The Michael Fuljenz Metals Market Report
November 2011, Week 1 Edition
Gold rose every day last week (plus the previous Friday) for six straight up days totaling $121 (+7.5%). The biggest rise came on Wednesday, October 26 (+$59). The precious metals and the stock market have seemed to travel in tandem over the last 10 days, rising strongly in late October before correcting somewhat on Halloween. Due to a U.S. dollar rally today (see below), gold dipped to $1725 Monday morning. But even after this latest correction, gold is up a healthy 28% from Halloween Day last year.
- Gold 52 weeks ago (October 31, 2010): $1346.75
- Gold's average price during 2011: $1546.10
- Gold's London Low for 2011: $1316.00 on January 28
- Gold's London High for 2011: $1896.50 on September 5
Last Week In Metals: Gold rose $99 last week (+6%), while silver rose $4.62 (+15%) and platinum rose $119 (+8%).
Currency Manipulation Continues to Fuel the Metals "Roller Coaster Ride"
Sometimes it's hard (and even misleading) to explain gold's price fluctuations in terms of the traditional supply and demand fundamentals. Yes, the story is still as true as ever - rising demand and falling new supply of gold - but the daily fluctuations are more often due to rallies or declines in the relationship of the various paper currencies in which gold is quoted. This morning (Monday, October 31), the Bank of Japan intervened in the currency markets in an attempt to weaken the yen, which has been the strongest member of the Big Three (yen, euro, dollar) in global currency markets. A strong yen can hurt Japanese exports, so Tokyo sold massive amounts of yen, thereby lifting the U.S. dollar (and the even sicker euro).
As of 1:30 Monday, October 31, gold is down $19.20 to $1724.20, but all of that decline, and more, is due to a strengthening of the U.S. dollar. Gold is up $4.70 (+0.27%) today, based on a currency-neutral scale, but the strong U.S. dollar is subtracting $23.90 an ounce from gold. By contrast, gold is up 1.5% today in terms of the Japanese yen. In effect, these three major currencies are taking turns in their race to the bottom of the currency pyramid, while gold gains in value vs. all three.
Greenspan: Euro Zone Doomed to Fail
Former Fed Chairman Alan Greenspan told CNBC that the euro zone is doomed to fail because the divide between north and south is too great. "At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn't," Greenspan said. "Instead, northern Europe fell into subsidizing southern Europe's excess consumption, that is, its current account deficits."
Greenspan also expects that the European crisis in concert with failure of the U.S. to address its budget deficit mess could be severe enough to trigger a bond market crisis if the market suddenly decides the U.S. is more like Greece than not.
ANOTHER US DOWNGRADE COMING - BANK OF AMERICA / MERRILL LYNCH
While Standard & Poor's weathered bruising criticism for downgrading the United States from its triple-A credit rating in August, it may soon have company. The United States will likely suffer the loss of its triple-A rating from another major rating agency - either Moody's or Fitch - by the end of this year, according to a forecast from Bank of America/ Merrill Lynch.
"The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan" to cut the deficit, Merrill's North American economist, Ethan Harris, wrote in a research note published last week. "Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes," he added.
The trigger for the downgrade would be the likely failure of Congress to forge a credible long-term plan to cut the US deficit in a meaningful way. Merrill predicted that a second downgrade of the country's credit rating would be another blow to the sluggish economy.
IT'S OFFICIAL: RUSSIA TO KEEP BUYING GOLD
As reported here regularly, Russia's central bank has been adding steadily to its gold reserves as it seeks to divest of US dollars into an asset with real value. Now it's official: Russia plans to keep on buying gold.
Last week, central bank First Deputy Chairman Alexei told the Russian parliament that the bank would continue raising the share of gold in its foreign exchange vaults. "We are not planning to step away from this path. We are acquiring huge volumes (of gold)," Ulyukayev said.
GOLD SKEPTIC BECOMES A BELIEVER
Mike Pienciak, The Motley Fool, confesses "Why I Was Completely Wrong About Gold," in DailyFinance. "Let's be clear: I've been terribly wrong on gold's direction," wrote Pienciak. He adds, "As long as U.S. and European policymakers dither and the Dow Jones Industrial Average continues to jump hundreds of points in either direction from day to day, I do recommend that you own at least some gold. Now, will the yellow metal remain volatile? Probably. On a major financial swoon, could it initially sell off with stocks as investors raise cash? Yes. But in the long run, these risks may be small compared to the danger of not holding any gold."
The Aden Sisters Say Gold is Poised for a New Ascent on $2,000 Per Ounce
The highly-regarded technical analysis team of Pamela Aden and Mary Anne Aden announced their latest forecasts for gold, along with some informative back-up charts. Basically, the Adens say that gold was due for a downward correction in September, following its sharp summer rise. "This sell-off reflected a lot of pent-up pressure because the market had held up so well, and for such a long time, surging higher and higher without a normal downward correction." They also said gold and silver were "dumped for cash… similar to what happened in 2008." The recent decline of 16% in gold and 28% in silver were "the biggest declines since 2008 when gold lost almost 30%...the worst correction so far."
The Adens showed in great detail why the August surge was not a "bubble" by historical standards. First of all, gold has gained only modest amounts in each year since 2001. (Gold even rose during the chaos in 2008.) This year is unlikely to be an exception as gold is still up in the double digits, so far.
The Adens compared the current bull market with the "spiky" bubbles of 1973-74 or 1979-80. Each rise in the 1970s involved a tripling of gold prices in under a year, clearly a "bubble" peak. They also show charts of the tech stock bubble of 1999 and the Japanese stock market bubble of the 1980s as true bubbles.
By contrast, gold has now had two major corrections in three years. Since gold's first correction in 2008, the metal has risen by 170% in gradual stages in a three year recovery! Gold's steepest decline since 2008 has been the current 16% dip. The Aden's chart shows the strongest gold rise running from April 2009 to September 2011, in which gold gained 120% in 30 months without much of a decline along the way.
They see another such rise in the next three years, perhaps stronger: "We want to be ready for next leg of an even stronger phase of the bull market. And with gold currently showing renewed strength, this could happen sooner rather than later. The bull market is far from being over. This is accumulation time."
Accumulation Time for Rare Gold Coins
It is also accumulation time for important rare gold coins. This summer I went on more buying trips than I have in a decade. Demand was high for quality rare gold coins which were relatively scarce here and in Europe. Keeping a broad inventory of quality gold coins was a real challenge as prices rose weekly.
Buying important gold coins with a disciplined monthly plan allows collectors and investors to minimize the effects of rising rare coin prices for rare coins that are hard to get.
Set building is a great diversification and monthly accumulation method used with success by wildly successful collectors in all market conditions including "The King of Gold Coins" Louis Eliasberg. I highly recommend it!
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