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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

May 2018 - Week 4 Edition

This is the Best Buying Opportunity of the Year for Gold

Gold fell below $1,300 last Monday and stayed there all week.  The main culprit is the sudden rise of the U.S. Dollar.  The U.S. Dollar Index has risen 5% in the last month and gold has fallen by an equivalent amount, so in terms of many other global currencies (such as the euro or yen), gold has been “flat.”  The U.S. Treasury 10-year yield climbed decisively above 3% last week, drawing more investors into the dollar. With rising bond yields, the Fed is now all but certain (95% chance) to raise rates in mid-June.

May and June are historically weak months for gold, and we’re seeing a buying opportunity again in May. Gold will not likely recover rapidly, but gold’s best months come in the fall, so the summer months give investors a good time to accumulate gold. There is no fundamental reason for the dollar to be recovering so strongly now, since U.S. budget deficits are growing so much more rapidly than those of the European nations and other developed economies. Some European big banks see this is a gold buying opportunity:

French Investment Bank Natixis sees an average gold price of $1,345 this year. Bernard Dahdah, their precious-metals analyst, sees gold falling to $1,275 short-term, followed by a strong recovery: “We think that gold prices could pick up towards the last quarter of the year as the ECB preps the market for a normalization of its monetary policy.” With the euro heading back to $1.24 at the end of this year, “we should see the price of gold heading again towards the $1,330/oz levels.” He also sees the Fed backing away from its aggressive rate-raising plans, based on the mixed economic data released in recent weeks.

Germany’s Commerzbank said that the latest decline of gold in dollar terms means that there is “only limited additional downside potential for gold” now. Most gold buyers are price sensitive, so “the low price level should stimulate physical buying interest.” In addition, Commerzbank believes “the geopolitical tensions in the Middle East (violent protests in Gaza, uncertainty over the Iranian nuclear agreement) point to solid demand for gold as a safe haven, as does the Korea conflict that is flaring up again.” Specifically, North Korea canceled their summit with South Korea and cast doubt on whether they will meet with President Trump next month in Singapore to discuss their nuclear disarmament options.

Dutch mega-bank ABN AMRO sees a stronger gold market emerging in 2019.  Georgette Boele, the coordinator of currency and precious metals strategy at ABN AMRO, says the short-term moves may test our patience first: “We expect gold price weakness to continue in the coming weeks and months. It is likely that gold prices will fall below US$1,275 per ounce and test US$1,250 per ounce this year followed by a stabilization,” but “We think that any price decline in gold prices below US$1,250 is an opportunity to position for higher gold prices next year,” because, she projects, “dollar fundamentals will deteriorate at the end of this year and this should result in a lower dollar and higher gold prices in 2019.”

There is probably no hurry, but the middle months of the year would be a good time to accumulate gold.

Billionaires and Gold (Part 3)

The quarterly reports of the required SEC Form 13F were released last week (45 days after the end of the first quarter), so now we can see how some of the leading billionaire hedge-fund managers felt about gold last quarter.  As it turned out, Ray Dalio of Bridgewater Associates held on to all of his gold ETF positions, while John Paulson of Paulson & Co. reduced his gold holdings by about 1%, from 4.36 million shares of SPDR Gold Shares (GLD) to 4.32 million shares.  George Soros remained out of gold since 2016, so all three of these high-profile billionaires were relatively inactive in the gold market.

It’s interesting to note that the price of gold rose in the first quarter sufficiently enough that Paulsen’s 1% reduction in gold holdings did not hurt his bottom-line position. The value of his GLD shares rose from $539.1 million at the end of 2017 to $543.4 as of March 31, 2018.  Paulson was also exposed to gold through shares in six major gold mining shares.  Dalio’s Bridgewater fund also invested in mining shares.

America Got it Right from the Beginning – With Gold and Gun Ownership

There are many rational solutions being offered to the tragedy of school shootings, but an attack on the Second Amendment or a raft of new gun legislation will not solve the problem.  The Santa Fe shooter used a simple pistol and a shotgun, legally bought by his father. The NRA’s incoming President Oliver North blamed, in part, a “culture of violence” and offered the NRA’s “School Shield” program, drafted in 2012 after the Sandy Hook shooting, offering schools the proven best practices in security infrastructure.

Taking a longer view, America is unique among the world’s nations in that it was created from the beginning by a group of enlightened activists steeped in the tradition of the freedom philosophies of the Enlightenment, led in this case by English philosophers David Hume and John Locke and later Adam Smith and Edmund Burke, among others. They designed a nation “from scratch,” through a Declaration of Independence, then Articles of Confederation, followed by a brilliant Constitution, which was debated in print for over a year in The Federalist Papers, by Alexander Hamilton, John Jay and James Madison.

Following the Constitution’s passage, the work of creating America was not over. In a four-month span of late 1791 to early 1792, two key sets of freedoms were added.  On December 15, 1791, the Bill of Rights – starting with the First Amendment freedom of speech and the Second Amendment right to bear arms – was ratified as part of the first 10 amendments to the U.S. Constitution.  Then, on April 2, 1792, the U.S. Congress passed the Coinage Act, which established the U.S. Mint. That Act authorized Gold eagles, half-eagles and quarter eagle gold coins, plus five silver coins ranging from five cents to $1, and copper cents and half-cents.  These key freedoms – free speech, guns and gold – grew out of the Revolutionary era, when Americans experienced attacks on all three freedoms. The new nation wanted to guarantee that no central powers accruing in this young nation could cut off the future freedoms of its citizens.

America got guns and gold right. That’s why we have maintained our freedoms for 240 years while Europe devolved into chaos and war; and Central and South America has suffered continual revolution and dictatorship; and Asia and Africa had warlords and communist powers seize the reins of government.

As young as America may seem to old-line Europeans, we have one of the oldest Constitutional governments in the world.  Other nations have been brought down by dictators over the last century or two.  By allowing its citizens gun ownership and gold, Americans are protected from despots – at home or abroad.

 

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