The Michael Fuljenz Metals Market Report
May 2013, Week 3 Edition

University of Texas May Buy More Gold

The Wall Street Journal headlined the fact that "Gold U." (Texas) has suffered from a drop in gold prices due to its $1.1 billion holdings in gold for the University of Texas Investment Management Co (Utimco). Chief executive of the fund, Bruce Zimmerman, began buying gold futures at $950 per ounce in 2009 and says he may buy more gold at today's lower prices: "Utimco is holding tight to its stash of the metal and even is thinking about buying a bit more." Even with the recent price decline, Utimco's gold positions are up a net 17%.

RECORD GOLD SALES AT PERTH MINT

With gold prices taking a licking and gold-bashers in the media having a frisky romp at the yellow metal's expense, it would be easy to get the impression that nobody wants gold anymore. Gold sales for the Perth Mint of Australia proves that's not true.

In April, when the gut-wrenching plunge in gold shocked the markets, the Perth Mint hit record-breaking sales for gold bullion products as the low prices ignited vigorous consumer demand to own the physical metal. Silver bullion sales also surged to the highest level in six months.

Sales of gold coins and other minted products reached 111,505.06 troy ounces, more than double the previous month and more than 534% higher than the same period last year.

The Perth Mint said website sales significantly contributed to the record number, with top sellers including the 1 ounce Kangaroo Gold Bar, 2.5 ounce Cast Gold Bar, and 1 ounce 2013 Australian Kangaroo Gold Coin.

Sales of silver as coins and minted products reached 1,102,465.96 troy ounces for April 2013. This was more than double the previous month and up by 432.31% from the year ago period.

Federal Debt is Not Suddenly "Under Control" After One Good Month

Last week, it was announced that a federal budget surplus in April (the main tax-filing month) was the best in years, pushing the projected deficit for this fiscal year (ending September 30) to just $642 billion, down 50% from a record-high $1.3 trillion in President Obama's first two years. That's good news, but the $642 billion is still much larger than any federal budget in history, before 2008, and shrinking deficits rely on super-low interest rates, which keep the service costs of the Treasury's $16 trillion in debt so low.

Despite the recent media celebration of declining deficits, the debt is still projected to grow rapidly in future years. The latest 10-year updated projections of the Congressional Budget Office, released last Tuesday, projects U.S. federal debt to be 83% of GDP by 2023, if nothing is done to fix certain statistical shenanigans, like the "doc fix," the perennial promise to cut doctor's fees under Medicare - a change that is constantly delayed, for good reason: It would cause doctors to refuse to accept new Medicare patients.

We've forgotten all about the "debt ceiling debates" of August 2011, which pushed gold to its record highs, but the U.S. government still has to fight its statutory debt limits. The new Secretary of the Treasury Jack Lew says we will reach a debt limit again this week, but he said he will take "extraordinary measures" to keep paying our bills, including suspending reinvestment of some Treasury securities.

Right now, the political waters in Washington are more partisan than ever, due to arguments about the Benghazi hearings and the IRS' targeted persecution of Tea Party organizations, AP and Fox reporters. If a debt renegotiation had to happen, we would likely see more political stone-walling than in 2011, when stocks (as measured by the S&P 500) fell 21% while gold rose 29%. Nothing has really been solved since then, with the U.S. debt burden still growing, so we could see another budget showdown in 2013. Gold will likely rise if we see the government in Washington implode again, as in mid-2011.

1991 $25 Gold Eagle Gem Uncirculated 2000 - 2013

For many years I have purchased low mintage Type I, Roman numeral, $25 American Gold Eagles for collectors, investors and placement in IRA's, three important demographics of demand. This week's graph shows how a portfolio of $10,000 worth of historic Gem Uncirculated 1991 $25 American Gold Eagles I purchased in 2000 would have increased in price over the years I have purchased them. This graph shows an increase from $10,000 to about $70,000 in the 12+ years since 2000.

Gold was $290 at the beginning of 2000 and was $1413 as of 4/23/13. This is an increase of 4.9X. While an impressive gain, it falls short of the 7X gain of the 1991 $25 Gold American Eagle that also held its value while gold was recently declining. This is a good example of why every portfolio should include some better-date gold coins.

As you can see, there are price dips along the way. That's why I recommend at least a 5-10 year hold period on rare coins. In the shorter time frames in this graph, price performance can lag for a few years, only to be followed by impressive gains. We all know that past performance of one coin does not guarantee future performance for all coins, but we can still learn many lessons from history.