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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

January 2019 - Week 5 Edition

Gold Bursts Through its Technical “Ceiling” (Now a New Floor?) at $1,300

Gold leaped over $1,300 Friday morning as the U.S. Dollar Index (as measured against a basket of six leading foreign currencies) lost 1% of its value from mid-day Thursday to Friday’s close. Gold futures (as measured by the February 2019 Comex contract) hit a 7-month high of $1,303.70. In 2019, gold and silver are each up 1.9%, but silver is up substantially more (+11%) than gold (+7%) since November 30.

Gold has struggled with long-term “technical resistance” at $1,300. Last May 15 to June 13, gold closed above $1,290 in 16 of 22 trading days but failed to ever reach $1,300. In the three trading days from June 8 (a Friday) through June 12 (Tuesday), London gold closed at $1,299.20, $1,299.60 and $1,298.65, never clearing $1,300. Then, in the first half of January, gold closed above $1,290 nine of 12 trading days, reaching a peak of $1,294.40 on January 15.  Then gold retreated to $1,279 last Monday (January 21)

Last Friday, January 25, gold leaped from $1,283 to $1,299 from 8:00 am to noon. The gold market struggled with that $1,300 resistance level for only four hours before leap-frogging over $1,300 at 4:00 pm Friday, closing at $1,303. Gold dipped slightly in overseas trading (Sunday night in America) to $1,299 but then recovered. Likewise, gold dipped briefly to $1,299 this Monday before recovering again.

On Tuesday, January 29, the gold market may move further up, as the UK Parliament votes on the “Plan B” Brexit initiative from British Prime Minister Theresa May. Tuesday is also the day the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) will convene the first of its eight scheduled policy meetings in 2019. On Wednesday, they will issue their monetary policy statement. They are not expected to raise rates, but market watchers will carefully scrutinize every word of their policy statement.

This is the time to buy gold, now that it has pierced technical resistance at $1,300 per ounce. New gold resources are getting scarcer and demand is increasing, so $1,300 could soon become gold’s new floor.  Call our experienced account representatives today!

Gold Supplies Continue to Trend Down

We have talked about “Peak Gold” (in terms of new supplies) for the last five years. The output of gold from major discoveries has been declining for years. All the “easy” discoveries are almost played out. We won’t know the exact peak year for gold production for years, since mine production in recent years has tended to be on a plateau – neither rising nor falling much, but we do know that exploration budgets have been cut back. In the financial sense, “peak gold” (for exploration budgets) happened in 2012, because it was usually a money-losing proposition to search for gold after its price fell below $1,500 per ounce.

With gold mining adding only a small amount (2% or less) to global above-ground gold supplies, all we need to see is a 2% or greater rise in demand for gold prices to increase. We don’t depend on investors alone, because gold is now used in the world’s most in-demand new technologies, like smart phones, which rely on gold for some critical components. Technological uses will keep growing, which will add to the demand for gold in parallel with new technologies. Any investor demand – in times of a global crisis, as an inflation hedge, or simply when currencies decline in value – will add to gold’s total demand.

As a result of the decline in exploration, many mining companies have turned to accounting magic. They are hiring fewer geologists and more “deal makers” or accountants. Their main focus in recent years is “mergers and acquisitions” rather than drilling. For instance, two giants, Barrick Gold and Randgold Resources recently announced merger plans. Then Newmont Mining made an offer to buy Goldcorp.

Nick Holland, CEO of Gold Fields said that “if you are going to survive in the long term, you are going to have to look at consolidation.” It might be the only way to survive gold under $1,500 per ounce. A gold fund portfolio manager explained why: “…during the boom years, they were building projects that didn’t generate good returns and blowing out their balance sheets and taking on too much debt.” That’s why an investment in gold itself has far outperformed a basket of stocks in gold mining shares the last five years.

Gold is Clearly Outperforming Nearly All Other Commodities

Gold has a unique role among commodities, as a monetary metal, an inflation hedge and barometer of global crises. No other commodity fits that bill.  Even silver is a “hybrid” metal, partly precious and partly monetary but primarily industrial. On the supply side, silver is usually mined as a by-product of the search for copper, zinc, lead or gold. On the demand side, about two-thirds of silver’s use is for industrial applications, with only about 35% for all investor-based demand – like coins, bars or ETF warehouses.

The industrial commodities – led by crude oil and copper – have declined sharply over the last year, while gold has risen slightly. Since their lows of mid-August, gold and silver are up over 10% while copper and oil are down. Going back a little further, since July 1, 2018, gold is up over 5%, silver is flat, copper is down 9% and crude oil is down a phenomenal 34%, from $79 a barrel last July to just $51 this week.  For all of 2018, copper lost 20.2%, reflecting the global slowdown of industrial output and global GDP.

A Run on Common-Date Gold Coins Could Push Rare Coin Prices Up Next

Over the last few months, with gold moving up and demand increasing for gold “starter coins,” like the American Gold Eagle, we have seen a bigger movement in the next-step up in rarity, the common-date MS-63 gold coins, especially the $20 Liberties.  For instance, a recently advertised common-date $20 Liberty Double Eagle in MS-63 has risen $120 while gold moved up $60.  Many dealers without a generous inventory of available coins have seen how supplies can dry up quickly and they must resort to filling orders with lower quality coins.

A word to the wise: It behooves you to start accumulating rare gold coins now. When gold and common-date gold coins move up, the rare dates and types tend to soon move up too! It often only takes a relatively small percentage move in the gold market to eventually generate a larger percentage gain in the rare coin market. We maintain a multi-million-dollar inventory of rare gold and silver coins, so we already have the expert selected coins you need on hand. Very few dealers have a strong inventory like ours. Others may take your order, only to find there is a delay in making the delivery, due to shortages from suppliers or have to settle for other dealers rejects.

Call us. Our experienced account representatives can counsel you on the best mix of coins for the 10% to 25% portion of your portfolio you should place in precious metals. Very few dealers have an experienced and award-winning numismatist on board with my kind of experience and expertise in coin grading, authentication and award-winning book-writing on the leading U.S. gold and silver coin types, as well as my 40+ years of hands-on experience and networking in the rare coin market.

 

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