Spot prices for the four major precious metals – gold, silver, platinum, and palladium – experienced minor declines throughout most of May, but regained some upward momentum at the end of the month. Despite gold's strong performance in April, which carried into the first three trading sessions of May, it faltered in subsequent weeks, slipping to a low of $652.85. After finding steady support at this level, gold spot ticked upward to reach $656.80 by the end of the month. Silver also started the month strong, but met resistance just above $13.60, falling to a low of $12.73 by mid-month before bouncing back to end the month near $13.24. After rising to a high of $1,346 on May 15, platinum closed the month at $1,271. Finally, palladium fell to a low of $355.50 mid-month before regaining strength to end the month near $370.
Gold/Silver Ratio
During May, the gold/silver ratio — the quantity of silver (in Troy ounces) required to purchase one ounce of gold — declined approximately 1.5 points, sliding from 50.6 to just above 49. See the chart in the sidebar at right for a graphic view of this trend.
| May Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $13.61 | $691.60 | $385.00 | $1346.00 |
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| Low | $12.73 | $652.85 | $355.50 | $1257.00 |
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| Open | $13.46 | $679.10 | $371.50 | $1291.50 |
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| Close | $13.24 | $656.80 | $369.00 | $1271.00 |
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CONTENTS
SPECIAL FOR JUNE
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NEW .99999 GOLD MAPLE LEAF
The Royal Canadian Mint has begun minting an extraordinary .99999 fine gold Maple Leaf bullion coin. With 1 Troy ounce of gold, these bullion coins carry a face value of $200, and the reverse design will change for each of the next three years. According to the mint, the quantity of such coins pressed will be limited. Check here for pricing.
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CHARTS
The following charts display the daily low and high spot price of each metal for the month of May, 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 May, 2007.
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How to Find Built-in Bargains in Any Market
by Ross Hansen
If you've kept an eye on precious metals this past month, you know that gold and silver experienced a pullback from previous months. After touching $690 in April, gold spot spiraled downward during the latter part of May. And though silver spot trended higher at the end of May, it was still down from April.
Market corrections typically lead some analysts with a more bearish disposition to conclude that gold and silver are deeply overvalued. Of course, as I've stated many times in this publication and elsewhere, I happen to disagree with this assessment based both on recent trends and historical precedent. Time and again, these commodities have performed well during periods of political and economic uncertainty. If history is any guide, the instability of the dollar, the looming threat of rising inflation in the U.S., and the war in Iraq are reason enough to suspect that global demand for precious metals will remain strong well into the foreseeable future.
However, regardless of whether precious metal prices soar or decline this summer (or in the months that follow), those who are interested in purchasing bullion will want to find the best value for their investment dollar. This can be achieved by identifying the bullion products that can be obtained as close to the spot price for that metal as possible. For example, although two silver bullion coins may be equal in weight and silver purity, the prices for these coins may vary dramatically. Many investors default to silver Eagles because of their U.S. government backing without taking the premium of these coins into consideration. In fact, there are other coins with just as much silver that carry much lower premiums and are very nearly as liquid.
Many investors automatically assume that a government-issued coin like the American Silver Eagle is a better investment than a silver round from a private mint simply because the Eagle has a more recognizable brand name. Many private-label bullion products also currently enjoy a high degree of liquidity. Most important, many of these products can be purchased at lower premiums than bullion issued by government mints.
Investors can take advantage of price discrepancies between government-backed bullion products, too. Currently, the American Gold Eagle sells at retail for approximately $28 over the spot price of gold while the Krugerrand sells for close to $10 over spot. In terms of percentages, the Gold Eagle carries a 4.2% premium while the average premium for Krugerrands is approximately 1.5%. Investors aware of this discrepancy can afford to buy nearly 3% more gold. Over time, this seemingly small amount can translate into a significantly greater quantity of metal.
In addition to paying close attention to premium differentials between similar bullion products, investors may also want to consider buying bullion in various quantities to maximize value. For example, silver bars from reputable private mints can be purchased at retail in quantities as high as 1,000 ounces. The average premiums for larger quantities of bullion tend to be considerably lower than premiums for products in smaller sizes. In addition to bars in various sizes, investors can purchase bags of 90%-silver U.S. coins (legal-tender coins struck by the U.S. Mint before 1965). Right now, a full bag of 90%-silver coins (10,000 dimes, 4,000 quarters, or 2,000 halves) sells for $9,710. That translates to $13.58 per ounce of silver, well below the current spot price of silver at $13.72. It should be noted, of course, that the price of these 90%-silver bags changes with the changing price of silver.
So while the pundits continue to debate the real value of precious metals as investments, those who want to add them to their portfolio can find tremendous bargains quite easily. By comparing premiums for different bullion products, investors can both save money at the time of purchase and increase the quantity of the metals they own over time.
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.
Surveys Say: Silver is Still Going Strong by David Morgan
Several readers have asked about the silver surveys that have recently been published. Each year, two prestigious studies on silver emanate from two different locations. First, the New York-based CPM Group publishes the Silver Yearbook; second, the Silver Institute publishes the annual World Silver Survey, a report created by London-based GFMS Limited, a leading precious metals consultancy. Some of the highlights from the 2007 GFMS World Silver Survey are included below.
Silver Price and Investment
The silver price in 2006 reached levels not seen in 26 years. The GFMS report states that: "The annual silver price, led by growing investor demand, averaged a remarkable US $11.55 in 2006, up 45%." But I fully insert my tongue into my cheek because this is the nominal price ONLY! It is not inflation-adjusted. On a real basis, silver is still extremely cheap. However, silver was superior in price performance when compared with gold (36% increase) and platinum (27% increase). The primary factor driving the stronger silver price was the continued strength of investment demand, which returned in earnest in 2005, was sustained in 2006, and has remained resilient in 2007. Much of the investment demand last year can be attributed to the successful launch of the iShares Silver Trust exchange-traded fund (ETF), introduced by Barclays Global Investors in late April 2006. The iShares ETF now holds over 135 million ounces of silver.
Fabrication Demand
Total global silver fabrication dipped by a little less than one percent in 2006. The two most price-sensitive areas – jewelry and silverware – did show noticeable declines. However, industrial applications posted a 6% gain to 430 million ounces, recording the fifth consecutive year of growth in this category despite higher average prices. China posted strong industrial demand growth of 10.4% and Japan recorded an equally impressive 10% increase in 2006. Last year represented a record for the United States with respect to total industrial silver use. Posting a 6% increase to 106.8 million ounces, total industrial demand exceeded 50% of total global fabrication demand for the first time in 2006. This is a significant statement because most industrial applications consume silver – meaning the silver is lost (except for photography, where the silver is recycled).
Mine Supply, Above-Ground Stocks, Cash Costs, and Government Sales
According to the GFMS report: "Global silver mine production edged up fractionally in 2006, with notable gains in Latin America and Asia. Total silver mine production reached 646.1 million ounces last year, with Peru, Mexico, China, Australia and Chile the top five silver-mining countries. Last year, silver generated at primary mines fell by 10% to 161.4 million ounces, representing 25 percent of global silver production."
In summary, silver continues to show strength from a long-term perspective and both industrial applications and investor interest are increasing. This implies that silver will continue to appreciate in the coming years.
Until Next Month,
Get Real, Buy Real
David Morgan
We highly encourage all of our readers to visit and become familiar with David Morgan's web site www.silver-investor.com, the world's leading source for serious investors. Add yourself to his free e-mail list. The first thing you will receive — for free — is the "Ten Rules of Silver Investing," written several years ago for The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors, published in the United Kingdom. These rules are pithy, timeless, and will pay big dividends to new investors and seasoned professionals alike. You can opt out of the list at any time, but we doubt you will. Being on his list is a way to be certain you can closely follow the silver story and big economic picture.
Level the Playing Field
Guest Commentary by Joe Nicholson
Former Chairman of the Federal Reserve Alan Greenspan made headlines and roiled domestic stock markets on May 23 when he predicted a dramatic correction in the Chinese stock market. Escaping the same degree of public interest was what he told the conference in Madrid about the U.S.'s own situation. “In the United States”, Greenspan said, “the greatest threat that we have to our market capitalist system is the increasing degree of income inequality.”
As Fed Chairman, many considered Greenspan's social and political commentary beyond the scope of his position, but now, just as many are calling for his silence, this kind of statement is, perhaps, more appropriate than ever.
Greenspan has been sounding the alarm on income equality for quite some time without the sky ever actually falling, which was perhaps why it was so easy to ignore his comments. They were, after all, an obvious attempt to implicitly reaffirm his previous sentiment, that the worst of the housing correction is over. But, in his famously cryptic and difficult-to-unravel way, Greenspan was also pointing to something very big and important last month in those few, overlooked words.
Absolutes in the realm of money and finances are truly scarce, which is to say that, in practical terms, everything is relative. This is precisely the problem of floating paper currencies; their lack of inherent value makes them an imprecise tool of measure over time. When the price of something rises, it could be either because the value of the commodity has increased, or because the value of the currency has fallen. Between 2000 and 2004 the median U.S. home price increased 31% and the average price of gold rose about 47%. It's ludicrous to believe the inherent value of a house or an ounce of gold changed this dramatically in such a short period of time. What's changed is the measuring stick, the value of the dollar.
So, the average hourly wage of American workers has edged higher over the past few decades (recently as high as about 4% annually), but that's hardly dramatic when compared to the roughly 1,000% increase in CEO pay since the early 1970s. Factor in the loss of purchasing power suffered by the dollar over the last 35 years and the average worker has actually been losing ground. By the same token, the Dow Jones Industrial Average has supposedly hit new all-time highs, but priced in terms of ounces of gold, has recently only bounced off multi-year lows.
Greenspan's perspective has evolved since he said, "Gold and economic freedom are inseparable," in 1967, but certainly through the majority of his tenure he lived up to his rhetoric. He effectuated a relatively strong dollar policy that, if nothing else, kept down the dollar price of gold. The current bull market in metals began after he dropped interest rates to incredibly low levels amidst a stock crash and recession, thereby sparking an unprecedented period of borrowing and spending and, consequently, a rapid devaluation of the U.S. dollar. Greenspan's successor, Ben Bernanke, has suspended the incremental rate-hiking regime that was Greenspan's swan song but under Bernanke the increase in base money supply has been about 6.6% annually, further weakening the dollar. Luckily, since the rest of the world has been in the midst of a similar easy-money campaign, the effects have not been as visible in the currency exchanges as in the housing bubble, the proliferation of leveraged buyouts, the surge in corporate profits and stock indices, and the dramatic appreciation of precious metals.
Unfortunately, the effect is also being seen in higher prices, for gasoline and food especially due to supply and demand factors, but for just about everything else, too. In his roundabout way, against the din of commentators celebrating record highs in stocks and a robust global economy, what Greenspan told the conference in Madrid is that if the everyday consumer on which the entire economic pyramid is based does not get a proportionately larger share of the wealth, the entire system is threatened.
What he stopped short of telling them was that owning precious metal was one way they could move towards leveling the playing field.
Despite the steep correction last year, gold and silver are still riding aggressive multi-year uptrends, and even those who bought at May 2006 prices will be vindicated in the long term if they hold on. In the meantime, lower prices make a perfect buying opportunity.
Higher Highs and Lower Lows
Over the last six months gold has made a series of higher highs and higher lows, indicating a healthy bull market. Silver has been a bit more in play lately, as it failed to create a new high last month, making it perhaps the proverbial canary in the coalmine. The chart below shows silver entering June at the bottom of a rising channel. Breaking through this trendline and finding support at the 50-day moving average would still be a positive reinforcement of the bull market.
Capitalism has always concentrated wealth in the hands of a relative few, even while creating relative prosperity for all. Addressing the causes of income inequality, Greenspan told Congress a few years back, “It is not that humans have become any more greedy than in generations past, it is that the avenues to express greed had grown so enormously.”
The ballooning of the derivates markets, particularly in collateralized loans and mortgage-backed securities, along with the rise of hedge funds and other private equity groups, have all created new and more complicated ways of creating ever-larger fortunes for the already wealthy. However, they've also introduced new systemic risks that are entirely unpredictable. Owning physical metal, particularly in the form of standard bars and rounds from recognizable assayers and reputable mints, not only provides some insurance against potential calamities, in an environment of growing inflation, it's also a powerful way to overcome the dual obstacles of rising prices and shrinking real wages. In short, it levels the playing field. And it's far more liquid than, say, refinancing your house!
Precious metals have been in a bull market for the last six years, and the obvious strategy in bull markets is to buy dips. Technical analysis, like the work shown above, is a reliable way to identify the tops and bottoms of a market and vastly improve your overall returns.
Joe Nicholson is an independent analyst and the resident metals specialist at www.TradingTheCharts.com. His work regularly appears at Safehaven.com, Financial Sense University, Gold-Eagle.com, Market Oracle, Trader's Log, and Der Invest Informant, and was recently featured on the cover of Futures magazine.
Precious Metals Worldwide
News & Trends from Around the Globe
European Central Bank (ECB) Sells 37 Tons of Gold
Over the past two months, the European Central Bank has sold 37 tons of gold in accordance with an agreement reached among member nations of the European Union in September 2004. Many analysts cited the ECB's liquidation of this sizeable quantity of gold in May as one of the causes for the mid-month decline in gold spot. On June 1, the ECB announced that it will not sell any more gold until September.
Industry Outpaces Jewelry for Silver Consumption in 2006
For the first time, demand for silver used in industrial processes rose while demand for silver in the jewelry declined. According to the 2007 World Silver Survey prepared by London-based precious metals consultancy GFMS, industrial demand for silver rose from 405 to 430 million ounces in 2006. At the same time, the total amount of silver used for jewelry fabrication declined to 165 million ounces, down from 171 million ounces the previous year.
Platinum, Palladium Expected to Rise as Global Warming Debate Heats Up
Many analysts have predicted a rise in investment demand for platinum and palladium after President George W. Bush announced a plan for the U.S. to dramatically cut greenhouse gas emissions. Platinum futures for July delivery rose $10.20 on June 1 and palladium futures increased by more than 1% on widespread expectations of increased demand for these metals, which are used in pollution control devices found in automobiles.