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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

March 2018 - Week 1 Edition

Many Classic Double-Eagles are Being Thrown into the Melting Pot

The population of classic MS61 or lower-grade Double Eagle gold coins is shrinking due to the low premiums we have seen in recent months. With banking problems and other financial issues hitting Europe and South America in recent years, we are seeing more Double Eagles coming onto the market from those institutions as they seek liquidity at any price. Many of these troubled financial institutions have sold their Double Eagles to dealers for above melt value and the premiums help their bottom line, while they replace the gold value of the double eagles with bars.  The dealers then keep the better-graded coins and melt the more common-date lower-grade coins. The result has been that the premiums over melt value for common $20 Liberty and $20 Saints have dropped to near melt value or even melt value.

Some dealers around the world are now melting their more common Double Eagles in MS-61 or lower grades in order to sell them as gold bullion, which is often an easier way to sell them. Given that there is a limited population of these coins minted 85 to 170 years ago, this trend is good for future Double Eagle premiums in all grades as these coins are now forever off the market and into the proverbial melting pot!

“Silver Could Outshine Gold This Year” – Barron’s, March 5, 2018

Silver has lagged behind gold all this year and last year, but silver could stage a surprise rally, according to Myra Saefong, writing in this week’s Barron’s. Once gold scores some more consistent gains, silver should outgain gold, since it often acts like “gold on steroids,” once gold starts rising. In the meantime, silver is also an industrial metal. The world is in a strong growth cycle right now and new industrial applications are using huge amounts of silver, including electric vehicles and photovoltaic applications, including solar panels.  A weakening dollar and higher inflation should also contribute to silver’s rise.

In their annual report released in January, the Silver Institute says 60% of silver demand is now industrial and that percentage is rising each year. Worldwide demand for photovoltaic applications, particularly in solar panels for collecting solar energy, consumed an estimated 92 million ounces of silver last year. The demand for both solar panels and electric cars should rise exponentially over the coming decades as the demand for cleaner fuel and solutions to global warming cause rising investments in clean-fuel solutions. 

That’s the basic formula for silver’s growth this year – a weak U.S. dollar, inflation, a gold bull market plus new industrial applications in clean energy applications – electric vehicles and solar panels.

Gold Recovers to Beat Dow

Gold recovered to $1,323 Friday after dipping to $1,307 Thursday after the new Fed Chairman Jerome Powell seemed to indicate that the Federal Reserve would raise rates four times this year instead of three, and then President Trump announced steep tariffs on imported steel and aluminum in what seemed like the first shots of a trade war. The stock market was also hard hit by these words and acts, with the Dow falling 420 points on Thursday and 1170 points in four days. These moves may be temporary, but the market is so nervous these days that it tends to overreact to any intemperate words by national leaders. This year, through March 5, 2018, gold is up 1.81% vs. only 0.63% for the Dow Jones Industrial stocks.

A President’s Day National Debt Summary

As I celebrated Washington’s Birthday, I recalled a letter he wrote in April 1779 to John Jay, President of the Continental Congress, noting the fact that their paper currency, the Continental, was near-worthless:

“In the last place, though first in importance, I shall ask, is there any thing doing, or that can be done to restore the credit of our currency? The depreciation of it is got to so alarming a point that a wagon load of money will scarcely purchase a wagon load of provisions.”

That’s one reason why the United States Constitution declares in Article I, Section 10, that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” Alexander Hamilton, Washington’s aide-de-camp during the Revolutionary War and his Secretary of Treasury in the first cabinet, was instrumental in creating the first gold and silver coins in the young Republic, after the U.S. Mint was founded by the Coinage Act of April 2, 1792, authorizing three denominations of gold Eagles, five silver coins, ranging from a disme (dime) to a dollar, plus a copper cent and half-cent. 

Under the gold standard or variations thereof, the accumulated U.S. total national debt never exceeded $50 billion, but when we were cut loose from the discipline of gold, U.S. debts began to skyrocket to the point where we will probably finish this year with $21 trillion in debt and add $1 trillion or more per year in future years.  With a population of 325 million, today’s debt is about $65,000 owed by each citizen to future Americans yet unborn. As Congress votes more and more spending bills, the bill keeps growing.

Federal debt topped $20 trillion last year and it now stands at $20.7 trillion – well above the annual GDP of about $19 trillion.  It took 220 years and 42 Presidents to reach $5 trillion debt, but President George W. Bush (43) added $5 billion and Barack Obama (44) doubled the debt by adding $10 billion. What will the track record of President Trump be? He doesn’t seem to want to resist spending on infrastructure or defense. This new bill increases the defense budget by $160 billion and domestic programs $128 billion.

On February 7, Congress avoided another government shutdown, but at the expense of adding another $300 billion in spending over the next two years, thereby ballooning the federal deficit by that much more. Combined with tax cuts, this could push the annual deficits above $1 trillion again by next year.  This will virtually guarantee the long-term devaluation of the dollar and the rising value of gold.

 

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