October 2016 – Week 2 Edition

Gold and Trump’s Betting Chances Dip

One unheralded reason why gold declined last week was the latest unsavory revelations about Donald Trump’s past statements and his declining chances of winning the election.  A victory by Hillary Clinton is seen as “more of the same” (Obama III) policies, which might favor the stock market (Wall Street) more than gold.  According to fivethirtyeight.com, the chances of Hillary winning the election have risen to 82.5% (17.5% for Trump) vs. 55% to 45% two weeks ago.  Clinton now leads Trump all of the major “swing states,” namely Iowa, Ohio, North Carolina, Florida, Nevada, Colorado and Pennsylvania.

A Wall Street Journal poll taken over the weekend – after the Trump allegations but before the debate and the Trump press conference with some of the women Bill Clinton had abused – showed a 14-point lead (52-38) for Hillary Clinton, up from a single-digit spread previously.  The betting odds in London now favor a Clinton victory by almost 5:1.

However, Trump’s counter-punching abilities may help him recover some of that lost ground in the next four weeks.  In Sunday night’s debate, he counter-punched about Ms. Clinton’s attack on the women her husband had allegedly molested over the years, and Trump also attacked her erasure of thousands of emails, claiming he would, if elected, appoint a special prosecutor with an eye to throwing Hillary in jail.

Gold could rise if Trump closes the gap.  Wise investors will position themselves for either election outcome.  If Donald Trump is elected, gold is likely to grow faster than if Clinton is elected, but gold should rise relatively rapidly under either new President.

It’s important to remember that rising gold prices tend to increase the number of ads about gold products, which in turn increases the number of potential customers contacting coin dealers – either on-line, or by phone or in coin stores. Current customers also increase their rate of buying when gold is rising, making some rare coins harder to locate.  The most important lesson I’ve given customers in my 22 years in this business is that it is better to buy the right coins two months early than two months late.  The upward moves can be sudden, sharp, and very profitable.  Make sure you are ready for gold’s next big move.

U.S. Mint Forum This Week

The U.S. Mint is scheduled to hold a Numismatic Forum Oct. 13 in Philadelphia.  The purpose of the event was to bring together leaders in the numismatic community to explore ways the Mint can help stimulate the hobby. 

The Mint is approaching its 225^th anniversary next year and Mint officials said they would discuss its past, present and future and ways to move all elements of the numismatic industry forward.  I was invited and plan to report on this historic event in next week’s column.

Gold is Still Rising in British Pounds and Euros

The U.S. dollar just rose to a 31-year high to the British pound Friday, when the pound sterling briefly dropped to $1.17, down from $1.50 last June, before the Brexit vote.  This means gold has been rising in terms of the British pound while declining in U.S. dollar terms.  As a result, London gold and coin dealers say they are seeing the heaviest demand since June 24, the day after the Brexit vote. One dealer sold nine million pounds (about $11 million) of gold in one day, six times the daily average in the previous week.

In addition, Sharps Pixley CEO Ross Norman said, “We have an awful lot of clients who were waiting for a pullback in gold, so the phones have been busy here…We’re close to 1,000 pounds an ounce (and) people want to get in at these levels.”  Another gold company reported a 28% increase in inquiries and an 18% increase in sales last Wednesday, the day after gold’s sharp drop in U.S. dollar terms. He believes that “the Deutsche Bank saga and update on the Brexit deadline” is the impetus behind rising gold sales.

The World Gold Council also came out with a report last Wednesday saying that this is the best buying opportunity of the year so far. The WGC said that last week’s price decline was well-timed for the normal seasonal demand coming out of India, the world’s second-largest gold consumer (behind China).  The WGC said “With a good monsoon, the upcoming wedding season and Diwali and Dhanteras festivals, demand could pick up after subdued activity year-to-date… Anecdotal evidence suggests that consumers had been holding off purchases in previous months, so this may well trigger an increase in demand.”

Some Wall Street Firms Call this “A Great Buying Opportunity”

Other unlikely sources have also called this a “great buying opportunity,” including Goldman Sachs, which had previously bashed gold.  Last week, Goldman analysts Jeffrey Currie and Max Layton said, “We would view a gold sell-off substantially below $1,250 as a strategic buying opportunity, given [that] substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth.”

The Goldman team also believes that “the potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls, and purchasing gold as a way of diversifying away from the property market, which has this year to date had a remarkable rally (with the government moving to rein in speculation and price growth).” 

Credit Suisse also said last week that “we continue to view the macro backdrop for gold demand as constructive.” The bank blamed gold’s “flash crash” on U.S. dollar gains and the news of an earlier-than-expected “Brexit” (an exit by the U.K. from the European Union). Credit Suisse analysts highlighted the possibility of additional physical buying in Europe as the actual Brexit deadline draws near.

Gold Fell Last Week

Gold fell $60 last week on a combination of events, including (1) release of a series of strong economic growth statistics, which imply (2) a higher chance for a rate increase in December and (3) a stronger U.S. dollar in expectation of a rate increase. In addition, we saw a decline in poll numbers favoring Donald Trump, whose victory would probably supercharge gold.  However, the action which set off the initial decline was a large sell order in gold futures last Tuesday morning, October 4. With no follow-up buying by bargain-hunters, gold traded down through the rest of the week, reaching a Friday low of $1,242.

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