Market Summary —
September 2007
September was bullish for precious metals, which may be the understatement of the year.
All of the major precious metals soared ahead after a mixed August, on all-time dollar index lows, continued subprime-lender-caused liquidity problems, and fears of inflation (despite action by the Fed indicating otherwise). Gold led the pack with a surge of more than 11% from August close to September close, blowing away the 2006 high of $725.
Silver trailed gold up all month, always reacting a trading day or two later. But by month’s end, silver was up 16%, trading strongly in the mid-$13 range for the first time since July. Like gold, it moved up at the end of the first week of trading, but then traded sideways before zooming ahead on the 18th when it became clear that gold’s movement was for real.
Platinum also rallied strongly, closing ahead 9% and promising to race past last November’s brief all-time high. That high was reached when rumors of a platinum ETF took hold of speculators; this time market forces alone appear to be driving platinum.
Only palladium, up 4.5%, was not boosted with the same enthusiasm as the other precious metals. Unlike gold, silver, and platinum, it did not rocket past its August open and high, leaving many to ponder whether it will be viewed as a relative bargain in October, enabling it to catch up to the other precious metals.
Gold/Silver Ratio
During September, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – traded for the first half of the month in a range between 55 and 56.5. In the third week of the month, the ratio dropped quickly to 54, where it leveled off to remain in a narrow range.
| September Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $13.88 | $746.20 | $352.00 | $1391.50 |
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| Low | $12.04 | $671.95 | $328.00 | $1269.50 |
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| Open | $12.04 | $673.10 | $333.00 | $1271.60 |
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| Close | $13.84 | $744.70 | $348.00 | $1390.00 |
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CONTENTS
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Market Summary - September 2007 |
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Ross Hansen: Why Metals Are Up |
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Joe Nicholson: The Midas Touch |
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Trading vs. Investing |
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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 August, 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 August, 2007.
Why Metals Are Up
by Ross Hansen
Those who have received this newsletter for the past year or so know that a number of factors have been prevalent in the economy and the markets — precious metals and otherwise — that have created enormous volatility.
Gold burst through the $700 barrier and topped last year’s high of $725, reaching its highest level since 1980’s all-time high. Silver rebounded after a lull lasting most of the summer to return to more favorable levels.
But why?
Here are some reasons that the pundits are proffering:
1. Subprime loan difficulties and the bursting of the housing bubble.
After years of warning about the bloated housing bubble, subprime mortgage lenders began to choke on their risky loans. A recent MarketWatch.com story pegged at 150 the number of lenders who have quit the business or declared bankruptcy. The subsequent indigestion has caused lenders to stop lending, which has contributed to reduced home sales (August new home sales were down 8.3% according to a September 26, 2007 Department of Commerce estimate). Some are now worried that lenders will face another wave of problems because of loans called Alt - A loans (often called “liar loans,” because they are made to home buyers with good credit but little supporting paperwork). Sale prices have also dropped precipitously in all but the most robust markets.
The real problem is the number of Wall Street institutions — brokerages, banks, and hedge funds — that may be holding financial instruments based on these mortgages that are now defaulting at seemingly exponential rates. Over the summer many of these firms began to sell their gold and gold-backed securities, temporarily driving down the price of gold. For the moment, they’ve stopped selling.
2. The falling dollar.
The dollar index has been in a nosedive, recently hitting its lowest point ever. The dollar recently bought .71 euro (€), not even a decade after it bought €1.18 of the same currency.
3. Declining consumer confidence.
The Conference Board’s well-respected measurement of consumer confidence showed a sizable dip in September, too. It tumbled more than 5%, from a score of 105.6 to 99.8. The Conference Board’s report notes that more consumers are saying that conditions are bad, and fewer are saying conditions are good. Consumer confidence can’t be helped by news stories about the Fed’s heavy-handed market intervention to prevent recession.
Proof that interest in precious metals is mushrooming could be found at the recent Silver Summit in Coeur d’Alene, ID. It was the best-attended gathering I could remember, and was full of energy. People were interested in silver again. Companies are mining silver again.
The upshot of all of this is that precious metals are the shelter of choice for a lot of people who want to protect their wealth. When home prices no longer rise magically and when the dollar you earned buys less than it used to, precious metals shine brighter than ever for securing the future.
It’s been said often that precious metals are like insurance. You buy insurance in case something bad happens, but you’re hoping your house won’t burn down. Precious metals are the best kind of insurance. Not only are you spending your dollars to protect the fruit of your labor, but, in the end, you get to keep your premium.
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.
It’s Not Too Late to Get the Midas Touch
by Joe Nicholson
Without a doubt, some investors are happy this month from seeing their portfolios literally turn to gold. Those who took the opportunity to allocate at least 10% of their investments to precious metals last month, or at any of the 50-week simple moving average retests in gold, are now sitting pretty at a 27-year high with an appreciation of more than 8% in September alone. Even if they haven’t seen the 6.6% year-over-year increase in take-home pay suggested by the most recent Personal Income data, owning precious metals has gone a long way toward helping them keep up with a world that gets more and more expensive every year.
Now that gold has surpassed its May 2006 highs, the stigma of that sell-off has vanished and owning precious metals is now widely accepted as one of the smartest investment decisions of the decade. The logical question for anyone still on the sidelines now is whether the time is too late to get in the game, to own their own precious metals and give their portfolio the Midas touch.
Of course, owning your own physical metal is typically a medium-to-long-term investment, and the current moves in the market should be viewed through that lens. The latest round of buying is linked to the lowering of interest rates and declines in the dollar. Going forward, inflation concerns, which have finally started to raise the long end of the yield curve, will be crucial for keeping precious metals — especially gold — at these lofty levels. But, even if the dollar finds some technical support in the short run resulting in price weakness for precious metals, remembering recent long term history will put the situation into perspective — a 263% increase in Gold spot since January 2000, and a 257% increase in Silver spot over the same timespan.
Gold Price Since January 2000
Silver Price Since January 2000
Certainly, everyone would like to see his net worth take a similar path. Of course, the multi-year charts are so strong because the underlying fundamentals are very solid. The forces propelling metals higher over this period, and which will continue taking metals higher in years to come, are inflation; a strong global economy; and a relatively weak domestic economy, which keeps downward pressure on the dollar. Short-term corrections and adjustments aside, these forces appear likely to continue to dominate the investment landscape for the foreseeable future.
On top of this, we are now entering the strongest period of the year for metals due to fluctuations in global demand and strength in metals looks virtually assured. But all investment decisions should be made with caution and sound reasoning, and buying metals now is no different. To help the make these important decisions, technical analysis offers a chance to gauge price action and confirm, correct, or enhance the outlook suggested by the fundamentals. Elliott Wave analysis, which tracks price movements in terms of predictable patterns made of waves, is a particularly powerful tool for discerning favorable entry opportunities. Movements in the direction of a trend are called “impulses,” and these alternate with counter-trend waves said to be “corrective.”
Conventional Elliott Wave analysis of gold and silver would tend to view the parabolic rise in May 2006 as a third-wave advance, typically the strongest single impulse in a bull market, but neither the top nor the end of the move. That being the case, the corrective pattern that follows should appear in the form of a three-wave decline with a middle, or “b” wave, which can appear to be impulsive and actually make new highs. While the price action in silver is easily identified as a typical consolidation pattern, the recent strength in gold could still be the “b” of a fourth-wave consolidation. The good news is that even if this analysis is correct, the underlying fundamentals in the precious metals are very bullish and will probably prevent any serious declines. Plus, the fifth wave that follows would take the metals to all-time highs, significantly higher than where we are today. And this isn’t even to mention that continued gains in gold from this point would invalidate the fourth-wave analysis altogether and make the immediate upside virtually limitless!
As mentioned earlier, important investment decisions should be made carefully, and allocating the precious metals portion of your portfolio to physical metal in a series of purchases gives you advantages over making a single large entry. Consider accumulating metal regularly and allowing the appreciation over time to preserve and extend your buying power, come what may, while averaging out day to day fluctuations in price. Both technical and fundamental analysis agrees the price of gold will be much higher in coming years. And, now that gold has exceeded its May 2006 highs, traders will be looking to see if silver can do the same, which means a chance of silver retesting and even possibly breaking back above $14 in the short term.
Investors looking to get into metals now, but wary of buying a top, should realize even if they had bought gold during the frenzy of May 2006, they’d still be sitting on a profit right now — they’d be experiencing the Midas touch. And, compared to derivatives or even most stocks and bonds, there is little risk in purchasing a commodity as inherently valuable and enduring as a precious metal. In fact, the appreciation of precious metal holdings is almost inevitable and it seems the only way to lose on this long-term investment is not to get involved.
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.
Trading vs. Investing
by Northwest Territorial Mint Staff
Precious metals observers have spent much of September watching as gold finally broke through the $700 barrier, as had long been expected. Some may actually have gotten excited about it.
But, most precious metals investors are wary of what Fed Chairman once called “irrational exuberance.”
True, had you bought gold back in 2004, when it was available for less than $400 an ounce for much of the spring, $700 gold is great news. If you still have it.
And that’s the crux of the question about buying precious metals. Are you in it for the short haul or for the long gain?
If you’re looking to turn quick profits on price movement, then you’re trading; if you’re looking to buy and hold what you buy for later use, then you’re investing.
If you’re trading, what you trade is almost beside the point. It could be stocks, or pork bellies, or baseball cards. A trader is not looking to hold any asset for a long period of time. In the extreme, day traders — whether they’re trading stocks, commodities, futures, or currency — want to be in and out of the market in less than a day, and liquidate their holdings before the close. Price is the main factor in a trader’s actions.
Investors also expect that they will benefit from appreciation in the value of their asset, but they are buying for the long term. An investor buys and holds an asset over a longer time period, usually measured in years and often in decades. Investors therefore tend to shrug off brief periods of lower-than-expected market prices for the asset they own, expecting that, over time, the asset will retain its value and even appreciate.
Therefore, investors care about which assets they own. Investors won’t put their dollars into a stock at $5 on Monday thinking it will go to $5.15 on Tuesday, as a trader might. Instead, investors will put their dollars into an asset with proven value.
Are you a trader?
If you like the idea of watching prices constantly, hoping to react in time to enter and exit the market at just the right time to profit from the price spread after capital gains and brokerage fees, trading might be for you. But, if you are not interested in that level of activity — if you don’t want to be glued to the computer for most of the day, or can’t fathom selling your position because you’ll be on vacation somewhere remote for a couple of weeks — trading may not be for you, because price movement can destroy your market position while you leave it unattended.
Are you an investor?
If your goal is to preserve your wealth for the future and would like to save and put away rather than get your thrill from the action of the swap, investing is for you. By taking account of the many fundamental reasons for acquiring an asset — current economic data, an assessment of the future, the ability to sell easily if necessary, and the intrinsic value of the asset — you will find places to put your dollars that will best make your wealth available when it’s needed in the future.
Most investment experts recommend that a portion of your investments be in precious metals. Precious metals have been valued for thousands of years in trade for goods and labor, for their physical properties, and by most accounts will continue to be valued by any society anywhere on this planet. Unlike fiat currency, they are essentially finite; more can be found, but nature is not making any more.
Which also brings up one other thing to consider about trading — most traders are buying and selling and then keeping their profits in currency, usually dollars. With today’s weak dollar, holding precious metals makes a better investment than ever.
Precious Metals Worldwide
News & Trends from Around the Globe
BHP Billiton Gold Reserve Revised Down
While reporting a near-doubling of its total ore resources at its massive Australian Olympic Dam uranium, copper and gold mine, BHP Billiton Ltd./Plc actually reduced the reported proved and probable gold reserves by 5%.
In a report on September 26, the global giant announced that proved and probable gold reserves — the economically mineable portion of an ore resource — fell from 9.2 million ounces to 8.7 million ounces.
Newmont Says Costs Up, Ability to Replace Reserves Down
At the Denver Gold Forum, Newmont Mining Corporation President and CEO Richard O’Brien warned that the world’s second-largest mining company expected that the operating costs for its mines would be $400-$450 per ounce this year, as opposed to its earlier forecast of $375-$400.
Newmont also filed documents with the SEC advising that "the large-scale, mature and low grade nature of its gold deposits may limit its ability to replace, net of depletion, its proven and probable gold reserves."
Silver-Threaded Pajamas On Sale Soon in England
Sped to market by nearly 1,500 deaths in the UK among patients infected after hospital stays, a line of pajamas woven with silver thread will go on sale this month at Marks & Spencer stores.
Two diseases — MRSA (methicillin-resistant staphylococcus aureus) and legionella (Legionnaire’s disease) — are prompting the concern. Silver has long been known for its antibacterial properties. MRSA is resistant to certain antibiotics.