Market Summary —
July 2007

This past month, the four major precious metals – gold, silver, platinum, and palladium – experienced late-month gains, but failed to hold support at substantially higher price levels. After a modest decline during the first week of trading in July, gold shot up to a monthly high of $687.20 before profit-taking and liquidation of futures contracts caused gold spot to head downward. After finding support near $660, gold edged higher, closing the month at $666.10. For most of July, silver traded in the range between $12.75 and $13.50. Beginning the month at $1,275.50, platinum spot rose considerably to touch a high of $1,339 before tumbling to $1,269. Palladium prices followed platinum downward, dipping below $360 for the first time in two months. Palladium regained strength at the end of the month to close at $375.

Gold/Silver Ratio
During July, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – first declined approximately 1.5 points, sliding from 52.2 to just above 50.7, before climbing to end the month at 51.7. See the chart in the sidebar at right for a graphic view of this trend.

July Spot Price Summary (U.S. Dollars)
	Silver	Gold	Palladium	Platinum
High	$13.51	$687.20	$375.00	$1339.00
Low	$12.38	$646.70	$359.50	$1269.00
Open	$12.44	$650.40	$368.00	$1275.50
Close	$12.89	$666.10	$367.00	$1293.00

Current Metals Pricing>>

CONTENTS

	Market Summary - July 2007
	Ross Hansen: Will Gold Break $700 in 2007?
	David Morgan: Are Precious Metals the New Real Estate?
	Joe Nicholson: Dollar Versus Gold
	Precious Metals Worldwide

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CHARTS

The following charts display the daily low and high spot price of each metal for the month of July, 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 July, 2007.

Will Gold Break $700 in 2007?
by Ross Hansen

According to many analysts, the simple answer to the question posed in the headline is an unequivocal and resounding "yes." Below are three reasons why I think these experts could be on to something. But first, let me explain why $700 gold is significant.

Why $700 Is More Than Just a Number for Gold
In a previous edition of this newsletter, the concept of support and resistance was introduced. The reader may recall that resistance is defined as the price level above which the market won't trade for any given period of time. Since gold shot up to $725 per ounce in May 2006 before quickly declining, gold spot has not exceeded the $700 level. As a result of this persistent trend, $700 has been identified as a key resistance point for gold. Many analysts assert that if gold pushes past this barrier, it could rise sharply above $700, as investors rally behind the upward price movement.

3 Reasons Why Gold Could Break $700 This Year

Reason #1: Economic uncertainty is gold's strongest ally.
It's hard to ignore the warning signs pointing to an impending economic downturn. While government and consumer spending – at least partially financed by heavy borrowing – seem to be propping up the American economy, GDP growth for the first half of the year still averaged just above 2%. Also, new home starts fell in July to their lowest level in nearly two years and home sales have been declining for the past four months. And let's not forget that the stock market shed 311 points on July 26, the second-worst single trading day of the year. Many economists worry that a collapse in key credit markets could send the economy into turmoil. Whenever this has happened in the past, strong demand for gold has pushed the gold price substantially upward. Could some economic or political event in the coming months trigger a large-scale turn toward gold? Anything is possible, and given the recent pattern of events, it seems more likely than not.

Reason #2: Gold typically rallies in response to surging oil prices.
The price of crude oil typically rises in the summer months during the peak travel season. While this pattern has certainly played out over the past several months, many analysts see something different in oil's recent uptrend. While surging oil prices recently pushed gasoline above $3 per gallon in the U.S., demand remained unusually strong. Many commodity experts have suggested that a greater frequency of supply shortages (such as the recent major interruption in Nigerian oil output), coupled with persistent world demand, could easily drive crude oil prices well above $80 per barrel. In fact, an analyst from a leading Wall Street securities firm predicted $100 crude oil before the end of the year. Even if the price per barrel of crude oil reaches a price somewhere in the middle of these two forecasts, gold spot could rise dramatically. It should be noted that, at current pricing, gold wouldn't have to rise very far to push past $700 on news of spiking oil prices.

Reason #3: Forget inflation. Recession may be more likely.
Many investors have been watching Federal Reserve Chairman Ben Bernanke very carefully over the past several months to get the official take on the threat posed by inflation. He has continually reassured Congress and the public that inflation is not imminent. In fact, the last time the Federal Open Market Committee convened, it decided to hold interest rates steady at 5.25%. However, according to Bernanke's own statements, the housing slump still poses a significant threat to consumer confidence and the overall health of the U.S. economy. He acknowledged that weaknesses in the subprime lending market have severely hurt many banks and funds, and indicated that losses could reach as high as $100 billion. According to many market experts, while monetary inflation is a real problem that needs to be addressed, far bigger threats are closer at hand. If a sudden collapse in the housing market were to occur, for example, investors could pull back dramatically from the stock market, likely triggering a substantial decline. Would this send gold and other precious metals soaring? While it's impossible to say for certain how an event like this would affect precious metal pricing, history seems to place the odds squarely in favor of a major upswing.

In conclusion, several factors seem to favor a rise in the price of gold and precious metal prices over the next several months. Whether or not gold will move above $700 remains to be seen, but it is certainly as well-positioned as it has been in the past year to make such a move. And as many experts have pointed out, if gold breaks the important $700 barrier, it could soar to much higher levels in the near future.

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.

Precious metals have long been regarded as reliable stores of wealth – 'safe' assets that produce modest returns over time. But those who have watched the price of both gold and silver more than double over the past seven years recognize that precious metals offer much more than security – gold, silver, and other precious metals can actually provide sizeable capital gains. Some have even claimed that precious metals are the new real estate. In other words, they realize that the precious metals market is underappreciated and capable of delivering big returns. They're half right. While gold and silver do offer the prospect of big profits, these gains aren't based on inflated values as is the case in the housing market. The prices of both gold and silver have plenty of room to move higher.

The consistent upward trend in precious metals over the past several years has apparently caught the attention of one of America's most widely read investment gurus. Robert Kiyosaki, author of Rich Dad, Poor Dad, is now touting precious metals as an asset class with proven potential. Kiyosaki made millions buying and selling real estate before the most recent housing boom. He has suggested that precious metals have been largely overlooked as substantial wealth-generating assets. Of course, he is absolutely correct. Even at current prices, gold and silver are a bargain.

Two important lessons can be learned from the comparison between the real estate and precious metals markets. First, diversification is always a sound investment strategy. Although the real estate boom paid huge dividends for some, many others lost vast sums of money when the market spiraled downward. If those real estate investors who got burned on bad property deals had moved some of their money into precious metals, they could have avoided at least some of the financial shock caused by the recent housing market slump. For example, if they had invested even a few thousand dollars in silver at the end of 2004, while the real estate market was still generating big gains, their investment would have nearly doubled.

The second lesson is that precious metals are the most tangible kind of wealth you can own. Let me explain. Houses and property are certainly real assets and solid investments. However, real estate investors often resort to using extreme leverage to buy houses that would be considered obscene in the precious metals market. That's fine when the trend is on their side, but when the market moves against them, they've opened themselves up to huge financial losses. As I mentioned above, unlike housing prices, I believe spot prices for silver and gold are actually below what they should or could be. True, investors can't obtain these assets by leveraging huge amounts of money. But a strategy of buying and holding gold and silver over the past several years has virtually guaranteed sizeable gains without the debt risk.

If investors apply sound investment principles of buying low and selling high, they could reap big rewards by selling silver when its price goes up and buying back into real estate when it is fairly valued. Consider that in 1978, it took approximately 9,000 ounces of silver to purchase the median-priced single-family home. Just two years later, after silver had skyrocketed to nearly $50 per ounce, the average-priced American home cost only about 3,000 ounces of silver. If that trend sounds familiar, it should. Real estate boomed in the early 1970s and then rapidly went flat, just as silver and gold began to break out and ultimately reached record highs. Until just recently, real estate again was surging and huge profits were being made. While the real estate market has started to soften and prices have started coming down, precious metals are heading higher.

In conclusion, history does repeat itself, but it never repeats exactly. The future will favor those who can see ahead and take the appropriate action now. While there are still good deals to be had in the real estate market, especially for seasoned investors, the general trend is that real estate is down and precious metals are up. It's always best to remember that the easiest money is made by sticking with the main trend. Right now, the trend clearly points to the continued rise of silver and gold.

Until next month,
Get Real, Buy Real,

David Morgan

Dollar Versus Gold
Commentary by Joe Nicholson

Precious metals, and gold in particular, are typically considered a hedge against inflation, meaning they are a useful store of wealth over time because they retain their inherent value as paper currency depreciates. While this relationship is absolutely true, the modern corollary, that there is an inverse relationship between gold and the dollar, is an oversimplification that can be misleading for investors interested in owning precious metals. Because the dollar is not measured against some fixed standard such as gold or silver, but against a basket of currencies which are themselves constantly fluctuating, there is serious potential for misstating the dollar’s true value and overstating the currency markets’ implications for the metals.

Anyone who’s seen a demonstration by the Navy’s Blue Angels acrobatics team can understand why gains in the dollar aren’t necessarily negative for gold. Just the name Blue Angels should conjure images of perilous formation-flying where fast-moving jets engage in impressive turns and dips and dives while seeming to stay in fixed relation to each other.

The world’s major currencies can similarly be seen to have trended in the same general direction over recent years. Global money creation continues to proceed at roughly 10% annually, which of course swells the money supply and inevitably depreciates the currencies. But, foreign exchange rates measure relative changes between currencies – they offer no information about the direction of the group as a whole. So, a move of one currency against another is like a slight shift in the position of one of the Blue Angels jets relative to another, but not a change in the general direction of the formation, which in the case of the world’s paper currencies is a gut-wrenching dive. The dollar can quite reasonably see temporary gains against other currencies while losing value against a relatively fixed standard, like gold.

Photo courtesy U.S. Navy

To further illustrate the point, the first chart below shows gold and the dollar index trending higher in 2005, once interest rates bottomed. The incremental rate hikes that year boosted the dollar relative to other currencies, but, as the second chart shows, the relative value of a dollar measured in gold trended lower through the entire year. Savings held in cash over this period tended to lose value, while physical metal assets tended to appreciate significantly.

Obviously an inverse relationship between the dollar and gold is not a foregone conclusion. Now, with a possible credit crunch looming over stock markets in recent weeks, the typical expectation is for central banks to again step in to create new money and/or lower interest rates, either of which would increase liquidity in the short term but also decrease the buying power of the dollar over time. In his testimony before the House last month, Fed chairman Ben Bernanke was explicitly asked by dark horse presidential candidate Rep. Ron Paul about the possibility of a dollar crisis should the Fed intervene in the event of a credit-market freeze. Rep. Paul’s question referenced the rapid devaluation of the dollar during 1979-80 as an example, but despite the specificity of the inquiry, Bernanke's answer was ambiguous and evasive at best.

Under the current chairman’s direction, expansion of the U.S. money supply is much more closely linked to actual demand for money, and this tends to keep inflation contained compared to 1980 levels. Still, if the Fed is forced to inject new money to stimulate borrowing in the wake of a subprime-induced credit collapse, it's difficult to imagine how the absolute buying power of the dollar, measured against gold, would not suffer. But, because the supply of all the world’s major currencies is already expanding, because the world’s major economies are inextricably linked, and because subprime concerns are also beginning to appear in some European countries, foreign central banks may find themselves engaging in a collective devaluation, a dive formation, with relatively stable exchange rates as political cover for the move. And, in a world of floating currencies, all of which are being rapidly devalued by excess creation, the dollar could actually gain ground relative to other currencies while losing absolute value as measured in gold. This is roughly what occurred in 1979-80.

As any gold trader knows, 1979-80 is the period that saw gold reach its all time high of about $850 per ounce. More accurately, the dollar reached an all-time low of about 1/850th ounce of gold. Meanwhile, currency exchange rates were roughly steady as foreign central banks engaged in "race-for-the-bottom" devaluation parity and the trade benefits that come with weaker currencies.

Ultimately, Bernanke's response before the House committee — that he is confident the Federal Reserve can avoid a 1979-80 style devaluation — failed to clarify whether he was referring to a relative currency measure of the dollar or a fixed, gold-measured value. In light of his recent speeches and past proclivities, it still seems very likely that Bernanke stands ready to rescue the American economy if necessary with another round of dollar-devaluing liquidity. While unfortunate for the dollar-denominated assets of most, this inflates the dollar value of precious metals held by investors.

In the meantime, contained-core inflation is providing the prerequisite conditions for a credible expansion of the money supply and creating a headwind for gold at the same time. The Fed’s price-inflation measures reflect the extent to which money supply expansion has filtered through the economy in the form of higher prices for producers and consumers. Gold’s dollar value is more closely linked with money supply expansion than consumer price inflation, but the conflation of the two serves the purpose of keeping interest rates low.

Ultimately, Bernanke's ambiguous assertion that he is confident he can avoid a dollar deflation like that of 1979-80 should not be taken lightly. This is particularly so given the profound fluctuations his rate-targeting policy can produce in money supply. Volatility is an unavoidable reality of today’s markets, but investors looking to own precious metals for the long term can use a few basic technical indicators to help them transcend the daily fluctuations of price and make well-timed purchases.

The chart below shows that gold’s rapid rise in 2005-06 was followed by a consolidation period that’s seen successive retesting of the 50-week simple moving average. This level, currently just above $640 per ounce, continues to be an important support for the long term rising trend in dollar-denominated gold and is a high risk/reward buying opportunity when gold comes under selling pressure. Though an acute credit crisis and corresponding action from the Fed would probably have an initially negative influence on gold, the recent move back above the five-week moving average, near $665 per ounce, suggests that a return to lower support levels may be delayed, if it occurs at all.

A daily chart of silver reveals that the 200-day moving average recently crossed above the 5- and 50-day averages, an undeniably negative indicator that will tend to create strong resistance in the $13-13.10 area for the time being. One possible factor contributing to the weakness is a proposed increase in FDA regulation of products using nanotechnology, including antibacterial applications of nanoparticle silver. Of course, increased consumption of silver over long periods of time will reduce overall supply, but the products in question here involve such tiny amounts of silver they scarcely affect the immediate supply-and-demand balance. Instead, the same macroeconomic forces that will eventually lift gold to new highs will have the same effect on silver. Silver could slip below current support, though this would offer investors a rare and truly precious opportunity, since, even at current levels, silver offers fantastic reward potential for long-term investors seeking protection from a dollar that buys less and less, regardless of what the exchange rate or inflation data might say. 

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

Mexico Mining Production Increases by 13%
A recent report from Mexico's National Statistics Institute, or INEGI, stated that mining production grew by 13.3% over last year at this time, as increases in gold and copper output offset lower silver production. The report indicated that, while year-on-year silver output fell by 2.3%, higher metal content in mined ore led to a growth in gold production by more than 86%.

Italy Uses Gold to Fight National Debt
The Bank of Italy announced recently that it will use gold reserves to help trim the national debt, which is currently more than 100% of Italy's Gross National Product (GNP). This move is consistent with policies adopted by several other European nations, including France and Germany, which have sold some of their gold reserves in recent years to reduce mounting national debt.

Nissan Develops Catalyst That Cuts PGM Use in Half
Platinum prices declined sharply on July 27, falling 4.5% on news that Nissan Motor Co. has developed a new automotive catalyst that utilizes up to 50% less platinum and other platinum group metal (PGM) components. These components – typically consisting of a mix of platinum, palladium, and rhodium – react with toxic compounds found in engine exhaust to produce non-toxic compounds and overall cleaner emissions. CPM Group, the leading New York-based commodities consulting firm, directly attributed the decline in platinum prices at the end of July to the Nissan announcement. CPM Group analysts advised that a major shift in automotive use of PGMs could hit PGM demand in the coming months and years, sending prices lower as a result. Nissan plans to introduce the new catalyst into production on some of its gasoline-powered cars beginning in fiscal 2008.