Award-Winning Metals Market Report: April 2016 - Week 3 Edition

Mike Fuljenz
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Posted: Apr 20, 2016 12:01 AM
Award-Winning Metals Market Report: April 2016 - Week 3 Edition

Silver rose almost $1 per ounce last week, even while gold fell about $12 (based on the London price fix). Silver has now risen further this year than gold. Both gold and silver are beating the S&P 500 stock index by 15% to 16%, respectively. From April 4 to April 15, silver rose almost 10%, from $14.93 to $16.30. Silver may have been lifted by the result of a price-fixing lawsuit settled by Germany’s Deutsche Bank last week. It’s too soon to comment on this developing story, but we will be following it closely.

Negative Interest Rates Fuel Gold Demand – Especially in Japan

Last Friday, The Wall Street Journal featured a series of three stories on Page 1 of its Money & Investing section under the big six-column headline “Negative Rates Upend the World.” The Journal featured a staggering chart of the $8.5 trillion of government-issued sovereign debt that currently pays a negative interest rate. Nearly two-thirds ($5.6 trillion) of that negative-interest rate debt was issued by Japan, and this is a fairly new phenomenon for Japan. Europe has been paying negative rates for years. Denmark began offering negative rates in 2012, Switzerland in 2014 and the euro-zone in 2015. Japan began offering negative interest rates on its sovereign debt in a surprise announcement on January 29, 2016.

Europe’s negative rates spurred gold demand in Europe last year, driving the euro price of gold higher, even as gold was flat in U.S. dollar terms. This year, the new negative interest rates in Japan have driven gold demand higher there. According to Bloomberg, writing last Thursday, gold sales in Japan soared 35% in the first quarter over the same quarter in 2015. Consumer demand for gold in Japan rose 83% in 2015 over 2014, since rates were already near-zero throughout 2015. The World Gold Council reported on this trend March 31, writing “History shows that, in periods of low rates, gold returns are typically more than double their long-term average,” whereas negative rates will only make gold demand higher.

Negative-Yielding Government Bonds by Country

JAPAN $5,600 billion

Germany $870 billion

France $798 billion

Italy $254 billion

Netherlands $241 billion

Belgium $178 billion

Spain $151 billion

Austria $139 billion

Other nations $301 billion

(in Europe)

Total $8.532 trillion

Source: Wall St. Journal, April 15

There was a small historical precedent for negative interest rates in the late 1970s, when Switzerland instituted punitive rates against foreign depositors to discourage new accounts from depositors with weaker home currencies, like the U.S. dollar. The Swiss charged about 0.25% for those deposits, but it failed to stem the onslaught of capital into Switzerland. Throughout the 1970s the Swiss franc rose from $0.23 to the dollar up to $0.78, while gold rose from $35 in 1970 to $850 per ounce in January of 1980.

The current negative rates won’t push gold up that far that fast, but negative rates take away the old excuse that gold doesn’t offer interest income – but zero income is much better than a guaranteed loss! As George Milling-Stanley, head of gold strategies at State Street Global Advisors, put it: “For 40-something years, since I first got into gold investing in the 1970s, people have been saying it doesn't pay a return. Well, guess what? Not much else does these days, either. People are charging you to store money.”

Speaking of Switzerland, analysts at Credit Suisse have pushed their gold forecast up to $1,350 per ounce by the first quarter of 2017 – less than a year from now. That number gained further traction when

George Milling-Stanley of State Street Global Advisors predicted $1,350 to $1,375 by Christmas.

Celebrate “National Coin Week” (and America’s Birthday)

April 17-23 is National Coin Week. Another celebration this week is the start of the American Revolution, which began with Paul Revere’s ride late on the night of April 18 and the armed skirmishes that launched the Revolution the next day. It was all about gun control back then. According to accounts of that fateful day by author Dave Kopel.

“The American War of Independence began on April 19, 1775, when 700 Redcoats under the command of Major John Pitcairn left Boston to seize American arms at Lexington and Concord. The militia that assembled at the Lexington Green and the Concord Bridge consisted of able-bodied men aged 16 to 60. They supplied their own firearms, although a few poor men had to borrow a gun. Warned by Paul Revere and Samuel Dawes of the British advance, the young women of Lexington assembled cartridges late into the evening of April 18. At dawn, the British confronted about 200 militiamen at Lexington…”

“The Redcoats marched on to Concord, where one of Gage’s spies had told him that the largest Patriot reserve of gunpowder was stored. At Concord’s North Bridge, the town militia met with some of the British force, and after a battle of two or three minutes, drove off the British. Notwithstanding the setback at the bridge, the Redcoats had sufficient force to search the town for arms and ammunition. But the main powder stores at Concord had been hauled to safety before the Redcoats arrived.”

Celebrate American liberty this week with a purchase of some of the classic Liberty gold coins minted about 100 years later, the Type II Liberty Gold Double Eagles.

Type II Liberties are so rare, only one collector in 1,000 can hope to own even one of these gold coins. However, you could be one of the fortunate few. Here's what you need to know:

· The coin is called "Type II" because these were the second $20 Liberty coin designs to be minted.

· The Type II Liberty Double Eagles were also the first United States $20 gold coin designed to carry the motto 'In God We Trust'.

· Type II $20 Liberty Double Eagles were minted only between 1866 and 1876 when the coin was once again redesigned, making these the shortest series and thus the rarest, by mintage, of all $20 gold Liberties.

· As a result of the Gold Recall Act of 1933, it is estimated that over 95% of all Type II coins minted were melted down, a high destruction rate for a post-1850 series, making premium quality, almost uncirculated, and uncirculated Type II Liberty Double Eagles even harder to find.

· Type II $20 Liberty Double Eagles are twice as rare as Type I Liberty Double Eagles by mintage.

· Certified Type II $20 Liberty Double Eagles are many times more rare in mint state than Type III Liberty Double Eagles in certified population reports.

· Additionally, Type II $20 Liberty Double Eagles are substantially more rare than the popular $20 Saint-Gaudens in certified mint state condition.

· The $20 Liberty Type II has .9675 ounces of pure gold — almost one full ounce of gold in every coin.

Prices for many Type II Liberty Double Eagles began to rise steadily following the publication of my book, A Numismatic History & Analysis: Type II Double Eagles 1866-1876, which went on to win a Numismatic Literary Guild Investment Book of the Year Award in 2002.

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