August 13, 2022

Negative Opinions on Gold

With all of the positive articles on gold, one reliable way of getting attention is to publish an article forecasting an impending plunge in the price of gold. Two recently published articles caught my attention for their decidedly negative stances on gold.

I previously wrote a post exploring bullish analyst opinions on gold. I guess this post will present the flip side.

IMF Gold Dump Theory

The first article examines the opinions of a so-called “interventional analyst” who sees the price of gold plunging on December 10. He sees the initial plunge and subsequent declines bringing the price of gold 40% lower to around $455 per ounce. All of this would take place in a matter of weeks. The plunge would be caused by the IMF dumping 3,000 tonnes of gold, flooding the market and destroying prices.

Even though his current prediction seems a bit ridiculous, apparently he has previously called this year’s collapse in the Dow, the plunge in oil prices, and the current recession. Of note, his gold track record is much less spectacular. According to a quote from the article, he has been advocating shorting gold since it was $413.

Since December 10 is tomorrow, at least we won’t have to wait very long to see if his most recent prediction is correct.

Gold is for Barbarians Theory
Alternate Title: I Like Getting Attention

The second article was published on Seeking Alpha. The author wrote a previous piece that called gold a “sucker’s bet.” He stated that gold should trade below $600, predicted “a lot of sources of selling.” He also questioned gold’s historical status as a store of value (he prefers oil) and denied gold’s ability to protect against inflation. The article was well circulated, resoundingly ridiculed, and received over 100 comments.

He’s back for more in his second article. First he mentions that gold has “plunged” since his first article. Gold is really down about 10% and has been climbing back daily. The decline also corresponded with a horrific decline in world stock markets, which probably had more to do with gold’s weakness than the author’s reasons. Next, he repudiates all of the negative comments received on his prior article in three short sentences, and finally rehashes his prior arguments against gold. He slips in a quip about gold not being used as currency since the time of nomadic herders.

As unremarkable as the article was, it still attracted nearly 100 comments. I guess the moral of the story is that if you want to get the most attention, just make bold claims that are the opposite of the prevailing opinion and common sense.

Can the US Mint Handle Demand for the Ultra High Relief Gold Double Eagle?

For much of the year, the United States Mint has been touting the upcoming recreation of what they have called the “nation’s most beautiful coin.” Augustus Saint Gaudens’ design for the Ultra High Relief Gold Double Eagle will be recreated as a one ounce 24 karat gold coin available for sale to the public.

The Mint’s intention to recreate the coin was first announced this March, followed by an official unveiling in July, and a well publicized first striking in November. The US Mint intends to strike the coins throughout 2009 in quantities necessary to meet public demand. So far, coin collectors have responded enthusiastically to the upcoming offering. With the recent main stream attention on gold, there will likely be interest from the broader public as well. Is the United States Mint prepared to handle the potentially significant demand for the new gold coin?

This year the US Mint, as well as most other world mints, have had continuous problems procuring sufficient gold blanks to meet the incredible demand for bullion coins. The US Mint in particular has been forced to suspend sales of some gold bullion offerings and continues to distribute coins though an allocation program since they are unable to meet the full demand.

Next year the US Mint will be at odds with itself as it struggles to meet growing demand for their regular bullion coins and new demand for a potentially hot collectible coin.

To estimate how much demand the new coin might generate, we can look at the US Mint’s 2006 release of the 24 karat American Buffalo Gold coin. Similar to next year’s offering, the coin design was taken from an old collector favorite, in this case the Buffalo Nickel. The coins were offered as one ounce bullion coins and one ounce collector proof coins. Sales of the coins began in late June 2006. In just over six months, the US Mint sold approximately 337,000 bullion coins and 252,000 proof coins for a total of 589,000 ounces worth of gold. Sales of the regular 2006 American Gold Eagle bullion coins totaled only 261,000 ounces.

Even if only the collectible versions of coins are considered, this represents a 50% increase in demand for gold coins. Since the US Mint has been unable to meet the full demand for regular gold bullion coins this year, the prospects that they can handle the additional demand for a popular collectible gold coin on top of already robust gold bullion coin demand seem remote.

Another aspect to consider is that the Ultra High Relief Gold Double Eagles are struck on specialized blanks. The coin will have a thickness of 4 millimeters which is more than 50% thicker than most one ounce gold bullion coins. So far the US Mint has been procuring these specialized blanks from Gold Corp., a wholly owned subsidiary of the Western Australian Government, who operate the competing Perth Mint. Notably, the Perth Mint recently announced that they would be forced to cease taking orders for precious metals until January 2009 due to “unprecedented demand.” So, not only will the US Mint need to procure a large amount highly specialized blanks from an already tight market, they will need to procure them from a competitor struggling to meet their own demand.

Taken together these factors do not bode well for a smooth release of this “recreated materpiece.” I envision a frustrating series back orders, delays, and eventual order limitations for the new coin. The US Mint intended the Ultra High Relief Gold Coin to be “a prestigous example of the highest level of artistic excellence in American coin design.” Instead they might just end up with another gold related headache.

Analysts Opinions on Gold

Recently published commentary from analysts at Citigroup and JP Morgan both paint a bright picture for the future of gold. Citigroup specifically mentions the $2,000 level as attainable. JP Morgan recommends buying gold for the run into the holidays.

The Citigroup report runs down many factors that are well known to gold investors. Citi mentions the possibility that recent financial actions of world authorities will either result in massive inflation if the actions are successful; or further economic deterioration that leads to political instability and unrest if the actions are unsuccessful. Either scenario would have positive implications for gold. Citi also mentions the finite supply of gold in the world, and gold’s indisputable status as a monetary instrument. The full report can be found here (pdf link).

By mentioning the $2,000 price level, Citigroup has trumped Morgan Stanley’s lame recommendation that gold will reach $1,000 in three years and Merrill Lynch’s call for $1,500 gold. If you’re going to make a prediction on the price of gold, I guess you have to make it $500 higher than the last analyst…

JP Morgan’s analysts also mention a collection of well known factors pointing in gold’s favor. They see the strong dollar/weak gold link decoupling, the shrinking supply of gold discoveries, the declining pace of central bank gold sales, and the “seizure” of the gold coin and small bar market.

As a gold investor, should you be worried about analyst’s latest love affair? Analysts have a less than stellar record for timely recommendations about emerging trends. In many cases, their most bullish predictions have come towards the end of a major move and merely represent an extrapolation of the recent past for reasons already well discounted. Is this time different?

In a word, yes.

Although gold has increased roughly 300% from the lows reached seven years ago, gold is still showing a loss for the year. If this was the typical pile-on of bullish analyst calls, it would more likely be taking place amidst a sharp, upward move.

Secondly, analysts are not jumping into a hot market, they are wading into a very confusing market. A continually evolving array of factors are at play which have baffled and frustrated even long time followers of gold. On one side, there are glaringly obvious reasons why gold should be moving higher. On the other side, there are plenty of credible reasons why gold is stuck in neutral.

When this current “tug of war” in the price of gold eventually resolves itself and gold starts to move higher, analysts will likely respond by ratcheting up their predictions in tandem with the rising price of gold. Even when this starts to happen, I still wouldn’t be worried.

Wait until you hear an analyst report come out with the boldest of the bold prediction yet, “Gold to Reach $10,000 Per Ounce.” The report will likely contain countless, well considered reasons that make $10,000 gold seem not only possible, but probable. Handy charts will extrapolate recent moves to harrowing peaks. Around the same time, any arguments against gold investing will seem downright silly and “man on the street” interviews will elicit sage advice on the merits of buying gold…

That’s when you should be worried about rosy analyst predictions on gold.

Seasonal Gold Price Trends

At the beginning of November, I took a look at the seasonal price trends for gold. Back then, it seemed that November and December were historical good months for gold. This came as a relief following gold’s seasonally weakest month of October.

Gold came through big time in November rising from $730.75 to $814.50, representing a gain of $83.75 or 11.46%. This marked gold’s biggest monthly gain since September 1999 when gold rose 20.68%.

Will the trend continue? In the past ten years, gold has shown an average gain of 1.67% for the month of December, rising 6 times and falling 4 times. Today on the first day of December, gold is showing a 2% loss, dragged down with the stock markets.

If December doesn’t come through, there’s always January to look forward to. In the past ten years, the first month of the year has produced an average gain of 2.15%. Much of gains came in recent years. Two out of the past three years, gold has posted a gain of over 10% in the month of January.

US Mint 2008 Gold and Silver Dwindle, 2009 Releases Delayed

The United States Mint recently released a memo to authorized bullion purchasers regarding the remaining 2008-dated bullion coins and the upcoming 2009-dated bullion coins.

The only 2008 dated bullion coins still being sold by the US Mint are the 1 ounce American Gold Eagle and 1 ounce American Silver Eagle. Final allocations for these coins will take place December 15, 2008. All of the fractional Gold Eagles, Gold Buffaloes, and Platinum Eagles are no longer available.

Sales of 2009-dated 1 ounce Gold Eagles and 1 ounce Silver Eagles will begin on December 29, 2008. Availability will be subject to allocation. The remaining 2009-dated bullion coins will be delayed. The US Mint cites “very limited” supplies of blanks from suppliers amidst high demand.

The full US Mint memo is reproduced below:

November 24, 2008

MEMORANDUM TO ALL AMERICAN EAGLE AND AMERICAN BUFFALO BULLION COIN AUTHORIZED PURCHASERS

SUBJECT: 2008 and 2009-Dated Bullion Coin Products

With the exception of the American Eagle Gold One-Ounce and American Eagle Silver One-Ounce Bullion Coins, all 2008-dated bullion coins have been depleted. Weekly allocations will continue for these two products.

The final 2008 allocation for these coins will be provided on Monday, December 15, 2008.

There will be no bullion allocations during the week of December 22, 2008.

2009-dated American Eagle Gold One-Ounce and American Eagle Silver One-Ounce Bullion Coins will be made available for sale via the standard allocation process on Monday, December 29, for pricing December 30 and order pick-up on Friday, January 2, 2009.

Allocations for these products will continue until the United States Mint is able to meet demand.

The quantities of blanks that we have been able to acquire from our suppliers continue to be very limited, while demand for bullion coins remains high. As a result, it is necessary for the United States Mint to delay the launch of other bullion coins until later in 2009. We will continue to monitor the situation and keep you informed as additional information becomes available.

Thank you for your patience and your continued support of the United States Mint Bullion Coin Program.

Gold and Silver News & Headlines for November 21

Trump Alumn Fired Up About GoldandSilverNow

A former finalist from “The Apprentice” has started a peer-to-peer network for buying and selling gold and silver. The idea is that such a network would avoid the unavailability and long waits necessary to buy gold and silver from bullion dealers. Definitely an interesting concept.

Demand for Gold Hits a Record Even as Institutions Head for Exits

It’s a tug of war between institutional sellers and retail buyers.

Inventory at SLV declines modestly

Some great analysis of inventory and price for the iShares Silver Trust. Since July, amidst a sharp decline in the price of silver, there has been an influx of buyers of SLV rather than sellers.

The Six Biggest Myths about Gold

Gold and Silver News & Headlines for November 13

Gold ends nearly $14 lower in broad metals pullback

Maybe gold hasn’t quite decoupled from stock markets and other commodities yet. Quote from the article: “The trade now, if you believe the market is due to fall further, is surprisingly short gold.”

Munich Musings

Has a “black market” developed for precious metals? It’s not as ridiculous as it sounds.

From the article, “A black market occurs when the State mandates a price for a commodity that cannot be produced, bought, sold or had for that price – usually a ploy to make state-reported economic figures look better. The inexorable result is that the price of the commodity will rise beyond the official price to the point where producer and consumer are willing to do business in the shade.”

The Real Story

More details emerge on the huge increase in the silver short positions by two major US banks just as the price collapsed.

December deliveries at the Comex

I keep hearing more and more about the looming default at the Comex for gold and silver deliveries next month.

Nearly All Gold and Platinum Products No Longer Available

The US Mint has abruptly halted sales of nearly all collectible gold and platinum coins. The coins will supposedly go back on sale later this week at lower prices. Let’s hope there’s not something else going on…

Gold and Silver News & Headlines for November 10

Timing the next rush to gold

Thoughtful coverage to both sides of the gold story, price weakness due to forced selling of paper contracts and price strength due to overwhelming physical demand.

Why Jim Rogers chooses silver over gold

Gold is down 12 percent versus silver’s one third sell off. If prices move to the upside will the same ratios hold true?

The never-ending search for gold

Tales from the Great Depression and whatever we’re in right now.

Gold and Silver News & Headlines for November 7

Mother of All Short Squeezes for Gold

More and more people are putting together this string of factors and coming to the same conclusion:

1.) the price of physical gold and paper gold have disconnected
2.) instead of paying huge premiums for physical gold, just take delivery from the COMEX.
3.) the COMEX does not have nearly enough gold to cover open contracts.

Gold Hedges Fell 2.3 Million Ounces in Third Quarter

Gold miners hedge book is down to 16.5 million ounces from 29.1 million ounces a year earlier and 41.5 million ounces in the third quarter of 2006.

Equities and Commodities Tumble – Gold Decoupling

Equities and commodities seem to be growing increasingly correlated, while gold seems to be decoupling from both.

Seasonal Trends for Gold Prices

It’s only two trading days into November, and gold is already posting a sizable gain for the month. I took a look at some recent historical data to try to see if gold displays any seasonal performance patterns.

Specifically, I looked at the closing price of gold for each month since 1998. Then I determined the percentage gain or loss for each month based on the difference between the closing price present month and prior month.

With the percentage change for each month, I could take a look at the average gain/loss for each month and the number of times gold was up or down for each month. While this is only a limited set of data, it does suggest some strong seasonal patterns.

Closing Monthly Gold Prices 1998 – PresentPrice of Gold
(click image for large version)

Monthly Percentage Change Gold Prices 1998 – Present
Percentage Change Gold
(click image for large version)

Based on the data examined, gold typically experiences its worst month in October, which certainly held true this year.

Gold experiences its strongest month in September. This year gold posted its second biggest monthly percentage gain in September. Other strong months based on the data include January, November, and December. So far this year, January has held true. Will November and December follow?

I usually don’t put too much faith in seasonal patterns, but I feel that they are useful to be aware of. If nothing else, this is just one more factor contributing to a growing number of catalysts which could propel the price of gold higher into the end of the year.