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Metal Market Report August 2018 - Week 4 Edition

February 2018 - Week 4 Edition

Highlights from My Latest Media Interview

Last week, I was interviewed by a major industry publication, first on gold and then on the coin market.

On Gold: Before gold’s huge rally on Friday, the reporter asked me why gold was in the dumps.  I gave them a two-part answer, first the seasonal story of how gold is strong from September to the end of the year, while the stock market tends to run into problems in September and October. I reminded them that the stock market just set a new high and that many gold investors were telling me they were “waiting until the stock market corrects” before diversifying into gold.” As much as I counsel investors that this could be a mistake – since stock markets tend to correct deep and fast, and gold recoveries can be sharp and fast – most humans are trapped by inertia. Most people sit on their gains until there is a dramatic market shift, after which it they feel it may be “too late” to make a switch.

Secondly, I said gold tends to rise on “uncertainty,” but much of the American mainstream media has been focused almost exclusively on the political uncertainty of the November election and President Trump’s political future, namely the potential for impeachment. The bulk of the American public knows that impeachment is highly unlikely – requiring a two-thirds vote of the Senate, even it passes the House – so all of this “inside the Beltway” nonsense bores most Americans. The real uncertainty is overseas, and our press has totally dropped the ball in reporting on the starvation and social unrest in oil-rich Venezuela, the unrest in oil-rich Iran under nuclear sanctions, the violent confiscation of white-owned farms in mineral-rich South Africa and continuing dangers in Russia, North Korea, Turkey and other hot spots. Many in the mainstream media have become almost 100% focused on dumping Trump, while ignoring similar charges against the Clinton campaign. (For instance, see Kimberly Strassel’s Op-ed in The Wall Street Journal, August 23, 2018: “When Justice is Partial.”)

On Coins: When they asked me what types of coins are “hottest” these days, I coined a new term for them by saying “the Billionaire Coin Market.” By that, I mean the kinds of coins that four or five billionaires are busily accumulating in their quest to assemble their “best of kind” sets. Their buying helps to push up prices of coins at the “top of the population” reports, or those just beneath that top level.  This lifts the price of coins from $1,000 up to $1 million or more.  All these rare coins are certified by the Professional Coin Grading Service (PCGS) or the Numismatic Guaranty Corporation (NGC), and sometimes with the added verification of a CAC (Certified Acceptance Corporation) sticker, which may increase their value.

The presence of these billionaire coin collectors has begun to lift the next tier of coins, just below the “best of kind” in the population reports, since many coin collectors can’t compete on the price level the billionaires and millionaires are bidding. For all other collectors, this helps them to develop a strategy of buying a few “anchor” condition-census coins for their collection – key high-quality coins which are set to rise in price and which turn an average collection into a special set-in-the-making. “Rome wasn’t built in a day,” but by starting with one or two key “anchor” coins, a collector/investor can get a head start toward building the kind of set the billionaires and millionaires are trying to build, or just having an anchor coin that the billionaires and millionaires will need. We can’t all have the “finest coin ever struck,” but many can own “one of the finest.”

One recent example is a rare Seated Liberty Silver dollar coin from the 1850s, during the Gold Rush years, which I bought in Philadelphia and was able to immediately sell to fill a collection as an “anchor” coin. It had a population of just “1” in that year as Mint State, with only two finer. Since it was a Gold Rush-era date and was minted around the time of the SS Central America, it was one of those coins that was earned by sailors paid just 30-cents a day (a Silver $1 earned every 3-1/3 days) or a skilled miner earning $5 per day getting five such coins per day.  Besides the elegant Seated Liberty on the obverse, the Eagle on the reverse may have been modeled after Peter, the American Bald Eagle who lived at the Philadelphia Mint 1830 to 1836 and was later stuffed and on display. These are the kinds of stories that make history come alive in rare coins and why, as collector and actor James Earle Jones and billionaire collectors say, “Money is history in your hands.”

Call today to learn about other rare coins available now in our vault inventory before they’re gone.

Gold Recovered Sharply

Gold recovered sharply on Friday, rising over $20 for the day and almost $30 (+2.5%) for the week to $1,205, gold’s best week since last March. Gold and silver and copper had all fallen for nine of the previous 10 weeks. Gold briefly dipped to a 2018 low of $1,160 on August 15 but then recovered almost immediately to $1,175 the next day. Some of gold’s recovery is due to a decline in the U.S. Dollar Index, which fell 2% in the last 12 days, from a peak of 96.74 on August 15 to 94.72 on Monday, August 27. This may be due to the Federal Reserve’s meeting in Jackson Hole, Wyoming, last week, during which Fed Chairman Jerome Powell indicated that any future interest rate increases would be more “gradual.”

Hedge Funds Were Record “Short” on Gold at its Mid-August Low

It’s too early to say for certain, but it looks like we called the bottom for gold in last week’s metals report, with this headline: “Now is the Perfect Time to Diversify from Stocks into Precious Metals and Rare Gold Coins.”

We have often said that Wall Street traders often get gold wrong. They usually get on the gold bandwagon after gold makes its first $100 move up. This was verified once again by the latest totals from the “Commitments of Traders” report last Friday, which tallies all the commodity exchange (Comex) positions for the week. During the week of August 15-21, which marked gold’s 2018 lows, the hedge funds’ net short position (that is, traders who had sold gold they did not own) rose to an all-time high of 89,972 contracts, representing nearly nine million ounces of gold, or more gold than is produced annually by all US gold mines.  If gold continues to rise sharply, these “shorts” will be forced to buy gold to cover their shorts.

In a related development, in the middle of each quarter (August 15 in this case), hedge funds must file their holdings with the Securities & Exchange Commission (SEC).  This time around, the former “gold bug,” John Paulson, cut his position in the SPDR Gold Trust, the world’s biggest gold ETF, by 17% in the second quarter, down to 4.8 million shares. It was his third big cut in a year, as he dropped to third place among SPDR investors, behind BlackRock and First Eagle Investment Management. Paulson described gold as “fairly priced” at around $1,100 and said prices had little room to recover if the Fed kept raising rates. (Like most gold pundits, he mistakenly believes that gold mostly goes down when the Fed raises rates.) With these downbeat views, we have to reluctantly label Paulson a “former gold bug.” His top claim to gold fame was earning $5 billion on gold during its biggest one-year rise, from 2010 to 2011.

By contrast, George Soros is a “born again gold bull.”  He had recently called gold “the ultimate bubble,” but last quarter he bought gold for the first time in three years – a huge $123.5 million position, amounting to 1.05 million shares of the gold ETF. In 2013, Soros Fund Management LLC had sold 531,000 shares worth $82 million, so he is buying back almost twice as many shares at a lower per-share cost.  So here’s another billionaire who had good timing. Paulson was new to gold, but Soros seems to be a “born again” gold bug.


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