All four major precious metals — gold, silver, platinum, and palladium — started the month strong, but experienced pullbacks by mid-month. Gold touched a high of ($674.50) before renewed dollar strength and rising oil sapped gains. By the middle of the month, Gold had dropped to its lowest level since March 2007. Silver spot also slid, declining more than $1 to hit a multi-month low of ($12.14) before adjusting upward during the last few days of June trading. Platinum, which demonstrated the highest level of volatility of all precious metals this past month, traded in a wide range between ($1,265) and ($1,316). Finally, palladium ended the month down $12.50 from its high.
Gold/Silver Ratio
During June, the gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — rose above 52, its highest value since April of this year. The gold/silver ratio began the month just above 49.
| June Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $13.82 | $674.70 | $380.50 | $1316.50 |
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| Low | $12.14 | $640.30 | $364.00 | $1265.50 |
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| Open | $13.53 | $663.90 | $371.00 | $1290.00 |
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| Close | $12.51 | $652.50 | $368.00 | $1275.50 |
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CONTENTS
COMING SOON —
NUMISMATICS FROM NORTHWEST TERRITORIAL MINT
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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 June, 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 June, 2007.
Why Gold Still Shines
by Ross Hansen
There are certain well-established factors linked to the performance of gold and other precious metals. One of these is the strength of the U.S. dollar. Typically, when the value of the dollar rises against rival currencies, gold spot declines. So after the dollar beat many market analysts' projections this past month, performing better in June than it has in the prior two months, some were left wondering why gold didn't shed more of its value. Many analysts have suggested that gold spot didn't decline further in June because of a widespread perception that both the dollar and the U.S. economy in general are plagued by underlying weaknesses. What could this mean for gold in the near-future? Only time will tell for sure, but many experts seem to think gold is ready for a major breakout.
Is the Dollar's Strength an Illusion?
At the time of this writing, the dollar is in the midst of one of its longest rallies in many months. In fact, this past month, the greenback posted gains over the euro for five consecutive days. The last time that happened was back in October, 2006. What's behind this sudden turnaround in the dollar's performance? Many experts assert that the dollar's recent strength has to do more with rising yields on U.S. Treasuries than tangible signs of economic growth. As bond yields rise, more and more investors shift their money into dollar-based Treasuries, placing upward pressure on the dollar's value. However, many experts claim that the accrual of weak economic data in the U.S., such as the sharp decline in orders for durable goods in May, could lead to a dramatic shift away from the dollar in the near future. Historically, when the dollar falls, gold values rise.
How Higher Interest Rates Could Boost Gold
Interest rates have been at record lows for a long time, creating immense bubbles in asset and financial markets. The housing market is a perfect example. Over the past several years, subprime mortgage rates have enabled thousands of Americans to qualify for new home loans. As these rates have begun to adjust sharply upward, however, many are discovering that they cannot afford the steeply rising payments. Low interest rates typically encourage massive investment in asset and financial markets, creating an expansion in these markets that cannot be sustained when rates begin to rise. Many experts have claimed that continued interest rate pressure, combined with slowing economic output, could dramatically lower world stock markets. If they're right, there would likely be a surge in the demand for gold by investors drawn to its safe-haven status.
Gold in the Long Term
Many analysts predict that gold will continue to be sluggish in the near term, as investors wait to judge new economic data. As these experts point out, gold could be well-positioned for a major breakout if a downward spiral in the dollar coincides with a pullback from the stock market, as is already being seen.
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.
Bear Market or $22 Silver?by David Morgan
With the recent hard sell-off in the precious metals market, some of the paid subscribers to the Morgan Report newsletter asked:
"Are we in a bear market?"
This is a good question and has been addressed for the paid subscribers to the Morgan Report, but I also thought this information would be quite valuable to readers of Northwest Territorial Mint Precious Metals Monthly.
No, we are not in a bear market, and here's why:
To be in a bear market would require the major uptrend lines to be pierced, and we are a very long way from that taking place. This, of course, is part of the "problem." From a technical perspective, even if gold should drop to perhaps $525 and silver to the $10.00 level, we would still be in a bull market!
The blue arrow is pointing to approximately $525 and shows the amount that gold could go down and still be above the major uptrend line (blue line). Also, notice that gold is resting on the 50-week moving average (black line; the red line is the 200-week moving average). Silver had just pierced it (see chart below) at the time this article was written. (Data derived from StockCharts.com.)
Looking at silver, I could see it move down to $10.00 (note arrow where blue uptrend line crosses the y axis) and still remain in a major uptrend. However, silver did move under the 50-week moving average (black line) at the end of June, a strong hint this market may be going lower.
But study this chart carefully. Notice what happened when silver finally bottomed out in September 2003. Right at the 200-week moving average (1), it moved above $5.50 and very quickly shot up to the $8.40 level. Next, silver kissed the major uptrend in September 2005 near $7.00 (2) and shot up to the $15 level by May 2006. Do you think silver could touch the $10 level, only to shoot up to $22 over eight months?
"Be right, sit tight" is the inscription is on the pen received by all of us who attended the Bob Bishop "roast" at the Vancouver Gold Show. Bob Bishop is the long-time editor of The Gold Mining Stock Report, one of the more famous newsletter writers in this sector, and highly regarded by all. I agree with Bob. He was right: although it's tough to sit when the market moves strongly against you, there's no need to panic, because precious metals are the best investment in these uncertain times.
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.
Inflation, Interest Rates and Precious Metals
Guest Commentary by Joe Nicholson
Investors looking for an explanation of declining precious metals prices may need look no further than the Fed’s monetary policy. Shifting perceptions about the economy and the Fed’s stance have, in recent months, helped drive bond yields up (over 5% on the 10-year Treasury) and inflation lower, while creating temporary price weakness for metals. That weakness looks like a buying opportunity for long-term investors.
The two most important points to understand are that the Fed is operating on an interest rate-targeting policy, with an eye towards an inflation-targeting policy.
Interest rate-targeting simply means that the Federal Reserve conducts its open market activities to maintain an overnight lending rate at or about a fixed level, currently 5.25%. In previous decades, the Fed targeted money supply growth and let interest rates float. Under Bernanke, the exact opposite occurs; money supply is allowed to float as the Fed funds rate remains steady. Thus, an increase in the demand for money requires the injection of new money to maintain the target rate. Conversely, with the economic slowdown in the first quarter of this year, the increase of M2 slowed to about 6.6%. This is how the Fed was able to predict twelve months ago that inflation would decline as GDP growth slowed, even though traditionally the opposite relationship held true.
Customarily, precious metals have been seen as a zero-income asset used purely as a hedge against inflation because they don’t pay a fixed income as bonds or dividend-paying companies do. Over the past five years, however, precious metals appreciated at rates that not only far exceeded any fixed-income instrument, but the major stock indexes as well! The result has been a surge in investor interest that hinges not only on inflation-hedging, but competitive returns. The standard for measuring that competitiveness is the prevailing interest rates.
Bond yields are usually predicated on the Federal Reserve’s target rate for overnight lending. Since June 2006, this has been pegged at 5.25%. The Treasury likes yields low because this makes it easier to finance its borrowing — a benefit that is also enjoyed by other borrowers throughout the country, corporate and consumer. A low-yield environment also creates a low hurdle for metals and other assets, fostering increased liquidity and money supply expansion that creates appreciation.
The yield on Treasury issues is rarely below the overnight lending rate, simply because longer loans involve more inherent risk. Yet, for more than a year, and until recently, Treasuries at all maturities yielded less than the benchmark overnight rate. This was due to economic deceleration and expectations that the Fed would cut interest rates (a clear misinterpretation of the Fed’s monetary policy). The rapid rise in yields that culminated last month was largely inspired by improvements in the overall economic outlook that eliminated the rate-cut expectations.
If this were the whole the story, we would expect yields across the yield curve to stabilize above the Fed funds rate, perhaps somewhere around 6%. That’s the level at which the low-risk returns of fixed income would begin to seriously compete with other assets — including metals — resulting in the reduction of overall demand for money to finance private equity buyouts. This hasn’t happened yet. Yields have actually retreated, due in part to exogenous events, but primarily because of credit-market concerns over subprime loans and the Fed’s acknowledgement of moderately reduced core inflation pressures.
The second point to understand about the Fed’s policy is its desire to institute an inflation-targeting strategy. The Fed knows any increase in the demand for money will result in an expansion of the monetary base. This suggests using inflation as the signal to either lower or raise the target rate. Both the Fed and the Treasury prefer to understate inflation in order to limit the cost to the U.S. government of inflation-indexed obligations such as Social Security payments and employee pay packages. That said, inflation plays a very important role in monetary policy and the Fed has repeatedly affirmed it the “predominant policy concern.”
For precious metals investors, the good news is that the Fed’s concern over the future of inflation appears to be justified. In particular, the increase in oil and agricultural commodities represent two great inflation pressures that threaten the goal of moderating inflation. The forward-looking statements of a variety of companies suggest that rises in material and production costs can no longer be absorbed and will be passed on to consumers. Even core inflation measures can be affected, as increases in food and energy costs create self-fulfilling inflation expectations and wage pressures.
As bond yields rose over the past several months and inflation data trended lower, metals naturally responded with price weakness. The investor looking for opportune moments to buy focused on key levels provided by technical analysis. For gold, those levels were the 5-week and 50-week simple moving averages. As the chart below shows, gold vibrated between those two levels perfectly during the week ended June 29.
Chart by Dom Mazza
While this doesn’t necessarily mean the “bottom” is in for gold, it does highlight an important support level and a relatively low-risk buying opportunity. Notice that previous tests of the 50-week moving average have preceded significant rallies over the past year. Two consecutive weekly closes above the 5-week moving average constitute technical confirmation of a new upleg in the gold bull market.
The corresponding level in silver was the 50-day simple moving average. Silver tends to exaggerate the trends in gold and occasionally offers a lead. The chart below shows silver violently breaking below support at an intermediate-term trendline and the 50-day moving average. While this does not mean the bull market in silver is over, it emphasizes the ongoing corrective pattern from the 2006 high and suggests a possible move to the gently downward-sloping trend channels depicted below. Though the 50-day moving average will now act as resistance, and the downside in silver may not be entirely passed, a preliminary buying level seems to have been reached.
Chart by Dom Mazza
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.
Understanding Moving Averages
by Northwest Territorial Mint Staff
In an earlier edition of this newsletter, the concept of support and resistance was introduced as a basic principle of technical analysis (please see the May 2007 edition). The purpose of this article is to introduce another frequently used technical analysis tool: moving averages.
What are moving averages?
Moving averages summarize past data points over a set period of time, smoothing out the data series to enable investors to quickly spot trends and market cycles. This feature makes them especially useful during periods of high volatility. They are called "moving" averages because they are continuously updated by simply removing data points that fall outside of the time frame they measure. A 30-day moving average, for example, is based on the most recent period of 30 trading days. With each new trading period, the average moves forward and new pricing data replaces older data.
What are the different kinds of moving averages?
The different types of moving averages are calculated using a different formula. However, all moving averages have some basic features in common. First, although they can be calculated based on virtually any time series, they generally adhere to standard time frames (10-, 15-, 30-, 60-, 90-, 100-, and 200-day moving averages are most common). Second, for simplicity and "noise" reduction, moving averages are typically constructed using the closing price over the specific time period being measured.
How are moving averages used to track precious metals?
Moving averages are used to evaluate trends across a variety of asset classes, from currencies to stocks to precious metals. Spot prices and trading volumes are two of the most frequently tracked data points with regard to precious metals, providing investors and analysts alike with an easy way to gauge upward or downward trend lines, judge the potential for price breakouts or reversals, and instantly spot support and resistance levels.
For example, investors can make informed decisions about when to buy, sell, or trade gold by comparing the gold spot price to its moving average over a 60-day period.
Two Frequently Used Moving Averages:
Simple Moving Average (SMA)
A simple moving average is created by computing the arithmetic mean price of a security over a set time period. As mentioned above, though it's possible to include open, close, high and low pricing information, most moving averages are created using only the closing price. For example, the 10-day moving average for gold is calculated by adding the closing price of gold over a consecutive 10-day period and dividing the total by 10.
Exponential Moving Average (EMA)
EMAs apply more weight to recent prices relative to older prices. The formula used to calculate exponential moving averages is more intricate and involves the use of a special multiplier. This multiplier, usually defined as a set percentage, is weighted depending on the specific period of the moving average. For example, the percentage applied to the most recent price in a 10-day moving average is always greater than the percentage applied to the most recent data in a 30-day moving average.
Which Moving Average Is Best for You?
The key difference between the two types of moving averages described above is their response time. Simple moving averages lag further behind exponential moving averages. As a result, most technical analysts like exponential moving averages because they are more sensitive. However, some investors prefer using simple moving averages exclusively to gauge long-term trends. For these investors, simple moving averages offer a "cleaner" visual assessment of price movements, making them well-suited for a longer time horizon. In the end, which moving average you choose comes down to individual preference and investing style, and whether you are a trader or an investor. By experimenting with these two basic types, you can decide which better suits your needs.
Precious Metals Worldwide
News & Trends from Around the Globe
International Monetary Fund (IMF) Delays Decision on Gold Sale
The International Monetary Fund (IMF) has delayed a board meeting to discuss plans to restructure its income model, which may include a decision to sell-off a sizable portion of its gold reserves. In January 2007, a specially appointed panel including former Federal Reserve Chairman Alan Greenspan recommended the sale of 400 metric tons of gold, approximately 12% of the organization's total gold reserves. Many analysts cited news of this recommendation as the reason for the decline in gold prices at the end of January.
U.S. Silver Futures Hit Six-Month Low
U.S. silver futures traded at their lowest levels in six months in June. On June 26, COMEX silver for July delivery dipped as low as $12.39, a decline of more than 3%. According to many commodities experts, downward pressure came primarily from large institutions exercising sell options as contract expiration dates approached.
New Palladium/Platinum Catalyst Wins America's Top Environmental Award
New Jersey-based Headwaters Technology Innovation Group, Inc. (HTI) was awarded the top prize by the U.S. Environmental Protection Agency for developing a "greener" palladium/platinum catalyst. The new catalyst, which is slated for commercial production in 2009, synthesizes hydrogen peroxide (H2O2) directly from hydrogen and oxygen without the production of toxic byproducts.