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Metals Market Report August 2019 - Week 2 Edition

August 2019 - Week 2 Edition

Gold Reached Another New 6-Year High

Gold reached another new 6-year high of $1,520 on Monday, August 12, 2019. Why? Basically, China is devaluing its currency, Europe is going deeper into negative interest rates – as is Japan – and the U.S. is following suit with lower interest rates as the major global currencies are in a “race to the bottom” in order to gain short-term trade advantages. With major currencies all losing their value, gold is rapidly rising to the top of the currency heap as a hedge against global currency devaluation. The rising conflict in Hong Kong also played a part in gold’s rise. (If China cracks down on Hong Kong, gold could soar.)

Gold is Rising Since Inflation is Low and Interest Rates are Going Lower

China has long taken advantage of America with high tariffs and illegal theft of intellectual property. When President Trump first raised tariffs on selected imports two years ago, his critics said that tariffs would cause inflation, but inflation has remained low and is trending lower. Last Friday, the Labor Department announced that the “core” Producer Price Index (PPI), which excludes volatile food and energy prices, declined 0.1%. Even though wholesale energy costs rose 2.3% in July, crude oil prices declined sharply in August, so inflation rates should also decline in August. In the past 12 months, both the headline PPI and the core PPI have both risen by only 1.7%, the slowest pace since late 2016.

Meanwhile, global interest rates are sinking deeper into negative territory. Almost every nation in the European Union (plus Japan) offer negative rates on their bonds with maturities going out 30 years in some cases. Negative yields now include Switzerland (out 50 years), Germany (30 years), Netherlands (30 years), Denmark (20 years), Austria (15 years), Belgium (15 years), Finland (15 years), France (15 years), Japan (15 years), Sweden (15 years), Ireland (10 years), Slovakia (10 years), Slovenia (10 years), Spain (8 years), Portugal (7 years), Malta (5 years), Cyprus (3 years), Italy (2 years) & Bulgaria (1 year).

When savers in Europe and Japan are punished for saving, and savers in the U.S. earn less than 2%, gold becomes far more attractive to own. On top of that, Europe, China, Japan and the U.S. have all been lowering the value of their currencies to obtain trade advantages. The European Central Bank (ECB) has been the worst example of printing money via “quantitative easing” to fund their generous social benefits. The euro may even collapse as a currency after the “Brexit” process is complete and other Euro-zone nations decide to bail out of the euro. In a global “race to the bottom” in currencies, Gold is the winner.

Due to declining currency values, central banks have increased their buying of gold this year, adding 374.1 metric tons in the first half of 2019. Buying was led by Russia and China, with Poland adding a massive new 100-ton purchase in the second quarter, the largest single purchase since 2009. A World Gold Council survey of central banks revealed that 54% of the respondents expected to increase their gold holdings over the next 12 months, due to concerns about declining currency values and risks in other reserve assets. Gold demand is up 8% in the first half, year-over-year, the most in a first half since 2016.

American Eagle Silver Bullion Coin Sales are Up 46% in 2019

Through July 31, the U.S. Mint has reported selling 11,262,000 one-ounce American Eagle Silver Bullion coins vs. just 7,705,500 ounces through July 31 last year, a gain of 46.2%. Silver’s recent surge to a 13-month high has increased interest in the popular bullion product, and we know from experience that a first-time investment in a bullion coin like the American Eagle Silver coin leads about one in six bullion investors to convert into a rare coin buyer within one or two years, especially if bullion prices keep rising.

Silver traded as low as $14.37 as of May 29, rising over $2 per ounce (+15%) to $16.50 on August 5, just 10 weeks later, thereby drawing many first-time investors into “poor man’s gold.”

Project 20/20 Revisited

In May, I told you a little bit about Project 20/20, which will be a program for enlightened coin accumulation – using a “rifle shot” approach rather than a “shotgun” blast to find undervalued “sleeper” coins.

As I said, we will begin by bringing you highlights of recommendations in the major types of coins we like most – for their sheer beauty, profit potential and historical importance. We’ll highlight the most undervalued coins, starting with $2.50, $3, $5 and $10 Indians and Type II and III Liberty Double Eagles.

Now, I want to bring your attention to a series that is more modern but becoming more valuable as time goes by. I’m talking about the American Gold Eagle, authorized by the 1985 Gold Bullion Act, early in Ronald Reagan’s second term. The first coins were minted in 1986 in denominations of $5, $10, $25 and $50, with gold content of 1/10, 1/4, 1/2 and 1 full Troy ounce of gold, respectively.

The obverse features the classical Augustus Saint-Gaudens design on the $20 gold coin commissioned by President Theodore Roosevelt, a full-length Lady Liberty with flowing hair, holding a torch in her right hand and an olive branch in her left with the Capitol building in the left background. The reverse design, by sculptor Miley Tucker Frost, features a male eagle carrying an olive branch flying above a nest with a female eagle and her hatchlings. The 22-karat alloy is the English standard known as “crown gold” (0.9167 fine), alloyed with a small amount of silver and copper to provide more wear-resistant surface.

Some of the early date American Eagle gold coins are becoming scarce, with prices being bid up for mint state 69, lower population $10 and $25 (1/4 and 1/2 ounce) coins. As with any other coin series, it pays to be selective, to use a “rifle” approach rather than a “shotgun” approach. One major statistical screen we use is a coin’s capitalization -- its price per unit times the population report of known coins in that grade.

We will be writing more on all these coins over time, but you can get ahead of the crowd by calling your account representative now and asking about the “rifle” approach over the “shotgun” strategy to coin buying.


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