Precious Metal Commentary

August 30, 2010

Gold Rises For 4th Straight Week Leading Silver and Platinum Higher

Gold rose $10 last week, for the fourth straight week. This time, silver and platinum followed gold's lead, unlike in previous weeks. Last week, silver had the greatest percentage increase of all the metals. Gold is flat today (Monday), but as we near the end of August, gold is up over 6% and silver over 8% (in August), while the stock market is down over 3% for the month. The year-to-date gap is now almost 20% between gold (+14%) and the widely-watched S&P 500 (-4.5%).

• Gold 52 weeks ago (September 1, 2009): $955.50
• Gold's average price during 2010: $1165.10
• Gold's London low for 2010: $1058 on February 5
• Gold's London high for 2010: $1261.00 on June 28

The Bottom Line: Stocks fell again last week, while the metals rose, widening the performance gap of gold vs. stocks.

WGC Says Gold Demand Soared 36% Last Quarter

Gold reached its latest all-time high on June 28, at $1261. Now, we know why: soaring investment demand. Last Wednesday, the World Gold Council announced that world gold demand reached 1,050.3 metric tons in the second quarter, 36% higher than the same quarter a year earlier. Supply rose, too, but not as fast as demand: While demand rose 36%, supply rose 18% to 1,131 metric tons. The WGC said that soaring investment demand was the biggest component of demand, saying that uncertainties around the world are expected to provide continued strong demand for gold. Demand for gold-backed exchange-traded funds (ETFs) rose 414% vs. the second quarter of 2009, while retail investment demand rose 29%.

Jason Toussaint, managing director for the World Gold Council, said that investors appear to be making the switch from buying gold only in times of crisis to having gold as part of a more diversified portfolio. Specifically, Toussaint said "Gold is the ultimate diversifier." The World Gold Council further said that India and China are expected to continue to provide the "main thrust" of gold demand, but European retail investors "appear to be making an increasingly important contribution to investment demand."

In August, Gold is Rising (and Stocks are Falling)
On a Weak Economic Recovery, Plus Fed "Easing"

The stock market fell under Dow 10,000 last Thursday following some disappointing economic news. Gold, unlike silver, platinum and most other commodities does NOT rely on a booming economy to promote demand, so it can rise independently of the economy. In particular, when the economy is stuck in a weak recovery, like now, most stocks (and most commodities) often fall, while gold can keep rising.

Ben Bernanke told all the Fed watchers at their retreat in Jackson Hole, Wyoming, that U.S. economic growth was slower than anyone had previously thought - i.e., too slow to fear new inflation - so the Fed would continue its quantitative easing (money printing) this year.

September is the Month for Gold, Not Stocks

In a study of the monthly performance of the Dow over 60 years, September was the worst month by far. Interestingly, in a 40 year study of gold, September is the best for gold. While history doesn't always repeat itself, or rhyme as Mark Twain suggested, decades of history seem to scream sell some stocks and diversify with gold in August and September.

Business Week Bashes Gold, but Kaplan Defends the Metal

The current (August 30 to September 6) edition of Bloomberg's Business Week printed a cover story on gold and a leading gold investor. The cover title said: "The Gold Digger: Thomas Kaplan and the mad search for the world's most primitive source of wealth." Their adjectives ("mad" search for "primitive" wealth) show their editorial bias. Instead of "primitive," they could have used "original" or "proven" or "time-tested form of wealth," but they selected a word (primitive) associated with out-dated or ignorant.

Mr. Kaplan turned that "primitive" term around, saying, "The conventional wisdom is that gold is for primitives. That derision shows me that, contrary to the notion that we're in a bubble, we haven't yet begun the real bull market." The Business Week article then tended to criticize Kaplan's mining efforts, even though he is far more conservation-oriented than most gold-mining executives. In fairness, the article gave him the final word, which is worth quoting in full: "People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they're going to say, 'we really should own some of that.' The question will then change to, 'Where do we get gold?'"

P.S. Happy 5th Birthday Metals Market Commentary

This weekly metals report began in late August of 2005, when gold was only $433 per ounce. Using August 31 as our anniversary date, gold has almost tripled. Here is the track record for the last five years.

We can't claim any credit for this rise, but it was pleasant being along for the ride, which continues.

Rare Gold Coins Stirring

Mike Fuljenz' 2010 NLG award-winning book, Indian Gold Coins of the 20th Century, is beginning to stir up demand for better $2.50, $5 and $10 Indian Head gold coins. Meanwhile, premiums on slightly better Mint State 61-64 $20 Liberties are beginning to trend higher due to a sudden spike in demand.

Gold in History

August 29, 1862: Treasury Secretary Salmon Portland Chase couldn't figure out how to pay soldiers and fund the war effort, if it continued much longer. His solution: Warm up the paper printing presses! On this day, he hired six people who formed the first staff of the Bureau of Engraving and Printing.

August 28, 1933: the new FDR administration tried to the limit the hemorrhage of gold in the Treasury as the Depression deepened. By executive order, FDR prohibited "hoarding" of gold!

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