August, 2017 - Week 3 Edition

Gold Coin Sales Soar as War Tensions Rise

The crisis over North Korea’s nuclear capabilities sent gold up and stocks down.  We predicted this development last week – gold rising on new North Korean threats – but we were not expecting such an immediate response!  Nor did we expect major industry outlets to pick up our predictions, but they did.

After gold popped last week on President Trump’s war of words with North Korea, gold coin sales rose strongly. Gold coin purchases by collectors, investors and dealers are up dramatically. We and many other dealers across the country – both small and large – have seen an increase in coin sales. We enjoyed a rise of about 40% vs. the average of recent weeks. This is an important early sign for future sales growth, too, since higher gold prices have been the primary reason behind the beginning of past multi-year rare coin bull markets in which prices rise by 100% to 1,000% in only a few years.  Any significant rise in gold’s price builds a base of new customers who will first buy bullion coins, then rare coins – for years to come.

Gold is already up 12% this year, and it has a history of going up strongly in the first year of a new President from a new party.  Back in 1993, Bill Clinton’s first year, gold rose 19.3%.  In George W. Bush’s first year, gold rose only 2.2%, but more importantly the uncertainty after 9/11 gave birth to a major gold bull market running from 2001 to 2011.  Then, in 2009 – Barack Obama’s first year – gold rose 24.4%.  Gold tends to rise in a President’s first year in part because new Presidents tend to face huge problems before they gain the experience necessary to handle those problems wisely.  We’re seeing that happen once again with the threats coming from North Korea, Russia, China and other global hot spots.

This is not the time to be selling gold coins or any other precious-metals-based investment. This is the time to increase your allocation in hard assets.  The kind of chaos you’re seeing in Washington DC and around the world will continue for several years to come, since the Trump Administration seems to be rushing from one crisis to another while world leaders are taking advantage of the chaos in Washington.

Mainstream Analysts Start to Return to Gold

Gold rose $30 last week, reaching a 10-week high, while silver gained almost $1 and stocks retreated.  Last Friday, gold touched $1,297, the third time since April that gold has bumped up against the $1,300 “resistance level,” while silver crossed back above $17.  If gold crosses $1,300 and stays above $1,300, that could signal gold entering a “break out” phase, fueling a move toward $1,400 and beyond.

We’ve seen this happen before. After gold makes its first $100 upward move, the trend-followers on Wall Street return to gold. That’s the basic problem with trend-following – momentum traders miss the first big move. A far smarter strategy is to buy gold and silver when prices are down. Part of the problem is that the press usually doesn’t print positive articles about gold until it starts rising significantly, so some of these experts likely said positive things about gold when it was down, but the press did not cover their words then. 

Last week, we heard strong words about gold’s portfolio role from Ray Dalio, founder and chairman of the largest hedge fund in the world, Bridgewater Associates, which manages about $160 billion in assets. In a note to clients, Dalio said “we are seeing 1) two confrontational, nationalistic and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war, and 2) the odds of Congress failing to raise the debt ceiling (leading to a technical default, a temporary government shutdown, and increased loss of faith in the effectiveness of our political system) rising.” Then, he said, “if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don’t have 5-10% of your assets in gold as a hedge, we'd suggest you relook at this. Don't let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn't have such an allocation to gold, we'd appreciate you sharing it with us.).”

In addition, commodity expert Dennis Gartman told CNBC’s “Power Lunch” program that “gold is about to break out on the upside strongly.” He views gold as a currency rather than a commodity. He recommends investors should have at least 10% to 15% of their portfolios in gold. He also spoke about the geopolitical problems that bring forth gold’s role as a safe haven. As a result of these tensions, he said, “The stock market looks a little vulnerable. The geopolitical circumstances are getting worse and worse.”

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