Market Summary —
February 2007
Gold, silver, and platinum all traded in line with their performance the previous month, testing resistance levels early, consolidating gains, and then rising steadily at the end of the month. By contrast, palladium continued its downward trend from the end of January and only gained traction in late-month trading sessions. Both gold and silver reached a nine-month peak on February 26, with gold touching $688.60 and silver hitting $14.75. Platinum also hit a multi-month high, soaring to $1,258 before retracing to close at $1,246. Palladium struggled for much of the month, but was finally able to break $350 at the end of February on reports of higher industrial demand. Palladium closed up $10 on the month at $353.
Gold/Silver Ratio
The gold/silver ratio – a dynamic measure of the quantity of silver (in Troy ounces) required to purchase an ounce of gold at any given time – fell sharply in February, dropping nearly a full point from 48.5 to 47.6. After hitting a monthly low of 47 on February 26, the gold/silver ratio ended the month on an upward trend. For a graphic representation of this trend, see the chart in the sidebar at right.
| February Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $14.75 | $688.60 | $360.00 | $1258.00 |
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| Low | $13.27 | $644.45 | $335.00 | $1157.50 |
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| Open | $13.76 | $660.20 | $343.00 | $1192.00 |
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| Close | $14.18 | $671.60 | $353.00 | $1246.00 |
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CONTENTS
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.
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CHARTS
The following charts display the daily low and high spot price of each metal for the month of January, 2007. Source: Northwest Territorial Mint spot prices as posted at nwtmintbullion.com.
The following charts display the daily spot price range of each metal for the six months ending February, 2007.
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What's Behind the February Rise in Gold and Silver?
by Ross Hansen
As gold and silver continue to show their strength, many are asking the question: why now? Of course, this question isn't easy to answer. But one thing is certainly clear: it's not just about oil or the U.S. dollar. While rising oil prices and concerns over the slumping dollar are part of the overall picture, many experts have argued that these factors alone cannot account for the highest gold and silver prices in nine months.
This leads to the uncovering of an interesting coincidence. Gold and silver are making headlines close to the one-year anniversary of their respective 25-year highs. In April of 2006, gold spot hit $720 and silver jumped to $15 per ounce. For gold, this represented a 40% increase over the previous year; silver's remarkable rise in April 2006 constituted an increase of 125%.
Looking back to 2006, most market commentators agree that silver's fantastic gains were largely driven by the release of the first-ever silver exchange-traded fund (ETF). London-based Barclays Global Investors introduced its iShares trust on April 1, 2006. It allows investors to, in effect, "bet" on the market price of silver without actually taking physical possession of the metal. The fund backs its shares with physical silver held in trust. To date, more than 125 million ounces have been added to the iShares trust.
What about gold's dramatic rise last spring? Many analysts correctly cited worries about Iran's growing nuclear ambitions and concerns over the weakening dollar as a cause for greater interest in gold. But, what some analysts failed to point out is that institutional investment in gold was on the rise in early 2006. In fact, speculative money from hedge funds, capital from U.S. pension funds, and cash from central banks all across the globe was pouring into gold at that time. This placed increased positive pressure on spot gold, helping to drive the price past $700.
And this trend continues today. Gold has been testing $700 for several weeks now and may hit this benchmark before you read this. Many experts have claimed that, in concert with typical triggers like rising crude oil prices, a surge in institutional demand for gold has contributed to the metal's recent rise.
Across the board, interest in gold and silver is reaching record levels. While some of this can be traced to its status as a 'safe haven' investment and reliable hedge against inflation, the picture is not complete without consideration of the larger forces at play in the market. Corporate pension fund, hedge fund, and ETF managers, as well as an increasing number of savvy investors, are turning to gold and silver as proven alternatives to stocks and bonds. Many analysts argue that this is the driving force behind the current upswing in precious metals' prices.
Will this trend continue? It's impossible to say for sure. But, regardless of what factors have accounted for the dramatic rise in precious metals recently, those who have bought and held gold and silver over the past several years have realized enormous gains.
Ross B. Hansen
CEO, Northwest Territorial Mint
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.
How Patience Can Reward the Silver Investor by David Morgan
As usual, I wish to stress the importance of purchasing physical metal for your portfolio as part of long-term investment strategy. After all, most big investment gains involve patience on the part of the individual investor. And this definitely applies to the market for silver.
Without a doubt, big players (commercial interests, hedge funds, etc.) still influence the silver market through large-scale speculative buying and short selling of futures contracts. The problem for those shorting the market is that, at some point, the physical silver market will become the most important aspect for anything silver.
So, for those who question whether or not the silver market is managed by a small group of powerful interests, the answer is that, in the long run, it won't really matter. Once the market recognizes that demand for physical silver is the most important factor in determining silver's price, then those holding real silver will have a big advantage over any other silver claim.
A number of years ago, I received a letter from a COMEX floor trader that illustrates this point (see the complete letter below). In this letter, he wrote: "Over the years, the amount of futures contracts we've traded has surely dwarfed the actual physical market, making it difficult for silver to manifest its true fundamentals."
Some argue that silver is still being held back. But, when that letter was written nearly four years ago, silver was trading in the $4.80-$4.90 range. And now silver is much higher.
Later on in the same letter, the COMEX futures trader concluded that "…investment demand is the wild card that banks and recurrent short sellers cannot control."
Right now, as we are preparing our March Report, both silver and gold are showing great strength. And yet we are a bit cautious knowing that the commercial interests in the futures market will be watching for any fund liquidation (selling). Once the funds decide to sell, it usually results in a swift down move in price and it takes some time before the market regains strength.
Patient investors who buy and hold physical metals can avoid this drama by simply outlining a clear plan with specific objectives. Instead of making decisions based on daily price changes in precious metals, you can accumulate real wealth over time by investing in the long-term value of these metals. For example, “Our family will purchase a set amount of silver coins each month until we reach our goal” (of accumulating, let's say, 100 coins).
For individual investors like you and me, buying physical silver at any price is a solid long-term strategy because of silver's lasting value. Unlike big commercial interests and futures traders, individual investors have the advantage of being able to hold onto silver for long periods of time in order to capitalize on this fact. And as the demand for physical silver rises over time, those holding this metal are sure to gain.
So, in conclusion, investing should be fun and rewarding. Silver is still one of the most disregarded investments available today, so you still have plenty of time to set and obtain your personal objectives.
Until Next Month,
Get Real, Buy Real
David Morgan
Letter from COMEX Trader to David Morgan
Summer, 2003
Mr. Morgan:
I enjoyed your newsletter excerpt of February 12. You stated perfectly some key reasons for silver's problems in getting out of its own way, and your call for further weakness was prescient.
I guess I'm part of the problem. I've traded COMEX futures actively from the pit for over 15 years. Over the years, the amount of futures contracts that we've traded has surely dwarfed the actual physical market, making it difficult for silver to manifest its true fundamentals.
As you alluded, it's "Groundhog Day" again on the floor. Over the past month I watched one fund accumulate an eye-popping long position, and I followed its progress as best I could through the open interest and commitment figures. When prices started slipping away from last week's test of the $4.85-4.90 level, I could hardly believe my eyes when I saw early evidence that this fund was starting to sell. I went across the pit to a trader whom I knew was trying to stick with his longs and I said, "I've got bad news for you -- that selling you see over there may take three weeks."
The fund sold heavily all last week. The usual bank traders were sopping it up, secretly relieved, I think, that prices had failed to break into ground they could not control. Younger traders ask me how these funds can keep getting chopped up like this. They don't realize that a 30-cent chop in silver is a minor inconvenience compared to the strong positions most of these guys have in gold and crude.
As you know, the banks will continue to play puppet master as long as the silver game remains "closed." The banks know the upper parameters of the funds' buying power; the banks know when the funds have reversed themselves into an untenable short position. It will take new "players" to get the "Bill Murray" silver market out of this loop. Certainly investment demand is the wild card that banks and recurrent short sellers cannot control.
Silver will be called lower on Tuesday morning and, although I'm a bull, I'll be getting short on the bell. There is no short term success in getting in the funds' way.
Thanks again for your insight – A COMEX Floor Trader
Is the Dow/Gold Ratio Going Lower?
by Mark Burgess
Faithful readers of this publication may recall my recent series on the gold/silver ratio. In those articles, I explained how investors could apply their understanding of the gold/silver ratio to increase both the quantity and net value of their precious metal holdings over time.
This article will focus on another ratio watched closely by market analysts – the relationship between the Dow Jones Industrial Average and the spot price of gold. The goal of this article is to uncover how movements in the Dow/gold ratio can, and often do, reveal longer-term market trends. At the end of February, as stocks fizzled and gold held strong, the Dow/gold ratio slipped from 19 to 18. Could this move signal a sustained period of higher gold prices as it has in the past? No one can say for sure. But if it's true that markets tend to follow trends, gold prices could push past current levels in the coming months as investors seek a safer bet than stocks.
The Dow/gold ratio is simply a measure of the ever-changing relationship between the price of gold and the Dow. For example, if the Dow is at 12,000 and the price of gold is $600 per ounce, then the Dow/gold ratio is said to be 20. At the time this article was written, the Dow/gold ratio was approximately 19.
Both gold and the Dow have hit respective highs of late. The Dow surpassed 12,700 for the first time in its history on February 20 and gold touched a 9-month high of $678 on February 23. As a result, the Dow/gold ratio has remained relatively flat recently. In fact, it has remained at or near the 19 mark for the past two months.
Both the Dow and gold have simultaneously soared before. In fact, this trend has remained fairly consistent over the past two decades. For example, in the 12 months between October 1986 and 1987, the Dow grew by more than 200%, rocketing to a then-record high of 2,709. During that same period, the price of gold rose by nearly 20%. In 2003, the same trend occurred. Specifically, in Q4 of 2003, gold spot jumped $50 to cap the year at $450 while the Dow bounced back from a slump to push past the 10,000 mark.
In both of these instances, however, gold and the Dow reached critical divergent points. On October 19, 1987, the stock market crashed, losing over 600 points in a single trading session. In response to this news, gold reached a multi-month high of $480. Later in the year, gold spot pushed past the $500 barrier as it moved consistently upward. Similarly, after both trending upward throughout 2003, the Dow and gold parted ways the following year. While the Dow sputtered early in 2004, shedding 5% of its total value by the end of the first quarter, gold remained strong.
Naturally, these periods of divergence gave rise to marked shifts in the Dow/gold ratio. In mid-October of 1987, the ratio stood at approximately 6. By mid-December of that same year, the ratio had fallen to 3.5. The Dow/gold ratio remained in the 3.5-4.0 range for most of the following year. This same pattern was borne out in 2003-2004. For most of 2003, the Dow/gold ratio was in the 21.5 to 22.5 range. By the end of the year, the ratio had dropped to 21, where it remained for most of 2004. In both cases, the sustained decline in the Dow/gold ratio reflected gold's resilience and strength relative to the stock market.
Some experts are suggesting that we might be entering a similar period of divergence right now. The Dow plummeted on February 27, dropping by as much as 550 points before bargain hunters helped trim losses. The market ended the trading day down more than 400 points (3% of its total value). While gold spot declined in conjunction with the major stock sell-off on February 27, it quickly found support near $660, exactly where it had begun the month.
As a result, the Dow/gold ratio has slipped to approximately 18 after beginning the month a full point higher. In fact, as late as February 26, the ratio stood closer to 19. Many experts who follow this indicator have pointed out that a falling Dow/gold ratio often signals a long-term downturn in the U.S. economy. What would this mean for the price of gold? Gold historically performs well in tough economic times. If recent history is any guide, the price of gold could head higher in the coming months, making now an opportunity to buy.
Mark Burgess has been an active trader of precious metals for over 30 years.
Precious Metals Worldwide
News & Trends from Around the Globe
International Monetary Fund May Opt to Sell 400 Tons of Gold
A panel of economic experts, including former Federal Reserve Chairman Alan Greenspan, gathered in Washington D.C. recently to advise the International Monetary Fund (IMF) on whether or not to sell a major portion of its gold holdings. The IMF is weighing the option of selling 400 tons of gold (approximately 12% of its total gold reserves) to central banks around the world. The global fund is exploring ways to raise its income to cover its expected $400 million budget shortfall for 2007.
China's Gold Output Steadily Rising
2006 was a banner year for gold production in China; the country's mines produced 240 tons of gold, a net increase of more than 7% over the previous year. In a recent announcement, the country's National Development and Reform Commission (NRDC) projected further increases in 2007 of approximately 20 million ounces. At the end of 2006, the NRDC reported that China's gold reserves had reached 640 tons.
New Platinum Battery Charges World of Nanotechnology
Scientists at the Massachusetts Institute of Technology (MIT) have developed a new lithium-ion battery that can provide much smaller sources of power than currently available. Experts have indicated that the tiny amounts of energy produced by these platinum-powered batteries are perfectly suited to the microscopic devices used in the field of nanotechnology.