trip over. They are by nature unpredictable and maddeningly difficult or even impossible to plan for. Egypt and even Wisconsin unrest are current examples.

There are wars and rumors of wars, naturally. The most dangerous is the Korean standoff between North and South. The brinksmanship has escalated to the point that an “accident” could touch off a shooting war that could quickly escalate into a global nuclear holocaust. Tensions between junior nukers Pakistan and India could easily erupt into nastiness that spills globally. The Middle East is always a huge powder keg with lit matches on all sides just inches from the fuse. Relations between the U.S. and China have been none too cordial of late. The Russians are none too fond of American politicians, either. Conflicts with either China or Russia probably would be trade warfare rather than military…and they’re both in stronger position. Then there are the natural catastrophes that could have global consequences.


As gold goes, so goes silver more or less…mostly more. Over time, silver tends to track in the same direction as gold, and for some of the same reasons – supply/demand squeeze, Asian demand, ETFs, commodity bull super-cycle, inflation worries among them.

When gold goes up, silver typically rises, too, and when gold slips, silver stumbles. However, silver movements tend to be more volatile, rising sharply higher than gold in good times and plunging deeper than gold on reversals. It’s like gold with the volume amped up to rock concert levels, making both the high notes and low notes more dramatic.

Catastrophe creates fear, and fear sends investors running to safety. Reflexively, almost instinctively they flock to gold as a safe haven in times of uncertainty and anxiety.

As gold prices have punched regularly into record territory, more investors globally are looking at silver as a cheaper way to play the precious metals boom with “poor man’s gold.” Price-conscious buyers in India, in particular, have increasingly been adding silver to their precious metals stash along with gold.

Lately, the gold-to-silver price ratio has generally been running about 44:1 – that is 44 ounces of silver equal to one ounce of gold. In recent trading, though, the ratio has slipped to about 43:1,meaning silver has become more expensive in gold terms because it takes fewer ounces of silver to match one ounce of gold. That indicates that silver is climbing in value faster than gold is, even at gold’s record pace over the past year. The ratio was as high as about 70:1 in June of last year.

The correction and rebounds we’re seeing in gold reflects in the silver market, too. Silver led all metals last year, doubling in price from February to December. Too much, too fast, too hot. Silver needs a little cooling off time.

If my forecast target of $1,600 for gold is on the money, silver should reach at least $36 an ounce using the trend ratio of 44:1. It could go higher if silver’s volatility accelerates. Silver bullion coin sales are strong in 2011 and mints are having to allocate again.

Why Gold and Rare Coin Prices Should Rise in 2011

Demand for gold was at a 10 year high in 2010 according to the World Gold Council. There was a 56% increase in tonnage demand for physical bars and a 17% increase in tonnage demand for gold jewelry. Increased demand for gold typically results in more customers from advertising for dealers. At some point enough of those new customers are introduced to rare coins by their dealers and the coin market has often taken off. Many of those bullion buyers then trade some of their bullion for rare coins, further fueling the market. The recession has resulted in premature selling by some coin buyers but that is slowing down, which in my opinion, bodes well for the rare coin market in 2011. Banks that reduced credit lines to dealers in 2008-2010 are now becoming a bit more receptive. The almost certain repeal of 1099 provisions in the new health care bill will further boost the market and discredit those dealers who used this as a scare tactic to get collectors and investors to prematurely sell or trade. Obviously the past doesn’t guarantee future results.

1970-2011 Rare Coin Index Results

spring11_pix5.jpgTracking the last 41 years, a highly respected Mint State Rare Gold Coin Index identifies that rare mint state gold coins outperformed a generic gold coin index, a 3000 Coin Index as a whole, gold bullion and a return of 5% a year. Based on a number of factors, including the results found in the respected 3000 Coin Index, we recommend rare mint state gold coins. While individual rare coin performance may vary, in my opinion, the results indicate that better condition grades, rarity and a market maker strategy are all important factors in rare coin performance over the long-term. Other experts I respect concur. Furthermore, the coin indices we reviewed do not swap coins in and out like major stock indices do. When one studies the performance of collections and sets of coins put together over generations by famous collectors like Eliasberg, Pittman and Bareford, the research is further validated. Set building provided diversification and set premiums for some sets during bull market conditions. Articles on these famous collectors and their strategies are available free from your account representative. Please call for a free copy.

What Is A Market Maker And Why Is It Important To You?

A “market maker” is anyone who is competitively buying and selling a specific product while providing ongoing research and support to the markets and customer base for such product. Because we focus on buying, selling and publishing activities in only four major areas of rare coins, out of the thousands available, we are able to provide meaningful and sustained support for the coins we recommend. Our specialized commitment is key to building long-term market awareness, collector enjoyment and demand among dealers and collectors. This commitment betters the odds your collection will be worth more in the long term when you decide to sell. Remember, our policy is to competitively buy what we sell. For a free copy of our Select Four Coin Recommendations contact your account representative.


BE CAREFUL about dealing with east coast dealers you’ve never heard of, who may “cold call” you to buy or sell coins. Be especially careful if they do not deal in coins graded by PCGS or NGC, which are the two leading certification services preferred by the vast majority of national dealers. Many of these east coast dealers sell coins graded by services that sound like PCGS or NGC over the telephone, so make sure you confirm you are getting PCGS or NGC products before you do business with them. Also, it is always a good idea to check out their current Better Business Bureau status. Our company is only located in Beaumont, Texas and we have no East Coast Representatives. All our calls to you should come from a 409 area code. All packages shipped to us should be addressed to our Beaumont, Texas address..


Gold and rare coin buyers doing business out of a hotel, often do not really know what they are looking at and may pay as little as 20¢ on the dollar compared to major coin dealers. They often lack expertise, and likely do not have appropriate numismatic credentials and/or industry membership affiliations. They also may fail to give you an itemized receipt, and their “appraisal” process may take longer than normal times, with even common coins taking 45 minutes or more to get a value. Some of these companies have received numerous customer complaints and may not be Better Business Bureau accredited. Additionally, they may not comply with your state’s laws requiring licensing of scales. In 2010, I received the NLG Radio Report of the Year Award for my programs on this topic, which were broadcast on KLVI 560 in Beaumont. Jerry Jordan, managing editor of The Examiner, provided expert research and input for those programs.


Routinely, their offers may be about 20¢ on the dollar and you may have to negotiate to even get that or higher. Some customers have reported their gold items were either lost or melted, could not be returned and were refused reimbursement. Like hotel buyers, some of these companies have been the subject of numerous customer complaints, which has resulted in new laws in many states to address some of their business practices. Additionally, they may not be Better Business Bureau accredited. So, be careful!

Are Stock Indexes Really Beating Gold – At Long Last?

The S&P has only 60% of the same stocks as it did in 2000.

The S&P 500 changes an average of 25 to 30 stocks per year.

In 2007, they changed 43 stocks (8.6%) on the list.

Gold has been gold for thousands of years of recorded history.

Gold doesn’t get a “mulligan” like major stock indexes.

Due to index changes over time, long-term comparisons of stock indexes to gold are flawed.

Words to the Wise…

The gold and precious metals universe is probably the biggest and most profitable bull market that most of us will see in our lifetime.

–Richard Russell, editor of The Dow Letters

Dealers or financial competitors who bad mouth the coin market or other dealers typically have many deficiencies themselves. When bad mouthing is present say what they say in Missouri “show me” to both competitors for your business. Give both dealers a chance to provide a response and proof of memberships, awards, accreditations and service. In most cases, the “bad mouthing” dealers or financial competitors are seriously deficient in credibility or their accusations are seriously mischaracterized, outdated or blatantly false.

– Mike Fuljenz


Recently I googled “Texas unclaimed property” to see if the State of Texas was holding any money I was entitled to. I do this yearly. It turned out there was some! You should google your state and then “unclaimed property” for you and any of your relatives that might have left you money in the past. It is kind of like free money! Interestingly enough, on the Texas unclaimed property site one of their headers is “Come and Get It.”

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