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Precious Metals - Home on the Trading Range
(June 1, 2012) Gold prices on May 30th once again bounced off gold’s new ‘floor’ of around $1530, a level we last saw during the final week of 2011. Gold price are often perplexing – it seems to make no sense that gold’s ‘value’ can sink at the same time that prospects for the world economy deteriorate
Oil and gold prices often go hand in hand, as both are bellwethers of inflation and inflationary expectations. Crude oil is now trading down in the $87/barrel range, a price drop of some 17% this month alone. Oil prices have definitely been affected by lowered prospects for the world economy. Lower oil prices bring a deflationary pressure, and gold reacts accordingly.

As for Europe, the increasing crisis and continental indecision there has caused the euro to weaken, which means the dollar becomes stronger, and gold prices in dollars therefore, lower. This is a blessing for many gold buyers in the US, who over the past couple of weeks been able to obtain bullion some 7% cheaper than a short four weeks ago.

So why does oil drop 17% while gold loses ‘only’ 7%? Why? Because there's good demand for gold today among those who worry about monetary creation and prospects for future inflation, even when the immediate economic signals appear deflationary. Converting currency to gold is the simplest way to acquire a truly practical inflation hedge. For instance, with gold you don’t have to have a tanker parked offshore to store it in.

We note on the US Mint’s website that sales of 1-ounce gold Eagles in May was more than double the figures for April – 49,000 versus the pitiful April number of 19,000. But lower prices naturally bring stronger demand. In contrast to the much slower first few months of 2012, bullion business over the past two weeks has been gangbusters, with buyers and sellers finding the market to their liking.

In the new products department, we expect to have the new Pamp Suisse 1-ounce gold bar with a glorious “Dragon” design in stock next week. As soon as we get our first shipment in, we will start a new page featuring this Year of the Dragon item.

Platinum continues to be a good seller. The prime reason for this is the fact that platinum is back to trading at a strong discount to gold, some $150 below gold prices at this time. If you look back at gold and platinum’s price history over the past thirty years or so, it’s quite a rare occurrence to see the much scarcer element platinum trading so much cheaper than gold. As with the falling price for oil, the increasing likelihood of a weaker economy is what causes this anomalous price situation – less business means lower demand for platinum, a metal which is chiefly used in catalytic convertors for gasoline and diesel vehicles, and secondarily in high-end jewelry.

As for silver, retail investor demand is steady. So far in 2012 the US Mint has sold some 14.5 million of America’s most popular silver bullion coin, the 1-ounce silver Eagle. Should that rate of sales continue through the rest of 2012, production will total some 34.5 million coins - not too far shy of 2011’s record production of 39.8 million coins.

Summer is almost upon us, and June and July often mark seasonal lows in precious metals prices. As always, past performance does not guarantee anything about the future. Seasonal price tendencies are just something that we in the business mention this time of year, hoping that we will look smart in retrospect as we go into the fall and winter season.

Sometimes it even works.

-Richard Smith


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