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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

June 2018 - Week 1 Edition

U.S. Mint Gold Sales Suddenly Soar in May

Gold stayed above $1,300 until the positive jobs report on Friday morning, June 1, which took gold below $1,300 again.  However, gold closed May up 0.77% for the year vs. -1.23% for the Dow Jones Industrial index and +1.18% for the S&P 500.  With gold’s better half of the year coming up and the stock market’s better half of the year behind it, gold is still beating the Dow by 2% through May 31.

Sales of American Eagle Gold coins had been fairly slow for the first four months of 2018, but the U.S. Mint just reported that sales soared by a whopping 433% in May compared with April.  U.S. Mint sales of American Eagle gold coins totaled 24,000 ounces in May vs. 4,500 ounces in April.  The May figures also topped the 15,500 ounces sold in May of 2017 and the 21,500 ounces sold in May 2015.

American Buffalo gold coin sales from the U.S. Mint rose even faster in May to 16,500 ounces, up 725% from the 2,000 ounces sold in April 2018 and up 230% from the 5,000 ounces sold in May of 2017.

These numbers are important because when new gold bullion coin buyers see the beauty of the American Eagle Gold coin, they are introduced to the classic design of U.S. coinage and they want to know more about rare coins.  Coins from the U.S. Mint offer the introduction to the wonderful world of rare coins, creating a new customer base for us to introduce them to the superior profit potential of U.S. rare coins.

JP Morgan (and Saxo Bank) Remain Bullish on Gold

The original J.P. Morgan (1837-1913) helped to rescue the gold-starved U.S. Treasury in the mid-1890s by forming an international syndicate to buy gold and loan it to the government to protect the Treasury from a run on gold. As a one-man Federal Reserve, Morgan also rescued the nation from the Panic of 1907. It’s no coincidence that the Federal Reserve was born the year J.P. Morgan left the scene (1913).

A century later, the company that bears Morgan’s name still has a soft spot in its heart for gold. Despite the recent weakness in the gold market, Luis Oganes, JP Morgan’s current head of currencies, commodities, and emerging markets research, remains bullish on gold.  JP Morgan has set a target price of $1,700 for gold in 2019 and Oganes would not be surprised if gold surpasses $1,700, since he sees the dollar strength as temporary and he sees the U.S. due for a recession, which is usually positive for gold.

Another long-time friend of gold is Ole Hansen, head of strategy at Denmark’s Saxo Bank. He sees the new geopolitical landscape as bullish for gold. Whether or not North Korean talks are on or off, whether they bear fruit or not, there is an Emerging Markets debt crisis, plus new political chaos in Italy and Spain threatening the euro, and a revived trade war with our closest allies, Canada, Mexico and Europe.

“Precious metals, led by gold, have recently been caught in the crosshairs of a rising dollar and US 10-year bond yields climbing through the psychological 3% level. After dropping below $1,300/oz on May 15 gold has since managed to find support at $1,286/oz, a key technical support level,” Hansen said. Hansen sees gold returning above $1,300 over these geopolitical developments, adding that “a weekly close above $1,307/oz, the 200-day moving average, is likely to set the stage for additional gains.”

“Peak Gold” Production Indicates Higher Prices – From Now On…

The phrase “Peak Gold” has been popping up more frequently. We have been reporting on estimates from various gold mining firms that they have been having trouble finding new deposits of gold, but now we have some solid statistical evidence. The annual “Gold Discoveries” report from S&P Global Market Intelligence confirms that exploration for gold is at historically high levels, but these costly efforts are not producing any significant new gold discoveries.  According to S&P’s report, only 215 million ounces of gold have been found in 41 discoveries over the latest 10 years vs. 1,726 million ounces (eight times as much gold) in 222 discoveries in the preceding 18 years. This does not mean the world is running out of gold, but it does mean that the “easy pickings” have all been found and the supply of new gold from the ground will gradually decline, even while global gold demand and global affluence is rapidly expanding.

Ian Telfer, chairman of Goldcorp, one of the world’s biggest gold producers, told The Financial Post, “If I could give one sentence about the gold mining business … it’s that in my life, gold produced from mines has gone up pretty steadily for 40 years,” but, he added, “we’re right at peak gold here.”  At one point, he said that “we found it all,” meaning we’ve found all the major gold fields, like the South African Witwatersrand Basin, Nevada’s Carlin Trend and Australia’s Super Pit, which are all nearing the end of their life. As a result, Telfer predicts that gold will likely break through $1,500 or maybe $1,600 this year.

Other major mining executives have echoed the words of Ian Telfer, chairman of Goldcorp:

Kevin Dushnisky, president of Barrick Gold, said: “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”

Vitaly Nesis, CEO of Polymetal: “The fourth quarter last year was in my opinion the peak quarter for fresh global mine supply. … I think supply will drop by 15% to 20% over the next three to four years.”

Nick Holland, chief executive of Gold Fields: “We were all talking about how production was going to increase every year. I think those days are probably gone …”

Here’s another way to look at it.  In the 1970s, 1980s and 1990s, the mining industry found at least one 50+ million-ounce gold deposit, at least ten 30+ million-ounce deposits and countless 5- to 10-million-ounce deposits each decade. But since the year 2000, the industry has found NO 50 million-ounce deposit or even a 30-million-ounce deposit, and very few 15-million-ounce deposits.  The grades are also lower. The 1970s or 1980s deposits were measured in ounces of gold per tons. Current deposits may only have one gram (there are about 30 grams per ounce) per ton; one gram of gold per million grams of ore!

The idea of “peak gold” doesn’t mean there is no more gold to be found. It means the “low-hanging fruit” has all been picked.  There is no equivalent process to “fracking” (for oil) to bring out more gold from the ground.  At the same time, there are tougher environmental regulations and more activist governments limiting the miners from raping the landscape in the way they were accustomed to doing in past decades. 

Investors with a long-term time horizon need to pay attention to the fundamentals of supply and demand. With a world of 7.3 billion people, including 4.5 billion Asians becoming rapidly richer, the demand for gold will constantly increase, while the newly-mined supply will peak and then fall.  With the global population and per capital GDP growing faster than the new gold supply, the inevitable direction for the price of mankind’s proven monetary metal can only go up, while cheap paper money continues to decline.

 

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