Award-Winning Metals Market Report: March 2016 - Week 5 Edition

Mike Fuljenz
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Posted: Mar 29, 2016 12:01 AM
Award-Winning Metals Market Report: March 2016 - Week 5 Edition

Gold held above $1250 through the Tuesday terrorist attack in Brussels, but when some Federal Reserve officials advocated raising rates at the next meeting of the Federal Open Market Committee in late April, the U.S. dollar gained strength, pushing gold lower in U.S. dollar terms, falling to $1,217 by Friday. This new Fed fear is probably a “tempest in a teapot” as the U.S. economy is only growing by about 1%, U.S. corporate profits are falling 5% or more and inflation is super-low. In this economic environment, there is no way the Fed can justify a rate increase next month, or probably until after the November elections.

Global Financial Giants Continue to Join the Gold Bandwagon

We have been reporting on the new enthusiasm among mainstream investment advisors for gold, now that gold is up 15% so far in 2016. Last week, the giant Dutch bank ABN Amro raised its price target again. They now expect gold to reach $1,370 an ounce by the end of 2016, more than 5% above their prediction of $1,300 last month. They also raised their gold price forecast for 2017 from $1,300 to $1,450.

Another giant international bank, Hong Kong’s HSBC, is raising its gold target to $1,300 this year. Their Chief Commodity Analyst James Steel issued a report on March 17 titled “Gold and the Fed,” in which he lists several key factors: A dovish Fed, a weaker dollar and the trend toward negative interest rates. Steel said that gold is preferable to cash since gold doesn’t carry the risk of central bank meddling to devalue it.

London’s Baring Asset Management is saying basically the same thing: “In a world where interest rates go down and stay low, gold becomes interesting as it has got (fewer) competitors. The Chairman of the Strategic Policy Group at Baring, Marino Valensise, said that Baring added a 3% position in gold in January “for the first time after many years,” adding, “with the benefit of hindsight we should have bought more, but it was a first significant step after many years of being absent from that market.”

Which Market is More Vulnerable Now – Stocks or Gold?

Last week, we reported that Marko Kolanovic, JPMorgan’s Global Head of Quantitative and Derivatives Research, told CNBC that the recent stock market is mainly driven by “short-covering” (when bears are forced to buy stocks they previously sold). As of last Friday, gold has outperformed the stock market by 15.2% so far this year, but the two markets have tended to move in opposite directions – gold up and stocks down through mid-February and then stocks up while gold remained relatively flat for the following six weeks. Which market is likely to rally next, and which is most threatened?

Last week, the stock analytic service Bespoke Investment Group analyzed all 500 stocks in the S&P 500 and determined that over 75% of them were “overbought” (a technical term meaning “at least one standard deviation above their 50-day moving average”), the largest percentage of overbought stocks in more than three years. In addition, last Friday, the Commerce Department said that U.S. corporate profits fell 8.4% in the final quarter of 2015. For all of 2015, U.S. corporate profits fell 5.1% and they are expected to decline another 6.2% in the first quarter of 2016. How can stocks rise when earnings fall?

Gold should profit from the existing trends more than stocks. Those trends include a weaker dollar, negative interest rates in Japan and Europe and a slow economy, forcing for the Fed to keep rates low.

The Latest News from China and India – Gold’s Largest Markets

Chinese gold demand is clearly rising. Last week, the Perth (Australia) Mint reported a record profit of $24.9 million (pre-tax) on $4.4 billion in sales in the last half of 2015, more than surpassing the previous fiscal year’s full 12-month profit. The Mint’s CEO Richard Hayes said this “wonderful six months” was mostly due to China: “In terms of gold bars …a lot of that is going into Asia, primarily into China.”

In India, the nation’s jewelers have given up on their fight with the government over gold excise taxes. They were closed for most of March in protest against those laws, but with the advent of the wedding season, there will be a great deal of pent-up demand for gold in India. All the dealers got was a concession from the government that they would not be “harassed” over collection of the new tax.

1866-1876 Gold Survives: At Historic U.S. Mint

On the battlefield, the British-made Whitworth rifle was a favorite weapon of Yankee and Confederate sharpshooters during the Civil War. On the home front, hard money – especially gold coinage – would have enjoyed similar popularity with civilians … if they could have gotten it. Coins of all kinds virtually vanished from view in both the North and the South because of widespread hoarding during the war.

The Union and Confederacy both issued paper money to keep the wheels of commerce turning and pay their large armies, but almost no one trusted it. Many remembered hearing the phrase “not worth a Continental” to describe the colonies’ nearly worthless currency during the American Revolution.

Gold coins were minted during the Civil War and immediately after, but few found their way into people’s pockets and purses. Some turned out to be quite scarce and all are prized today as valuable collectibles.

Recently, we acquired an original collection of popular double eagles - $20 gold pieces - issued about a decade after the War Between the States. Heightening their historical significance all had been stored for many years at the old San Francisco Mint, one of the few major buildings to survive that city’s calamitous earthquake in 1906. That building, now a museum, is affectionately known as “The Granite Lady” because it withstood the quake and the fires that followed.

This collection contains original double eagles dated between 1866 and 1876, many bearing the coveted “S” mint mark, showing they were made at the San Francisco Mint. We immediately had them submitted to the respected Professional Coin Grading Service, and Numismatic Guaranty Corporation, which certified their authenticity and grade and sealed them in protective holders displaying their Granite Lady pedigree. Call us for current price and availability. These remarkable coins are truly “history in your hands.”

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