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Metal Market Report June 2018 - Week 3 Edition

June 2018 - Week 3 Edition

Billionaires in the Coin Market -- Part 3 (Coming Soon)

In May, I wrote about how a select few billionaires had helped to keep the gold bullion market rising through their ETF purchases for their hedge funds, while a separate group of very-rich billionaires have entered the rare coin market to compete for high-quality rare coins, creating a resurgence in demand for many coins trading from $5,000 and up.  Next week, I’ll bring you an update on this growing trend from my latest coin buying travels.

Major Banks Continue Turning Toward Gold

Canada’s Toronto Dominion Bank has a branch unit in America called TD Bank, which is the 8th largest bank in the U.S.  Bart Melek, TD’s Director of Commodities Strategy, is positive on the precious metals “over the next several years,” in part due to a cap on interest rates and a return to a weaker dollar, saying, “We don't believe interest rates, globally and in the United States in particular, will get to restrictive levels unless there is some sort of inflation accident that we don't think is about to happen.” In addition, he sees the dollar weakening “towards the third and fourth quarter of 2018,” pushing up the price of gold.

JP Morgan still expects gold to approach $1,400 in the third quarter and continue higher into 2019, but they reduced their targets slightly after the dollar’s recent rally.  Now they project an average 2018 gold price of $1,355, with a 2019 average price of $1,412. The U.S. dollar is the biggest impediment now, according to JPM analysts: “We acknowledge that as long as the USD continues its recent bullish run, metals prices will generally be hard pressed to break out higher from current levels,” JP Morgan said.

Celebrate National Eagle Day with American Eagle Coins

The American Revolutionary War was not officially over on June 20, 1782 when the American “bald” Eagle was added to the official Seal of the United States and became the American national bird.

On the front side of the Great Seal of the United States, a bald eagle is depicted holding an olive branch in its right talon and 13 arrows in its left. The olive branch and arrows symbolize the United States' commitment to peace and its readiness for war, while the 13 arrows refer to the original 13 states.

In many Native American cultures and religions, bald eagles signify freedom, strength, honesty, wisdom, and power, but the species was on the verge of extinction by the mid-20th century due to widespread use of pesticides, illegal hunting practices and the destruction of their natural habitats by human activity. The estimated numbers of these majestic birds of prey fell to perhaps 400 by the 1960s, but after DDT was banned in the US and Canada, their population began to grow. By 1995, the eagle was removed from the endangered species list. Now, scientists currently estimate a US population of over 10,000 nesting pairs.

The first American Eagle Day was proclaimed by President Bill Clinton in 1995. Since then, 41 American states have made the day an official observance. (An observance is not a holiday, meaning that stores, businesses and government offices remain open.) On this day, conservation and educational organizations hold public outreach programs to raise awareness about protecting bald eagles and other wildlife species.

The “Bald” Eagle is not bald. It has white hair. The adult eagle is mainly brown with a white head and tail.  Bald Eagles live near the water since they survive mainly on fish, as they swoop down and snatch them from the water.  Their nests are the largest nests of any North American bird and the largest tree nests ever recorded for any animal species. The largest recorded eagle’s nest was found in St. Petersburg, Florida.  It measured 9.5 feet in diameter and 20 feet deep, weighing nearly three tons.

In the musical “1776,” Thomas Jefferson argued for a Dove to be our national bird, in honor of peace, while Ben Franklin argued for the Turkey! But John Adams favored the eagle, so he burst out into song:

“The eagle’s going to crack the shell

Of the egg that England laid….

And just as Tom here has written,

Though the shell belongs to Britain

The eagle inside belongs to Us.”

As the American Eagle was coming back from near-extinction, so was the classic American Eagle design in gold and silver coins. In 1985, Congress passed legislation allowing mintage of the classic “Walking Liberty” design from 1916 on the obverse (front side) and the classic American Eagle on the reverse, replicating the Great Seal of the United States, first commissioned on June 20, 1782, American Eagle Day. This would be a perfect time to honor America with these American Eagle gold and silver coins.

Gold Fell $25 (-2%) on a +2% Overnight Gain in the Dollar

Last Friday, gold fell $25 in morning trading despite the fact that the U.S. and China were engaged in trade war tariff escalations, which previously caused gold to rise!  In addition, gold has historically risen after the Federal Reserve has raised interest rates. On Wednesday, the Fed raised rates a quarter point. Sure enough, gold rose the next day from $1,296 to $1,302, but then fell the next day down below $1,280.  As it turns out, the culprit for gold’s decline last Friday morning was a major surge in the U.S. dollar…

The main reason gold fell last Friday morning is that the U.S. dollar suddenly surged. Last Thursday, the euro lost 1.9% to the dollar, fueling gold’s overnight decline by a similar amount (-$25). The decline in the euro came after an announcement by the European Central Bank (ECB) that it would taper off its bond-buying quantitative easing (QE) program by year’s end, while the Federal Reserve was raising rates.

Longer term, the weak euro reflects the new political turmoil in Italy and Spain, labor strikes in France and a slowdown in the strongest economy of Europe, the German economy. Last week, we learned that the Euro-zone grew only 0.4% in the first quarter and Germany reported that factory orders fell 2.5% in April. The International Monetary Fund (IMF) thinks that growth in the euro region will slow to a 1.4% annual rate this year, while the U.S. is growing at least twice as fast, 3% or more, hence a stronger dollar.

Other currencies are falling much faster to the dollar, especially the “emerging markets” currencies.  The U.S. Dollar Index is up 6% in the last two months (April 16 to June 16), but the year-to-date dollar gains vs. some weaker currencies are in double digits: +51% to the Argentine peso, +25% to the Turkish lira and +13% to the Brazilian real (vs. only 5% to the Canadian dollar and 3.4% to the euro so far this year).

The dollar is not really strong but other currencies are being mismanaged even worse than the dollar. The U.S. government budget deficits are rising sharply, on the road to $1+ trillion deficits per year. America’s accumulated public debt, at $21.5 trillion, is 105% of the annual GDP. For the first time since 1982, Social Security had to dip into the “trust fund” to pay benefits this year. Medicare is projected to run out of funds by 2026 and Social Security by 2034. The dollar is on a collision course with this fiscal reality.

In brief, the U.S. dollar is a 98-pound weakling that has the audacity to beat up on muscle-bound gold!  That won’t last. Gold’s long-term fundamentals will return to give gold the upper hand over the dollar and fuel a new wave of gold coin buyers.


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