Market Summary —
September 2006
Despite their strong performance at the end of August, all four major precious metals — gold, silver, palladium, and platinum — experienced net declines, with platinum spot falling nearly 8% and the price of silver dropping more than $1 to $11.30.
After touching $640, gold stumbled on soft oil prices and a revitalized dollar. It dipped to a multi-month low near $570 an ounce before climbing slightly above its 200-day moving average of $598.80. On the heels of a late summer resurgence that carried it above $13 for the first time since May, silver followed gold downward mid-month, eventually finding stability between $11.00 and $11.30. Despite its precipitous decline during the first week of the month, palladium spent most of September trading between $300 and $320, even testing resistance at slightly higher levels by month's end on increased demand for palladium jewelry. Finally, platinum experienced the greatest net decline of all the major precious metals in September, due to increased competition in the jewelry market from palladium and weaker-than-expected industrial demand.
| September Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
|
||||
| High | $13.30 | $640.45 | $360.00 | $1285.46 |
|
||||
| Low | $10.52 | $572.71 | $302.00 | $1093.61 |
|
||||
| Open | $12.97 | $626.95 | $346.15 | $1256.85 |
|
||||
| Close | $11.45 | $599.35 | $316.00 | $1144.00 |
|
||||
CONTENTS
 |
Market Summary - September 2006 |
|
|
Taking the Long View on Gold |
|
|
Are Non-U.S. Bullion Coins Right for You? |
|
|
Making Sense of the Gold/Silver Ratio |
|
|
Precious Metals Worldwide News |
OCTOBER SPECIALS
Call toll-free 1-800-355-6468 to take advantage of current specials. Also, be sure to ask about our ongoing specials on Morgan and Peace silver dollar bags when you call.
|
|
$20 Double Eagle Gold Liberty in Mint State – $685 |
|
|
$20 Saint-Gaudens Double Eagle (PCGS-graded MS 65) – $1,350 |
ABOUT NORTHWEST TERRITORIAL MINT PRECIOUS METALS MONTHLY
Combining market summary information and insightful analysis, this publication offers an insider’s perspective on the numbers, trends, and moves that drive the precious metals market, allowing you to stay on top of the most important investment news each month without investing hours of your precious time.
LINKS
|
|
Northwest Territorial Mint Bullion web site |
|
|
Request Free Investor Guide |
|
|
Bullion FAQ |
|
|
Bullion Reading List |
|
|
Online Store (For purchase of less than 5 ounces of gold, palladium or platinum, or less than 50 ounces of silver.) |
FEEDBACK
Think we’re right? Think we’re wrong? Know something that we don’t? As always, your feedback is welcome. Send us an e-mail with your questions about investing in precious metals or request your very own Investor Guide, a free resource packet chock full of useful information.
Missed last month’s newsletter?
E-mail us for a copy.
CHARTS
The following charts display the low, high and closing spot price of each metal for the month of August, 2006. Source: Northwest Territorial Mint spot prices as posted at nwtmintbullion.com.
The following charts display the closing spot price of each metal for the five months ending August 31, 2006.
Taking the Long View on Gold
by Ross Hansen
Precious metals prices are volatile right now. Every day, a host of articles spins the price movements one way or another. Using incendiary language to make their points, careless commentators go to wild extremes with their predictions and investment advice. Gold's overall performance in 2006 is impressive, but many experts caution that bull markets never last indefinitly. What lies ahead? No one can say for sure, but an analysis of recent trends and leading indicators prompts many experts to offer an optimistic view of gold's long-term prospects.
Third Quarter Wrap-Up
The gold price pattern for the past several months resembles that of a seesaw, as the yellow metal bounced up and down in response to the usual triggers – oil prices, inflation, and global political concerns. After a considerable downturn in June, July's geopolitical fireworks – namely the North Korean missile launch and the conflict between Israel and Hezbollah — gave rise to a sustained comeback, with gold gaining a foothold near $700 for the first time since May.
Gauging the Next 6 Months
Talk is circulating about an impending U.S. recession. Some fear that, since much of the economic growth in the U.S. over the past several years is connected to the nationwide construction boom, a full-scale collapse of the housing market would have disastrous consequences. Many analysts claim that the burst in the housing bubble is coming sooner rather than later.
If this is true and the American economy enters a recession, commodities experts predict a gradual across-the-board decrease in metals prices. Gold is expected to follow this downward trend, unless the recession sparks a major stock market sell-off and concomitant financial panic. If this plays out, many analysts foresee the onset of a bullish market for gold that could rival that of the early 1980s. However, many believe that Europe, Japan, China, India, and other nations around the world are strong enough to survive even a sustained U.S. recession, thus decreasing the likelihood of a worldwide rush toward gold ownership.
The Long View on Gold
According to many commodities futures traders and seasoned market watchers, the long-term prospects for gold are much easier to define. They contend that enormous credit bubbles in all financial and real estate markets threaten the world's largest economies, including those of the U.S., Japan, and the EU. Moreover, they point out that these governments are all following a policy of consistently expanding the money supply over the past several years in attempt to cover gaping fiscal deficits.
The result, they argue, may well be a massive spike in inflationary pressure, as credit bubbles collapse and excess currency is no longer soaked up by investment. As history demonstrates, rampant inflation has a positive effect on the gold price, as investors flee from paper-based assets and flock to precious metals for security.
Unless and until the housing bubble in the U.S. bursts, residual demand for consumer and durable goods still exists in the economic pipeline. According to some analysts, this is misinterpreted by many would-be investors as evidence of continued growth, or at least the possibility of a 'soft landing' for the economy in 2007 (as opposed to an abrupt halt in growth).
These analysts warn that they see symptoms of an impending world economic crisis right now, and that the seriousness of the structural problems affecting the global economy will cause some form of major market correction in 2007. Regardless of when that correction occurs or which nations are most affected, they point out that gold will emerge with a new luster.
Will gold break $800 in 2007? Unrestrained speculation never constitutes a sound basis for investment, but after a critical survey of the global economic landscape, many commodities experts venture increasingly optimistic assessments about gold's long-term future.
Ross Hansen is the founder and CEO of Northwest Territorial Mint and has more than 30 years of experience as a precious metals trader and broker.
Are Non-U.S. Bullion Coins Right for You?
by Northwest Territorial Mint Staff
For the past several years, Americans have been investing billions of dollars in foreign mutual funds. In fact, since December of 2004, foreign fund investment has outpaced domestic fund investment in all months but one.
The reasons for this trend are easy enough to understand. First, foreign currencies, especially the Euro, have outperformed the U.S. Dollar in recent years. Second, double-digit returns on certain foreign stocks have apparently been too attractive for many Americans to ignore.
For those looking to diversify their investment portfolio with bullion products, or those who want to increase their position in precious metals, the question remains – does it make sense to invest in foreign bullion?
Government-Backed vs. Private Label Bullion
When considering investing in precious metal bullion products, it is important to make the distinction between items that are produced by a government mint and backed as legal tender by the authority of that government and items that are produced by a private mint.
The popular Canadian Maple Leaf silver coins, for example, are produced exclusively by the Royal Canadian Mint and are officially guaranteed by the Government of Canada for their silver content and purity. By contrast, a silver round struck at a private mint may contain the same quantity of silver as a Maple Leaf coin, but is not accorded the status of legal tender.
Macroeconomic considerations, such as the strength of a particular currency or a country's debt holdings, need not factor into the decision to purchase privately-minted bullion products. However, investors looking to buy bullion products backed by foreign governments may want to factor these concerns into their decision.
Comparing Premiums
Whether produced by a government or privately owned mint, all bullion products carry a premium above and beyond the market price of the metal they contain. The size of this premium can vary, depending on the product and its source. Typically, private-label bullion can be obtained at a lower premium than government-backed products.
Among the most widely traded legal tender coins, premiums can also vary substantially and bullion experts recommend that would-be investors carefully consider this when making a purchase decision.
Evaluating Metal Content and Purity
Until this year, with the U.S. Mint's introduction of the 1-ounce Gold Buffalo, Americans interested in 24-karat gold coins had to look to foreign products, such as the Vienna Philharmonic or the Canadian Maple Leaf. In addition to their gold content, which is now matched by the Gold Buffalo, the availability of government-backed foreign bullion coins in fractional sizes (less than one ounce) has made them a popular investment choice over the years. The U.S. Mint will strike the 24-karat Gold Buffalo in fractional sizes beginning in 2007.
Historically, bullion products minted by foreign governments have contained greater purity than those produced by the U.S. Mint. In fact, officials from the U.S. Mint addressed this directly prior to the release of the new Gold Buffalo coin in June 2006, stating their intent to meet the worldwide demand for .9999-fine gold investment-grade coins. When it comes to silver coins, the Canadian Maple Leaf is still the world's purest silver coin, struck from .9999-fine silver, though the American Eagle has been the best-selling silver bullion coin worldwide for several years. With regard to platinum coins, American Eagles are on par in terms of their purity with other major government-backed coins, including the Australian Koala and Canadian Maple Leaf.
The Importance of Liquidity
Investment advisors always underscore the importance of liquidity, or the relative ease by which an investment holding can be turned into cash. Many experts caution those considering investing in foreign bullion to weigh the liquidity of these products against U.S. government-backed products. While many non-U.S. bullion items are in high demand on world markets, some are less sought-after than others. The Krugerrand, for example, which was first minted in 1967, was the world's best selling gold bullion coin for more than a decade. Confronted by growing competition from other government-backed gold coins, however, demand for Krugerrands has decreased substantially.
Making Your Next Bullion Purchase
Whether you choose to invest in private label bars or rounds or government-backed coins from the U.S. Mint or a foreign source, financial planners and market experts recommend the proven method of diversification. Whatever bullion products you choose to buy, they advise that you carefully compare each based on liquidity, metal content and purity, and the cost of the premium.
Making Sense of the Gold/Silver Ratio
by Mark Burgess
Most people rely on one of two strategies when investing in precious metals. They typically either hold onto the metals they buy, storing them for safe-keeping; or trade them for cash when the market is up with the hope of purchasing them back at a reduced price when the market cycles lower.
However, a third strategy, which surprisingly few investors have embraced, relies on a basic understanding of what is known as the gold/silver ratio, calculated as the number of ounces of silver required to buy one ounce of gold at the prevailing market price.
The gold/silver ratio is based on the principle that the market price of gold and silver are fundamentally and inextricably linked. The connection between these two precious metals has deep historical roots that will not be explored in this article, but the gold/silver ratio is acknowledged by many of today's top commodities experts as an effective investment tool. These experts point out that, when major shifts are observed in the gold/silver ratio, investors can benefit simply by trading one metal for another. They explain that by taking advantage of opportunities when either gold or silver is substantially undervalued in relationship to the other metal, investors can realize gains without having to trade their metals in for paper money.
How Does It Work?
The principle of the gold/silver ratio is perhaps best illustrated by way of a simple example. If the ratio represents the number of ounces of silver required to purchase an ounce of gold, then it would take approximately 53 ounces of silver today to buy one ounce of gold at current prices. Therefore, the current ratio, for the sake of demonstration, is approximately 53:1.
If an investor who trades his 53 ounces of silver to buy one ounce of gold is then able to trade the gold he owns for 75 ounces of silver two weeks later (because the price of silver has dropped considerably in comparison to gold), he realizes a substantial return on investment.
This basic concept can be seen on the graph below, which charts the gold/silver ratio from September 2005-September 2006, based on the daily closing price for each of the metals. This graph clearly shows the interdependence of gold and silver and the dynamic nature of the relationship between the two metals. Time is measured on the horizontal axis, while the vertical axis represents the changing value of the gold/silver ratio in response to market conditions.
According to the graph, in early November 2005, one ounce of gold could purchase a high of 65 ounces of silver. If an investor traded one-ounce of gold to obtain 65 ounces of silver at that time, and subsequently traded in his silver for gold in early May 2006 (when the gold/silver ratio fell below 47:1), he would not only recoup the gold he invested, but would still keep 18 ounces of silver.
Following the Trend
Many analysts who have studied the gold/silver ratio in depth point out that, while anticipating fluctuations in the ratio can result in sizable profit-taking, investors are perhaps better served by looking at the ratio's long-term trend. These experts explain that for the average investor, more is gained from understanding and applying the principle of trading metals than by attempting to time the market.
Two consistent trends, which have caught the attention and interest of commodities experts, are illustrated by the graph above. First, a rapid rise in the ratio is typically met with a proportional decline. Moreover, these swings usually occur in close proximity. In other words, relatively few sustained upward or downward trends are seen over the past several years. Second, a fairly strong threshold exists in the 45-50 range. Many silver watchers have wondered what could happen if that barrier is crossed and silver regains its historically established position of closer parity with gold.
Embracing a 'New' Model of Trading
As I stated earlier in this article, the gold/silver ratio has been expounded upon throughout history. Today, information about this indicator, including its current value, can be obtained with ease on the Internet. Yet, when buying and selling precious metals, so many investors still cling to the strategies of either holding and storing their metals or selling them for paper money.
Those experts who have tracked the gold/silver ratio over hundreds of years point to a third strategy for investing in precious metals. They claim that while no absolutely foolproof method of investment exists, the gold/silver ratio serves as a valuable tool that can be learned and applied easily. As they explain, the principal benefit to this tool is that investors do not have to trade physical possession of their metals for profit, providing a unique safeguard not offered by any other type of precious metal investment approach.
Mark Burgess has been an active trader of precious metals for over 30 years.
Precious Metals Worldwide
News & Trends from Around the Globe
World Gold Production Declines in 2006
According to the recently-released Gold Fields Mineral Service (GFMS) report, global gold production experienced a 2% decline from January-June 2006. The report cited substantially lower levels of production from some of the world's major gold producing countries, including Indonesia, Australia, South Africa, and the United States, due, in part, to higher energy costs. The annual GFMS report is one of the most widely-used tools in the industry.
Platinum Demand in Asia Surges as Holidays Near
Demand for platinum has been growing steadily throughout Asia and experts expect a surge in demand in the jewelry sector as the holiday season approaches. Merchants in both China and Japan, the two largest platinum-importing nations in Asia, are already requesting delivery of platinum in huge quantities in anticipation of a better-than-expected holiday retail season.
New Discovery Links Palladium to Water Purification
Researchers at the University of Illinois at Urbana-Champaign have developed a new catalyst composed primarily of palladium that can destroy harmful perchlorate contained in groundwater. Perchlorate has been identified as a dangerous toxin by the U.S. Environmental Protection Agency. The man-made compound accrues in soil and groundwater as a byproduct of some manufacturing processes and the improper disposal of perchlorate-containing chemicals.