Weekly Gold and Silver Market Recap for Dec. 21, 2012

Gold drops will fiscal cliff news

The Gold market has seen better weeks this year. The indecisiveness of the United States congress over the impending fiscal cliff has taken the precious metal market on a ride. As of mid-day on Tuesday, Gold has fallen more than $20 an ounce at mid-day. Today’s dip comes as investors eye positive developments in fiscal cliff negotiations. Julian Phillips, founder of GoldForecaster.com, believes the sudden optimism over discussions in Washington is premature by stating, “Small steps toward an agreement are [supposedly] being made in Washington, but we prefer to act on a deal, not the expectation of one.” Many analysts are still bullish on the long-term appeal of Gold. Concerning today’s price pullback, one analyst stated, “Gold is on sale and should be seriously looked at below $1,700.” It appeared that politicians are close to reaching a deal to avoid the fiscal cliff at the end of the month. “If Gold is not able to defend those key supports, one should expect a new wave of technical selling to continue,” said Adam Sarhan, chief executive of Sarhan Capital. At 2 percent down, the yellow metal saw one of the biggest drops since November 2. By the middle of the week optimism over a fiscal cliff deal started to fade and gold fell flat. The back-and-forth sentiment regarding fiscal cliff aversion leaned negatively today after Tuesday saw positive reports, which prompted a major sell-off. Gold has gained 7 percent in 2012 as central banks around the world continue to be net buyers of the metal. However, investors remain concerned over market stability, and interest rates remain close to zero. Economists, financial analysts and individual investors continue to speculate about Gold’s future as the fiscal cliff draws near. As of Friday the market started to get back some of the lost ground from the week but it won’t get back all of it. This week looks to be the worst since June for Gold, though it is still on track for yet another annual gain. Brian Lan of GoldSilver Central in Singapore said, “At the moment, the U.S. budget talks are stalling. Many are unsure if they should enter the market. Perhaps when the U.S. has more concrete news on the outcome, investors will be more comfortable taking positions again. The market volume is thin amidst all these uncertainties, and the year is coming to an end. Many of the investors prefer to take profits and just leave the market.”

It’s not all about the cliff

This week has been a repeat of last week when it comes to the news reports in the United States. There has been much talk about dealing with the fiscal cliff but, not any action as of Friday. Away from the talks in congress the world keeps going and it is not all so negative. Americans are trying to focus on the good news rather than the bad as an upcoming fiscal cliff resolution looks uncertain. Consumer spending in November increased as household purchases rose 0.4 percent. As the unemployment rate has improved and jobs are becoming more stable, Americans feel the economy is more secure. “The numbers are encouraging,” said Brian Jones, a senior U.S. economist at Societe Generale in New York. “There’s business that has to get done whether or not these guys iron out this thing in Washington in a timely fashion. We’re going to start the year off slowly and gradually build momentum” because there will probably be a last-minute deal, he said. Mild indications that the U.S. economy is improving have softened expectations that the Federal Reserve will increase its liberal spending. “The GDP number was better than forecast, so the thinking is that improving conditions in the economy might mean a light at the end of the tunnel on when the Fed will end QE3,” said Phil Streible, a senior commodity broker at R.J. O’Brien & Associates. With all the negatives surrounding the fiscal cliff there are still positives to be found.

 

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Special Report: Fiscal Cliff? U.S. Debt Ceiling is the REAL Issue

Debt Ceiling to allow U.S. Debt to hit historic level in early 2013

While there have been and continue to be a significant number of hands wringing over the fiscal cliff , which takes effect on December 31, perhaps the REAL issue is coming very early in 2013: the U.S. Debt Ceiling.

The fiscal cliff is being discussed on every business report on television, radio, Internet blogs and print media. As you most likely know, fiscal cliff is the name given to the event associated with the simultaneous expiration of the Bush-era tax cuts, the increase in the payroll tax and the immediate reduction of federal government spending. For reference, here are links to APMEX’s special reports n the fiscal cliff.

Fiscal Cliff is but the Beginning

While the sudden and significant impact of multiple changes in the economy is surely creating anxiety and uncertainty in both the personal lives and business of Americans, this is likely only the beginning of issues as the United States begins to respond to the “new normal” following the Great Recession.

However, the next increase in the federal debt ceiling – the maximum amount the U.S. may borrow as set by Congress – will establish the maximum U.S. Federal Debt at about $18 trillion. While this is, of course, a huge level of debt and the largest debt of any country, the U.S. also has the world’s largest economy.

The question that each country must address is “How much debt can this country afford?” The answer depends on a number of factors and is often measured in the ratio of debt to Gross Domestic Product (GDP) of the borrowing country. Historically, for the U.S., this ratio has generally been between 30 percent and 65 percent, from 1950 until the beginning of the Great Recession in 2008.

U.S. Debt is at Historically High and Dangerous Levels

When the next debt ceiling is set by Congress, most likely in early 2013, presuming borrowing to the ceiling and low GDP growth, the U.S. Debt to U.S. GDP ratio will most likely be about 120 percent, a level more than double the historical levels since 1950.

How does this compare to other countries? Below is a table of several key countries around the world. Also, here is a complete list of countries with Debt to GDP levels provided by the International Monetary Fund.

countrydata

The History and the Current Status of the U.S. Debt Ceiling

During World War I in 1917, the U.S. Congress passed a law requiring Congressional approval on the aggregate debt outstanding of the United States. Prior to this, Congress was required to approve each and every debt offering. Since 1950, there have been 95 changes to the debt ceiling; since 2000 there have been 13 changes, or about one per year. You can read about the History of the U.S. Debt Ceiling or see a listing of all changes to the U.S. Debt Ceiling, use Table 7.3.histroyofdebt

Since 2000, the increases in the U.S. Debt Ceiling have been larger than in previous years as the United States borrowed more to finance the 2000 dot-com bust, the wars in Afghanistan and Iraq, and the Federal support of the Great Recession of 2007–2008.

The current status of the U.S. Public Debt and the Debt Limit is shown in the charts below. The U.S. Debt has increased by more than 15 percent since January 2011. The current U.S. Debt is very close to the U.S. Debt Ceiling of about $16.5 trillion and, accordingly, Congress will be required to take action very soon.USpublicdebt

The U.S. Debt has increased $2.1 trillion, or about 15percent, in just two years since January 2011. Despite the large increase, the Federal Government has almost borrowed to the limit.

The U.S. Debt Ceiling must be raised in the very near future, most likely in a few months. As the chart below shows, at the end of October 2012, only about $172 billion remained available under the U.S. Debt Ceiling. In November 2011, federal borrowing increased by $119 billion, and if that were the borrowing rate for November 2012, almost all of the available U.S. Debt availability would be consumed.

Note: In an article in The Wall Street Journalon December 12, 2003, it was reported that the U.S. Treasury currently has only about $67 billion remaining in borrowing capacity.

usborrowingThe red line represents the total borrowing capacity of the United States that is above the current aggregate outstanding U.S. Debt. Since January 2012, U.S. borrowing has increased such that the remaining availability has declined each month , leaving the availability in November 2012 at just $172 billion. Here is the U.S. Treasury Monthly Statement of the Public Debt of the United States.

Gold and the U.S. Debt in 2012 and Beyond

With much debate on the fiscal cliff and future debate on the debt ceiling, the end result will be that the U.S. will most likely continue to be in a period of very high federal debt relative to the GDP. This relationship cannot be changed in a year and perhaps not even in five years.

The Europeans are ahead of the United States in addressing their debt to GDP issues with Greece, Portugal, Ireland and Italy. Spain will most likely become a problem as well. The solution in Europe has been the same as the solution in the U.S.: the Central Banks create more currency to keep the economy from falling even further.

A recent article in Barron’s, titled “Is Bad News Still Good News for Gold?” Randall Forsyth, the author, in the last paragraph says

As long as authorities try to do whatever it takes to hold the system of fiat currencies and indebted governments from flying apart, paper money will continue to lose value relative to the traditional store of value, gold.

Also read

Special Report: Fiscal Cliff is Only 1 of “4 Horsemen of the Economic Apocalypse” for 2013

Special Report: 5 Possible Outcomes of the U.S. “Fiscal Cliff”

Special Report: Read about the United States Fiscal Cliff

 

 

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8 cool facts about the Gold American Eagle

  1. This is one of the official Gold bullion coins of the United States.
  2. These coins are produced at the West Point Mint in West Point, New York. The Proof and burnished uncirculated coins carry the mint’s mark (“W”) beneath the date.
  3. The Gold Eagle is offered in 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz sizes
  4. By law, the Gold used for American Eagles must come from sources in America. The Gold is alloyed with Silver and Copper to produce a more wear-resistant coin.
  5. The Gold Eagle is .9167 fine, or 22 karat Gold, but each Gold Eagle has an actual Gold weight of 1 troy ounce. The coins are authorized by the United States Congress and are backed by the United States government for weight and content.
  6. Are you a collector? The United States Mint also produces a Proof version for coin collectors.
  7. The obverse of the Gold American Eagle features a rendition of the Augustus Saint-Gaudens design for the $20 Gold Double Eagle coin from 1907. This famed design depicts Lady Liberty lifting high a torch in one hand and holding an olive branch in the other.
  8. The reverse is designed by Miley Busiek and shows a male eagle holding an olive branch in flight above his nest where a female eagle awaits with her young.

Do you own an American Gold Eagle? Like, Share, Tweet and Blog about this piece of American history.

american_eagle_infographic_final_updated-01

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11 Precious Metals Investing Terms You Should be Familiar With

If you’ve ever spent time on APMEX’s website you may have come across a few terms that were deserving of a curious eyebrow raise.  Don’t worry; you don’t have to be a skilled numismatist to find out the meaning of all the hieroglyphic-like terms that your eyes are trying to decode. When you choose APMEX as your precious metals provider you’re not only picking the best bullion products available on the market, but you’re also investing in a skilled team of workers that can actually help answer your questions and lower your confused eyebrow. Check out this listing of some of the most commonly used terms. All terms have been taken directly from the APMEX Glossary.

Assay: A test to ascertain the fineness and weight of a precious metal.

Bid: The price at which a dealer is willing to buy.

BU: Brilliant uncirculated, is used to describe a coin in new condition. It is for a coin that has no wear, but it may have light handling marks or other imperfections.

Bullion: The term is used to describe: 1. Gold, silver, platinum or palladium coins which closely follow spot prices and have little or no numismatic value (such as restrikes) 2. The form in which metal is shaped such as bars, ingots or wafers. The most commonly traded gold bullion pieces among individual investors in the United States weigh 10 oz. or less.

Early Release: NGC designation for a coin received during its first month of release.

First Strike: These coins have been struck from a new set of dies within the first 30 days.

MS-60: The lowest grade of Mint State, or uncirculated, coins. Using the Sheldon Grading Scale, coins are grade from 1 to 70, with 70 representing a perfect coin. Coins grading MS60 or higher are uncirculated; coins grading below MS60, are circulated.

PCGS and NGC: Professional Coin Grading Service & Numismatic Guaranty Corporation, two major coin grading services in the United States.

Proof: Refers to the manner in which a coin was minted NOT to its condition. Highly polished dies and special planchet are used to produce coins with a mirror-like finish. A proof strike is very different from a business strike and proof coins are generally made for collectors not for normal use.

Spot: Term which describes one-time open market cash transaction price of a commodity, where it is purchased “on the spot” at current market rates. Spot transactions are in contrast to term sales, which specify a steady supply of product over a period of time. The price for the physical delivery of bullion bars, usually 100-oz bars of gold or platinum and 1,000-oz bars of silver.

Troy Ounce: One of the most common units of measure for precious metals. 480grains = 31.1035grams = 1.09711 avoirdupois ounces = 1 Troy Ounce.

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Give Thanks with Great Gifts. Thanksgiving Silver Rounds and Bars

Thanksgiving SilverIn 1863, during the height of the Civil War, President Abraham Lincoln proclaimed a national day of Thanksgiving. It seems contrary that during the most troubling time in United States history, our 16th and greatest president saw much to be thankful for.

Thanksgiving is a time of harvest, feasting, celebration and contemplation on the things we have all been given. The spirit of this holiday is wonderfully captured on these fine Silver products. The special harvest and fall leaf designs on these coins and bars are embellished with holograms and colorful enamel.

Each Thanksgiving Silver product has a purity of .999 fine or higher, and many are packaged within a protective plastic capsule with accompanying gift box. These unique Silver products are ideal for commemorating your Thanksgiving feast or can be given to a loved one you are thankful for.

If you are looking for special commemorative Silver products for Thanksgiving or other holidays and special occasions, APMEX is your source. APMEX makes it easy to buy Silver by offering competitive Silver prices on all Silver products.

 

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Buying Gold? Top 4 Things to Keep in Mind

American Gold Eagle

American Gold Eagle (Photo credit: Wikipedia)

Whether you are worried about the economy or saving for the future you may want to consider putting a little bit of your savings into Precious Metals like Gold or Silver. But don’t rush into this investment without considering the following 4 points.

  1. Learn the terms: Confused by what spot, bid, ask, and troy ounce is. Learn about these terms by visiting our glossary or by visiting our new investors page.
  2. Research the product you would like the purchase: Some Gold products are more expensive than others. Call one of our representatives who can help you figure out the best product for your needs. We have over 7,000 products in stock so we have no doubt you will find something that is best suited to meet your financial goals!
  3. Research the precious metals dealer: Buy from a reputable company. Check customer ratings on the company website, ensure that they are BBB accredited and visit the company’s social channels on Facebook, and Twitter. Look for a company that offers transparent pricing and secure shipping. There are a lot of players out there and you want to make sure that you buy from the company that is best suited to your needs.
  4. Think about storage: If you make a large investment in Precious Metals, you will want to consider storage options. APMEX customers can store their purchases at a wholly owned subsidiary called Citadel. Learn more here.

Visit APMEX.com or call (800) 375-9006 to find out more about buying Precious Metals. You’ll see that APMEX has all four of these important characteristics you should look for in a Precious Metals dealer.

 

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Special Report: Fiscal Cliff is Only 1 of “4 Horsemen of the Economic Apocalypse” for 2013

English: Flag of the United States Federal Res...

English: Flag of the United States Federal Reserve Bank (Photo credit: Wikipedia)

The “Fiscal Cliff” is approaching on December 31, 2012, and by many reports, the issues may stretch into 2013 for months. However, according to an article published online by MarketWatch.com, a part of the Wall Street Journal Digital Network, the Fiscal Cliff is only 1 of the 4 Horsemen of the Economic Apocalypse facing the United States in 2013 and beyond. (Click here to read article.)

As you may know, the Fiscal Cliff is comprised of about $600 Billion in automatic spending cuts, a tax increase, including higher payroll taxes and other economic policy issues that all come to expire on December 31, 2012. (Click here to read white paper with more detail on the Fiscal Cliff.)

Although the MarketWatch.com article describes in reasonable detail the 4 Horsemen, what follows is a perspective from the view of an investor in Precious Metals. In order, here are the 4 Horsemen as described in the article:

1. Europe

2. Inflation

3. Export Weakness

4. Fiscal Cliff

After you review the article and these comments on the precious metals markets, it may be time for you to decide how you want to position your portfolio for the events described.

Here is a brief review of each of the 4 Horsemen and how the particular economic affect may impact investments in Gold and Silver and other Precious Metals.

1. Europe – Since Central Bankers will keep interest rates low in their respective countries so that interest payments do not kill their local economies, this environment provides an opportunity for increasing demand for low holding cost investments like Precious Metals, since income bearing investments will have very low yields. Even more interesting is how the Central Bankers themselves are positioning their own foreign exchange investment by buying Gold in 12 of the last 13 calendar quarters, increasing holdings of Gold by more than $40 Billion during this period, with over $27 Billion of this total in just the last 4 quarters. Although these are indicators of demand growth for Precious Metals, weaker Euro rates relative to the Dollar may offset the gains if the U.S. economy is judged to be better than the European economies.

2. Inflation– The same Central Banks that keep interest rates low in the United States and Europe are using their currency to flood markets in order to keep the borrowing rates low. Although price inflation of goods and services has not seen high inflation rates since the monetary easing has begun, prices of investments have been on the rise suggesting that some of the excess cash is flowing into investment capital. However, with China continuing to grow as a consuming nation and bidding for more resources and food and coupled with the significant increases in money supply in both the United States and Europe, a global bidding war for key assets like energy, food and building materials may intensify causing price inflation in these areas. These price increases could also fuel increased investor demand for inflation hedge assets like Gold, Silver and Precious Metals. However, it is possible that the excess cash in the market can be controlled by the United States Federal Reserve Bank by paying interest on reserve deposits and in so doing, capture any excess cash in the market that may have been used to bid on these key assets, keeping the monetary flows more under control.

3. Export Weakness –There is a balance between countries and the prices of goods in one country relative to another based on currency values. If the Euro is down relative to the Dollar, European goods look less expensive than U.S. goods since the U.S. goods are priced in Dollars and the Dollars have gone up in value. The opposite is also true: if the Euro is up relative to the Dollar, then U.S. goods appear to be lower in cost. If Europe has more problems with their economies than the U.S., then the Euro could fall relative to the U.S. Dollar making U.S. goods appear more expensive, causing weakness in U.S. exports. This, in turn, would cause U.S. businesses to slow down since sales are reduced given the lower exports. The cure for the slower U.S. economy would be more stimulus and increased money supply, driving the Dollar lower relative to the Euro and making U.S. exports more attractive. However, this strategy, given the current and excessive U.S. debt levels would foster even more danger of permanent fiscal damage. The result of all of these factors may cause an increase in demand for Gold, Silver and Precious Metals since these assets have historically held value when the Dollar weakens and U.S. debt increases. On the other hand, if Europe has continued economic problems and the Euro weakens, and if the U.S. could hold export activity at the same levels without resorting to stimulus, then the higher Dollar would most likely result in lower Gold and Precious Metals prices.

4. The Fiscal Cliff – The Fiscal Cliff is uniquely an American issue as no other country has this same set of circumstances of sudden and sharp tax increases matched with significant and immediate reductions in federal spending. Many economists have predicted that this combination of events could cause the U.S. Gross Domestic Product (GDP) to shrink by 2% or more. If such predictions are true, and with a U.S. GDP growth currently estimated of 1.5% – 2% for 2013, the entire growth of GDP could be wiped out and the net U.S. GDP change could potentially become negative and move the U.S. back into a recession. Unlike the situation as the U.S. entered the Great Recession in 2008, the U.S. Federal Reserve Bank has very few options to substantially increase money supply nor does the U.S. Congress have the political freedom to vote for significant stimulus given the U.S. debt, now at 100% or more of U.S. GDP. In this current situation with a self-inflicted recession from the Fiscal Cliff, should there be efforts by either the Federal Reserve Bank or Congress to stimulate the economy, the results could prove to be an even more rapid deterioration of U.S. debt and cause the U.S. Dollar to plunge, raising the value of global assets like Gold, Silver and Precious Metals. However, if other countries are experiencing their own economic issues and sovereign debt crises, then relative to the other countries, the recession in the U.S. would not appear as significant and asset prices like Gold could stabilize.

Regardless of the outcome of the issues related to the 4 Horsemen, the U.S. and the major world governments seem mired in a long term economic challenge with very few “quick fix” options available. As a savvy investor, your portfolio may need some form of economic hedge or counterbalance to the effects these governments will experience in their respective economies. Perhaps now is the time to consider an increase in your portfolio allocation to Gold, Silver and other precious metals.

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