On December 26, 2016, Barron’s Commodities Corner's column was titled “The End of a Golden Era.” In that article, Barron’s reported on the new bearishness among many Wall Street pundits, who assumed that gold’s post-election correction would continue throughout 2017. But four weeks later, On January 23, 2017, Barron’s Commodities Corner had a completely different outlook on gold – after it had recovered.
“Uneasy Times Great for Gold”
--Barron’s headline, January 23, 2017
Four weeks after proclaiming “The End of a Golden Era,” Barron’s now says that “analysts say gold looks ready to stage a comeback as political and economic risks gain renewed attention with the presidential transition.” Hmmm. That’s the same point we made all along – that the unknowns in Donald Trump’s presidency are greater than any recent President. As his first week in office shows, he thrives on throwing the nation and the world off balance. This added level of unrest will undoubtedly help gold.
Among the many Wall Street sources cited by the latest Barron’s article is a report released on Inaugural Day, January 20, in which Bank of America Merrill Lynch said that precious metals saw the first ETF inflows in 10 weeks from private clients – $1.3 billion, the largest weekly gain in five months. This is indicative of Wall Street’s change of sentiment – since gold ETFs are the favorite vehicle of short-term gold traders.
One of President Trump’s first statements about monetary trends and trade policy was made on Tuesday, January 24, his second full work day in office, when he told The Wall Street Journal that the dollar was “too strong.” This caused an immediate correction in the dollar. Whenever that happens, gold tends to go up in U.S. dollar terms, so Trump’s short-term bump in the dollar helped the gold price in the short-term.
Gold and Silver Beat Stock Indexes in January
Gold dipped under $1,200 last week, but silver has stayed over $17. During the first four weeks of 2017, silver has once again doubled gold’s gains (+5.7% for silver vs. +2.8% for gold) but both have beaten the major stock indexes this month. All the headlines last week pointed to the first closing of the Dow Jones index over 20,000, but that index is up less than 2% so far this year. Meanwhile, gold is “silently” rising more, as Wall Street is finally realizing what we have been saying all along, that the challenges of the Trump administration’s policies is fueling global unrest, which is usually good for precious metals.
China Welcomes its “New Year” With Gold Buying
China’s new “Year of the Rooster” dawned last weekend. This annual celebration is usually associated with gold gift giving, especially when gold trades at bargain prices – as it has since last November. China also has reason to celebrate gold all year ‘round, since China was once again the world’s #1 gold producer (for the 10th year running) and #1 gold consumer in 2016. In addition to its domestic production, China also imported 158 metric tons of gold from Switzerland in December – over five times as much gold as they imported from the Swiss in November and the most gold China imported from Swiss refiners for any month in nearly three years (since January 2014) according to the Swiss Federal Customs Administration. The total gold exports from Switzerland to China reached 442 metric tons last year vs. 288 tons in 2015.
Gold demand tends to rise in nations with a depreciating currency. Since the U.S. dollar has been strong, gold demand has been weak recently in the U.S., but Zhang Yongtao, vice chairman of the China Gold Association, says China’s “appetite for gold coins and bars saw sizzling growth last year as consumers increased buying to hedge against a weakening yuan and a number of ‘black swan’ events, such as Brexit and Donald Trump being elected as the US president.” Last year, China’s demand for gold in jewelry fell nearly 19%, but investment demand more than made up for that decline. Demand for gold bars rose 28.2% and demand for gold coins in China rose 36.8%, as these forms of gold are generally more “pure” (in carat value, or pure gold content) than harder-to-weigh-or-measure gold jewelry.
Europe’s Weak Currency and Nationalist Elections are Also Fueling a Gold Rush There
Europe’s continental currency – the euro – is also weak, so gold demand is increasing there, too. With several important European elections coming up this year, there is great concern about the breakup of the European Union and the potential phasing out of the euro currency. After “Brexit” last June, Europeans are in the same mood as Americans about returning to a populist leader. There will be elections in France, the Netherlands, Germany (and maybe Italy) this year. The French election (April 23 and May 7) features a populist (Trump-like) candidate, the National Front’s Marine la Pen, currently leading in voter polls.
The first European election is scheduled for The Netherlands on March 15, where the right-wing nationalist Party for Freedom is currently leading the polls. Germany’s election is slated for September. The rising political concerns in Europe since Brexit are fueling a European gold rush, including gold coins and ETFs backed by gold. In the week of January 16-20, for instance, Germany’s Xetra-Gold ETF added $544 million in gold-backed ETF sales, which was over 10 times the inflows to America’s SPDR Gold Shares (GLD), the world’s biggest gold ETF, during that same week, according to the Toronto Globe and Mail.
These trends are the early signs of a good year for gold. At the very least, we could see another year like 2016, with a strong gold rise for most of the year, followed by a correction in the later months of the year.
What’s Hot in 2017
While gold bullion declined immediately after the November election, demand for extremely rare coins rose. There’s a growing sense of optimism among entrepreneurs and collectors I talk with that business and income will generally improve during Trump’s presidency. This seems to be manifesting itself in a surge of high-end numismatic sales that is atypical for December. Shortly after the election, for instance, one major Texas dealer sold all eight $50 gold pieces he had in stock. A California dealer also told me there has been a resurgence in demand for coins priced at over $100,000. Perhaps this new demand is based on the fact that high-end customers believe that business will be better and high-end collectibles will soar in price.
As we enter 2017, I expect demand to continue to increase for coins with something special. That could be blast luster or a needle-sharp strike or a paucity of bag marks on key focal points. Key-date and historical coins are always in demand. For example, many dealers find it hard to keep 1794-to-1796-dated copper, silver and gold coins in stock, even in lower grades.
Key coins like 1870-CC double eagles seldom last long in inventory in any grade. Silver coins with original attractive toning are popular. Spectacularly toned examples can bring multiples of what an untoned coin in the same grade would sell for.
Coins in popular collector series at or near the scarce end of the PCGS and NGC population reports can trigger fierce competition, and bring significant premiums over the same type coin graded just a point lower. At a recent 2017 convention I could not find one acceptable MS-66 $2.50 Indian for our customer wish list. This is true in part due to rarity, but also in part to collectors wanting to have top-rated sets. Many dealers reported sales were up significantly in January. That is great for the coin market and our customers.
After eight years at the U. S. Mint, Tom Jurkowsky retired on January 27, 2017. Tom was the Director of the United States Mint Office of Corporate Communications. Tom spent 31 years in the Navy and was a Rear Admiral. He was always helpful and professional to those he interacted with about numismatic issues. I will miss him and look forward to working with his relief Thomas Johnson.
The United States Mint announced Kareem Abdul-Jabbar has been appointed to the Citizens Coinage Advisory Committee (CCAC). Kareem is a renowned Hall of Fame National Basketball Association player who is an avid coin collector. He is a regular contributing columnist to the Washington Post and Time Magazine and a best selling author. He also has helped bring educational opportunities to underserved communities through his Skyhook Foundation. The CCAC was established by an Act of Congress in 2003 and advises the Treasury on theme or design proposals relating to coinage and medals produced by the U. S. Mint. It also makes commemorative coin recommendations to the Secretary.