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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

July 2019 - Week 5 Edition

Rare Gold Coins Exceed Gold’s Rise by Over $70 – And Some Coins are Now Harder to Find

On May 8, gold traded at $1,290.  Today, gold trades at around $1,423, up $133.  In that same 12-week period, MS-64 common-date $20 Liberty double-eagle gold coins – graded by PCGS or NGC – have risen $205 in price, or about 50% more than gold bullion.

A quick rise in the price of gold – like we’ve seen recently – often pushes the supply of some rare coins out of hiding. In the last few months, we have gone from an excess supply to a shortage, and that shortage will likely get worse, since European suppliers are often closed in the late summer as they generally take the month of August off.  Europe is basically “closed” during August, including coin dealers, so we may see rare coin prices rise sharply soon. Be sure to call a representative to buy gold and silver coins now!

2020 Silver Secrets Report: The Case for $18 Silver by Year-End 2019 – and $20 in 2020

Silver rose last week while gold declined, so the gold/silver ratio has dropped from 93-1 to 86-1 in the last two weeks, as we indicated it might do. That means silver has now slightly surpassed gold’s gains over the past 12 weeks.  Both silver and gold are up 12% in 12 weeks, vs. just 2% to 3% for stocks.

A number of mainstream investment banks and commodity market analysts see fundamental reasons why silver ought to be higher – perhaps $17 to $18 later this year – even though silver remained mired under $15 in May. Three major banks have issued price projections of $18 for 2019: Bank of America Merrill Lynch, Natixis and ABN AMRO. In addition, the commodity market analysis group Capital Economics predicts $17.50 silver this year. Some private firms have predicted even higher prices of $20 and more.

We’re now well on our way to fulfilling those $18 predictions for 2019. From its 2019 low of $14.37 on May 29, silver has already risen by $2.15 (+15%) in less than two months to reach $16.53 last week.

The reasons for expecting $18 this year and $20 next year are fundamentally sound: Positive investor sentiment has driven higher bullion coin sales, while industrial demand has also risen, and new supply has fallen. Rising demand and falling supply generally yield a rising price, unless massive amounts of old supply come back onto the market.  In addition, the same financial considerations that impact gold prices will lift silver: Falling interest rates around the world, soaring debt levels and a weakening U.S. dollar.

Here are the latest supply/demand realities: According to the Silver Institute, global silver demand hit a three-year high in 2018, surpassing one billion ounces after falling just short of one billion ounces in 2017. At the same time, global silver mine production fell for the third straight year, falling 2% to 855 million ounces.  Total new supply fell 2.7% from 1,032.6 million ounces in 2017 to 1,004.3 million ounces in 2018. Demand grew 3.5% from 998.4 million ounces in 2017 to 1,033.5 million oz. in 2018.

That means there was a 34.2-million-ounce silver surplus in 2017 (surpluses tend to depress prices), while there was a 29.2-million-ounce shortfall in 2018 (shortfalls tend to boost prices.)  These shortfalls and surpluses aren’t always reflected in immediate price action, since speculators tend to control the price of the metal on the futures market by bidding the price up or down based on their own future expectations, but supply and demand win out over time, as shrinking supply and rising demand create higher prices.

Silver is a “Double Play” Metal – an Industrial Metal and Precious Metal

Silver was the first form of money. Silver ingots were the first material used as currency in trade over 4,000 years ago. Silver was mined in modern-day Turkey in 3000 BC and was used by the ancient Greeks for money.  The first minted coins were made in Lydia in 600 BC and made of gold and silver (electrum).

Silver has always been a double play metal, including use in coinage and decoration (such as silverware, jewelry and fine plates) and a rising array of uses in industry, far beyond its original use in traditional photography. Breaking down silver demand by category, more than half of demand comes from industry:

The biggest percentage increase in 2018, by far, came in demand for silver coins and bars, rising 20.5% from 150.4 million ounces in 2017 to 181.2 million ounces in 2018.  This investment demand accounted for the entirety of the growth in total silver demand for the full year 2018. This trend is continuing in early 2019.  In the first six months of 2018, for instance the U.S. Mint sold 6,822,500 1-ounce Silver American Eagles, but in the first six months of 2019, Eagle sales grew by 47% to 10,022,000 ounces.

Turning to industry, silver has many industrial uses, accounting for more than half of annual demand worldwide in each of the last five years. Basically, when the world is growing, silver demand grows. Silver has the highest conductivity of any element for electricity and heat. It is valuable for soldering or brazing alloys. It’s used for batteries, medicines, nuclear reactors, photovoltaic (solar) cells, dentistry, glass coatings, RFID chips (that track shipments), nuclear reactors, touch screens, water purification, wood preservatives, semiconductors and many other uses – in addition to traditional photography.  Silver’s powerful antibacterial properties also give it several new applications in medical fields.

Silver has an “industrial advantage” over gold – which has very few industrial applications. That’s why silver acts like “gold on steroids” during a bull market in precious metals. With its underpinnings of industrial demand, there is a powerful floor under silver’s price during times of global growth, so that investors can buy silver with assurance that the supply/demand curve will favor them over the long term.

As a precious metal, silver also attracts attention from investors who cannot afford multiple ounces of gold bullion.  Since silver tends to follow gold up, but in greater percentage terms, if gold makes a move this fall, silver could rise more.  Gold is currently rising over the U.S. debt crisis and the recurring war of words with Iran, China, North Korea and domestic political tensions.  During the debt ceiling debate of 2011, gold rose 30% in a matter of months and reached a record high of $1,920. Although the debt ceiling debate was recently “solved” (by ignoring current and future debt increases), if the federal government keeps spending $1 trillion more than it takes in each year, gold and silver should keep rising to new highs.

And here’s the kicker. As recently as July 15, 2019, gold traded at $1,400 and silver was $15.07, yielding a gold-silver ratio of 93-to-1, a 28-year high. At that time, we predicted that the ratio had to decline. It has already declined to 86-to-1. The most recent low ratio was 31-to-1 in 2011, and the 20th century low was 15-to-1 in 1980. There is no magical historical ratio of silver to gold, but in historic terms, silver has a lot of room to catch up to gold from these recent historically high levels. If gold rises to a new high of $2,000 and silver returns to a 31-to-1 ratio, as in 2011, then silver could soar to an all-time high of $65 per ounce.

I urge you to call and add some gold and silver coins to your portfolio now!

 

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