The Michael Fuljenz Metals Market Report: June 2013, Week 2 Edition

Once Again, Gold Staged a Rally over $1400 only to fall back under $1400 on Friday, based on a fairly healthy jobs report. Gold's trading range in the last four weeks has been between a floor of $1355 and a ceiling of around $1410, so it will be important to see which barrier is broken first. A sustained move above $1410 would be bullish, but we can never rule out the possibility of a test of gold's most recent lows. Meanwhile, platinum is holding near break-even for the year, due to labor unrest in South Africa, while silver is down more significantly than gold, as silver often resembles the gold market "on steroids."

DEMAND SHOULD RESUME IN CHINA - AFTER A PAUSE FOR "DRAGON BOAT" FESTIVAL THIS WEEK

Chinese markets are closed early this week (Monday through Wednesday) for the Dragon Boat Festival, so their gold markets will not be active, but there is a new series of gold exchange-traded funds emerging in China. Specifically, Huaan Asset Management and Guotai Asset Management received approval from the China Securities Regulatory Commission to launch gold ETFs denominated in the Chinese yuan. Like the similar U.S.-based ETFs, they will be traded as common stocks on the Shanghai Stock Exchange.

Physical demand for gold has been strong in China, as we reported here last week. That demand has pushed premiums up, providing a trading advantage for gold ETFs. The premium to take immediate delivery of bullion in China rose over 350% recently, due to rising physical demand. Specifically, in the 12 months before gold's collapse last April 12, spot gold purchases in China cost an average $7.22, according to the Shanghai Gold Exchange. That premium rose to an average $33 (+357%) since April 15.

We all remember how gold demand took off in 2004 after the introduction of gold ETFs in America. That kind of surge could happen soon in China. Zhang Bingnan, secretary-general of the China Gold Association says that gold ETFs "should help boost gold demand as they will make Chinese investments in bullion much easier." Referring to fickle New York traders, he added that, "The dumping recently of holdings in gold exchange-traded products by overseas investors may not prove to be a wise move."

A "ROUBINI REBUTTAL" OR: WHY MOST ECONOMISTS DON'T UNDERSTAND GOLD!

It's usually a mistake to think that an expert in one field is an expert in all fields. Recently, we analyzed why Warren Buffett is a great stock picker but a lousy gold timer. He even "hated gold at $35" in the 1960s. There are many other examples we could cite. Last week, economist Nouriel Roubini, the famed "Doctor Doom," gave the world six reasons why he thinks gold will fall to $1,000 per ounce by 2015.

Here are his six reasons, in brief, and why we think he is all wet about a subject he doesn't understand:

• #1: "Gold spikes in times of serious economic, financial and geopolitical risks," he says, and we are not in such a crisis for the time being. True, but the world ALWAYS faces such risks. Just because we are now "between crises" does not make gold a bad investment. Will the world ever really become "risk-free"?
• #2: "Gold performs best in times of high inflationary risks," but global inflation is now low. True, the traditional measures of price inflation seem contained, but the mountains of newly-printed paper must go somewhere. Lately, we've seen asset price inflation in the stock market, bond market and in real estate.
• #3: "Gold provides no income." This old argument should be retired. Gold is money. It competes with paper currencies, not stocks, bonds or real estate. There is virtually no income for short-term cash in the bank these days. Gold is not a typical commodity. It is the only commodity the world sees as money.
• #4: "The Federal Reserve and other central banks are going to back out of quantitative easing" (QE). That may be true, someday far in the future, but gold also rose during the years 2001 to 2008, before the Federal Reserve instituted its five-year run of quantitative easing and near-zero interest rate policies.
• #5: "Many governments have high stocks of gold, which they may dump to cut debt." He cites Italy as a prime candidate, but why should governments throw away their "good" money (gold) when they have the comfortable option of printing more money? Most nations have been buying gold while printing paper.
• #6: "Political conservatives have hyped gold" as a hedge against "the government's conspiracy to expropriate wealth." Not true, except for a small but vocal minority. You don't have to believe in another "gold grab" by the federal government to believe that gold is a viable alternative to most paper money.

Roubini also echoed the late economist John Maynard Keynes when he called gold a "barbarous relic," but gold has risen 67-fold since Keynes said those words in November, 1923, when Germany was being torn apart by a hyper-inflation.

MEMO TO DR. ROUBINI: MOST CENTRAL BANKS ARE STILL BUYING GOLD

Contrary to what Professor Roubini says, central banks are typically buying gold, not selling it. Since the mid-April sell-off in gold prices, Casey Research cites this data about central bank purchases during May:

• Russia bought 269,000 troy ounces last month.
• Kazakhstan added 85,000 ounces.
• The Republic of Azerbaijan bought 32,000 ounces. It was the fourth consecutive month of purchases by the former Soviet republic, which had no gold Reserves in December.
• Turkey's central bank bought 586,000 ounces.
• Belarus and Greece also bought gold in April, though amounts have not yet been reported.
• Altogether, the IMF says of those that have reported thus far, central banks bought almost a million ounces of gold last month. [Note: one million Troy ounces represents 31.1 metric tons.]

Putting Your Children And Grandchildren Through College With Rare Coins - A True Story

College tuition costs at the best schools are astronomical. Even four years at a state university will set you back a pretty penny. If you have young children, by the time they're ready for college, the costs will be beyond astronomical. People have different strategies for building a college education nest egg for their kids. But a friend of mine - I'll call him "Mr. B" - hit on an inventive and very profitable way to build a college fund for his youngsters. Mr. B is a prominent fellow numismatist and coin dealer who has held numerous influential positions in national coin industry groups. I was impressed with his creative college savings plan, and I think his story is worth sharing with you.

Mr. B's first two children, a girl and a boy, were born in the late 60s and early 70s. Mr. B launched his plan right away to be ready financially for their higher education. Every year he bought $1,000 of well-known companies' stocks for each kid. He stuck to the axiom of "invest in what you know" and bought companies that affected his children's lives, like Johnson & Johnson (because they make baby powder and no-tears shampoo). As they grew out of the toddler stage, he bought companies like toymaker Mattel and, of course, Disney. When they were teens, he bought consumer product companies like Coca-Cola.

Now, here's the unusual part of Mr. B's strategy. In addition to building a stock portfolio for each child every year, he also invested $1,000 in high-quality U.S. gold and silver coins for each of them. He chose only gem uncirculated or proof coins that were 50 to 150 years old. He completed a U.S. gold coin type set for each child. He also enhanced their coin portfolios with many gem-quality silver coins.

Mr. B told me that his plan of investing in stocks and coins became much more than just a prudent financial exercise. "It was a bonding experience," he said. "It brought us closer together as a family while instilling in my children valuable life skills." The kids got excited when annual reports came out, which Mr. B read with them, so they could see how the companies they owned were doing. They followed the stock charts of their portfolios and even went to shareholder meetings. The kids became absorbed in the history of the coins in their portfolios and avidly dug into reading and learning about them - which paid extra dividends later on when they got outstanding grades in college history courses. Mr. B was able to finance the two children's educations by selling the stock and coin portfolios. Adding it all up, he noted that the money he invested in coins paid off far better than the money he put into stocks.

Here's how the actual performance numbers worked out. Investing $1,000 in stocks and $1,000 in high quality gold and silver coins for each child each year for 18 years yielded these results:

First Child

• 18-year $18,000 investment in stocks: $40,500 profit, 225% growth
• 18-year $18,000 investment in high quality U.S. coins: $68,000 profit, 377% growth

Second Child

• 18-year $18,000 investment in stocks: $38,000 profit, 211% growth
• 18-year $18,000 investment in high quality U.S. coins: $77,500 profit, 430% growth

Aggregate

• Stocks: Original investment $36,000 ($18,000 x 2), $78,500 profit, 218% growth
• Coins: Original investment $36,000 ($18,000 x 2), $145,500 profit, 404% growth

Many people put cash away in CDs or money market accounts in anticipation of their children's college days. But the meager interest being paid on these accounts against the rapid debasing of the U.S. dollar - and pretty much all world currencies - sucks purchasing power out of the nest egg rather than growing its value. Mr. B's college coin savings plan, on the other hand, paid off with handsome growth.

Investing for Your Children and Grandchildren

We offer parents and grandparents of future college students the opportunity to invest regularly in high-quality mint-state rare gold coins through a strategy developed by America's Gold Expert and Award-Winning rare coin expert, Mike Fuljenz. Through an accumulation plan that we personally outline according to your circumstances and needs, our strategy could provide you with a systematic, smart long-term way to build the resources you need to send the children you love to college.

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