GOLD 00.00 1.20 0.00%
SILVER 00.00 1.20 0.00%

Metal Market Report January 2018 - Week 2 Edition

January 2018 - Week 2 Edition

The Wall Street Journal Likes Gold Again!

Gold began the new year with a big $20 rise on Thursday to $1,325 before correcting to $1,318 on Friday.  Gold and silver each gained 1.7% for the week while stocks shot up over 2%.  Gold bottomed out at $1,240 on December 12, the day before the Federal Reserve announced its latest rate increase.  Gold then rose in 11 of its last 12 trading sessions of the year. In less than a month, gold has risen to $1,320, while Bitcoin has fallen, so Wall Street has turned its attention to gold once again in the new year.

At the start of the year, the two major Dow Jones publications featured bullish headlines on gold:

“Gold Could Shine Even Brighter in 2018” – Wall Street Journal, January 3, 2018

“Gold Could Glitter Anew in 2018, and Beyond” – Barron’s, January 8, 2018

The usual pattern is that the Wall Street Journal and Barron’s kick gold when it’s down and praise gold when it’s rising, and gold has been rising strongly lately, so they are praising gold this time around.

The Wall Street Journal article begins, “The precious metal had its best year since 2010 last year, boosted by a weakening dollar and political tensions around the world.” The Journal quoted experts who expect more of the same in 2018, pointing in particular to “risks ranging from North Korea to Iran.”

The Barron’s article spent about half its space on gold mining shares, but the first half made the case for gold bullion rising in 2018.  It closes with a comparison of Bitcoin to gold that bears repeating:

“A major attraction of digital money is its freedom from government oversight, also an attribute of gold.  Moreover, gold, which trades far less erratically than bitcoin, can be held as bars and coins, a benefit if the electric grid ever goes down.”

Mainstream Gold Price Projections for 2018 are Boring!

As usual, most mainstream banks predict “more of the same” gold prices for the year ahead.  If gold is around $1,300 and rising slowly, these big banks tend to predict more of the same in the year ahead!

ICBC Standard Bank, the world’s largest bank, sees an average price of $1,312.50 for the year. The Royal Bank of Canada also sees an average just above $1,300 for the year, specifically $1,303.  These prices are a little too precise to be taken seriously, especially since they have already been eclipsed.

Bank of America Merrill Lynch has one of the most bullish predictions with a gold price projection of $1,325. The low end of gold price projections is represented by the perennial perma-gold-bear Goldman Sachs, who expect gold to fall to $1,200 by the middle of 2018.  Standing in the middle, Morgan Stanley sees gold at $1,270, while Scotiabank, and Canadian Imperial Bank of Commerce see $1,280 average prices. All in all, most North American banks see gold staying pretty much where it is right now. Boring!

Why 2018 Could be “The Year of the Gold Coin”

I began studying the rare coin market over 50 years ago in the late 1960s.  In past coin bull markets, I have noticed the confluence of up to four essential components, which I see coming together now and perhaps peaking in the period just ahead, 2018 to 2020.  First off the strongest times since 1970 for rare coins have come in: 1972-1974, 1976-1979, 1987-89 and 2005 to 2008.  But most of those four coin bull markets have also been characterized by:

#1: A Weak U.S. Dollar

#2: A Stock Market Crash

#3: Global Uncertainty and Conflict

#4: A Rising Gold Price

Previous rare coin bull markets since 1970 have resulted in increases over several years of 100% to 1100% according to PCGS.  I truly believe that by the end of the decade we could witness the great bull market of this decade and that it will at least begin in 2018, which could go down in history as “The Year of the Gold Coin.”

#1: A Weak U.S. Dollar: The dollar goes in broad cycles of strength and weakness, running about seven to 10 years.  Gold tends to rise when the dollar is weak. The dollar was weak in the 1970s and again from 1986 to 1995, then from 2001 to 2011.  The dollar began to turn south again on the first day of 2017, when the U.S. Dollar Index reached a peak of 103. By December, it had fallen 10% to 93.  Since dollar bear markets tend to run 7-10 years, the dollar could be weak over the next 7-10 years as the spendthrift U.S. government sends America deeper into debt and the Federal Reserve prints more fiat currency.

In their 2018 Commodities Outlook report, Canada’s TD Securities (a unit of Toronto Dominion Bank) sees a weaker dollar: “A gentle Fed tightening cycle, at a time when the ECB (European Central Bank), PBoC (Peoples Bank of China), and other central banks are set to start removing monetary accommodation, should sap some strength from the US Dollar and help the precious metals complex into 2018.” The Canadian bank predicts that the U.S. dollar will aggressively weaken starting next year, which has traditionally been manna for the precious metals complex.”

#2: A Stock Market Crash: Stocks have been levitating up to one new record high after another this year in a near-record nine-year-long bull market. TD Securities says, “With equities in record territory and pricing in both low rates and earnings perfection, there will be a growing constituency who believe that there is more downside than upside risk.”  Martin Arnold, strategist at ETF Securities, says, “Optimism (in equities) is at record highs, so it should come off a bit, which would be reasonably positive for gold.”

Most shockingly perhaps, analysts at the prestigious Wall Street firm Goldman Sachs warned in a recent report that the long bull run for stocks may be getting ready to end.  According to a November 29 report by Bloomberg, Goldman Sachs is warning that “Market Valuations are at Their Highest Since 1900.” The prolonged bull market in stocks, bonds, and credit has lifted these paper assets to an average valuation that is the highest in over a century. At some point, this condition must translate into “pain” for investors, says Goldman. “It has seldom been the case that equities, bonds, and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists wrote. “All good things must come to an end” and “there will be a bear market, eventually,” they said.

#3: Global Uncertainty and Conflict.  Gold is a proven safe haven in times of uncertainty.  In the current environment, a madman with nuclear weapons has just shown that he has the capability of launching a missile into the mainland of the United States.  More chillingly, literally, the winter Olympics are about to be held in South Korea in February 2018, with the madman just next door.  In addition, we have continuing unrest in the Middle East, including a deadly war in Yemen, which the world ignores. Domestically, we have the potential of an impeachment crisis during a contentious mid-term election year, reminiscent of another impeachment year of rising gold, falling dollar and stock market crash: 1974.

#4: A Rising Gold Price.  For all of the above three reasons, gold is already up over 10% this year, the biggest annual rise since 2010.  For all of the above three reasons, gold should continue to rise at an even faster rate in 2018: A weaker dollar pushes up the gold price in dollar terms; a stock market collapse sends flight capital into gold, as does any global crisis. How high can gold go in 2018? Michael Moor writing for the SorenK Group on advises buying gold “unleveraged with money you do not need for current cash flow or expenses; and hold it for 12-18 months with a target of $1700 plus.”


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