Gold climbed gradually last week, from $1164 to $1173 on Monday and a peak of $1189 Wednesday (London pm fix) before settling at $1182 on Friday.  Silver declined from $16.15 down to $16.01, moving opposite to gold’s trend, which usually signals the fact that gold is rising due to some geopolitical threat or a flow of funds into gold as a safety net. Year-to-date, silver is up 0.3% and gold is down 1.4% in U.S. dollar terms, but gold and many other commodities are rising in terms of the euro and other currencies.

Wall Street Journal Changes its Tune to Favor Gold

We’ve often tweaked the editors of the Wall Street Journal for their unfair coverage of gold.  After all, they cater to the “paper money” community – the holders of stocks, bonds, cash and currencies.  Gold provides an unwanted reminder that paper money has no intrinsic value.  Paper relies on the confidence in the holder of that paper that some other buyer will step in to offer more money for that paper at a later date.  Therefore, the Journal’s reviews of the gold market have been “catty” at worst or “spotty” at best.

Still, the Journal needs to fill its book-length “news hole” every day with article of interest to a wide range of readers, so when gold goes up or down there is generally an article by Tatyana Shumsky, their gold reporter, on why gold went up or down the previous day.  The Journal’s gold review is usually filled with quotations from market makers and portfolio managers interested (or not interested) in buying gold. 

One Journal headline in early June caught our eye: “Gold Gains Allure as U.S. Economy Stumbles.”  This article was another classic “bad news for the world is good news for gold” story, which is getting rather old, since gold is no longer just a crisis hedge or an inflation hedge.  It is also a “luxury purchase” (which requires affluent investors) and a currency hedge – a superior competitor to cash more than just stocks. 

In this article, Shumsky begins by saying, “Some investors who aren’t sold on the strength of the U.S. economic recovery are taking a shine to gold. After shunning the precious metal for years in favor of bonds and stocks, which often pay a steady income, investors are returning to the gold market to safeguard their wealth. Lofty valuations in stocks and bonds, which have rallied in recent years while gold prices slumped, also are prompting some investors to revisit gold amid fears of a downdraft in these markets.” Acknowledging inflation risks, she adds “Some traders also are pointing to easy money policies in Europe, which have pushed deflation worries off the table, and to similar efforts by other global central banks that could ultimately reignite inflation. These traders are buying gold in the hope it will keep its value better than other assets if consumer prices surge or if currencies lose their purchasing power.”

As to the myth that gold will fall once interest rates rise, she writes: “Gold prices already reflect the likelihood of a rate increase—or two—in coming months, say investors who are skeptical that global growth will pick up enough to warrant steep tightening of U.S. monetary policy.” She quotes Michael Tiedemann, chief investment officer for the $9.5 billion Tiedemann Wealth Management funds, who said “Gold as a flight-to-quality asset holds as much validity for us today as it did in 2005 and 2006, when we first started buying it.” Tiedermann said he recently sold stocks to bring gold up to 3% of his portfolio. 

The Wall Street Journal also reported recently that China’s gold consumption for the first three months of 2015 rose 1.1% versus the same quarter in 2014, according to China Gold Association president Song Xin.  This is a small gain but a dramatic turnaround from recent declines.  This is important since China and India account for about half of total global gold consumption, according to the World Gold Council. China is the biggest gold producer and the biggest gold consumer (importer). Any slowdown in China’s economy incites fears that Chinese gold demand would retreat, so a 1.1% increase is very good news.

Middle Eastern Money May Move into Gold Soon

Last week, Peter Cooper, the publisher and editor of ArabianMoney.net, warned that all the new liquidity in global central banks will cause inflation, so “buying gold to hedge against the very real possibility that they lose control is going to be the next big thing.” In the Middle East he is widely followed. Cooper points to money supply figures for Europe and the U.S. that reveal the underlying cause of the inflation headed our way.  He cited “M1 money” (the narrowest form of money, generally cash and checking accounts) is expanding in the Euro-zone “at the phenomenal rate of an annualized 16.2 percent for the past six months. The wider measure of the money supply M3 is growing by the fastest rate since 2008, up 8.4 percent in the same period…The Federal Reserve has quadrupled its balance sheet since the global financial crisis, pulling and pulling on a piece of string that never seemed to break. Now the brick on the end of that string may be about to fly into its face as M3 growth has returned to post-war averages, up around eight percent so far in 2015.” (M3 growth is no longer calculated directly by the Federal Reserve, but it represents the broadest definition of money.) 

He also argues that global central banks are loading up on gold because they see inflation coming: “Why are global central banks buying so much gold unless they still fear inflation? The World Gold Council estimates that 120 tonnes of gold were added to global central bank reserves in the first quarter of this year and that’s a whole lot more than they used to buy.  In fact even since 2010 the central banks have increased their share of global gold demand from just 2% to 14% last year…. For central banks, gold is the classic hedge against monetary instability and against inflation, that is to say unwanted devaluation.”

Is “Stealth” Inflation about to Return?

Last fall, former Federal Reserve Chairman Alan Greenspan compared “quantitative easing” (QE) to the fuel for an inflationary fire.  He called QE the “kindling” with the “match” being any sudden increase in bank lending.  There has been no inflation over the last year because all of that new liquidity (new money in deposit in banks) was not being loaned out.  For inflation to roar, there has to be a flood of new money in the hands of consumers, not buried in bank vaults. 

Last Friday, the U.S. Producer Price Index (PPI) was released, reflecting a 0.5% gain in prices in May (month over month), which represents a 6% annual rate.  This is the first sizeable increase in a year. Over the last 12 months, the PPI is actually down 1.1%, reflecting deflation.  The May increase was mostly due to volatile energy price increases (up 5.9%) and food (+0.8%).  Subtracting those two numbers from the overall index, the core PPI rose 0.1% (month over month) in May and +0.6% over the last 12 months.

The Consumer Price Index (CPI) won’t come out until Thursday, June 18.  In the meantime, the Federal Reserve will be holding its 8-times-a-year meeting of the Federal Open Market Committee (FOMC) on Tuesday and Wednesday, June 16-17.  It’s highly doubtful that they will raise rates this week, but they may make some sort of concession to rising inflation and indications of more robust economic growth in the latest statistics. They may plan an increase in the fall months, if they sense a return toward inflation.

Four Reasons Why We Could see a New Bull Market in Rare Coins in the Next 18 Months (Revisited)

I have been following the coin market since I was a young boy and I can tell you that there have been at least one – and sometimes TWO – significant bull markets in rare coins every decade since the 1960s.  By “significant,” I mean gains of 100% to 500% or more within a year or two.  I feel the odds are increasingly in our favor for seeing another bull market in 2015 or 2016, based on these four potentially powerful new trends.

Read more at https://www.universalcoin.com/buying-gold/metals-market-report-archive/491-texas-coin-company-universal-coin-the-mike-fuljenz-metals-market-report-05-26-15.html or see our Metals Market Report Archive from 05-26-15.