Market Summary —
December 2007

December showed metals consolidating in price, with only platinum breaching its November high (and setting another all-time record in so doing). However, all four metals closed December substantially higher than they closed November, and the indication continues to be that these prices will be support for future upward movement.

Gold/Silver Ratio
During December, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – saw a steady decline in the first ten days to 55, followed by a rapid climb to 57. The ratio then settled back to trade in a range near 56 to 56.5 at month’s end.

Dec Spot Price Summary (U.S. Dollars)
	Silver	Gold	Palladium	Platinum
High	$14.93	$844.20	$373.50	$1546.00
Low	$13.64	$777.82	$344.00	$1439.00
Open	$14.03	$783.75	$351.00	$1442.00
Close	$14.83	$833.90	$366.00	$1538.00

Current Metals Pricing>>

CONTENTS

	Market Summary - December 2007
	Ross Hansen: The Price of Gold Doesn't Matter
	Joe Nicholson: Technical Take: Precious Metals: Past, Present and Future
	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 December, 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 December, 2007.

The Price of Gold Doesn't Matter
by Ross Hansen

It's that time of year that lends itself to assessing what has gone before. Everyone has a New Year's Resolution; investors are reallocating their assets; somewhere, gardens are being prepared for spring and family rooms are being painted.

We here at Northwest Territorial Mint have been doing a review of 2007. After the past two months, it's difficult to remember that the year began with gold trading at $636.30, silver at $12.96, palladium at $335, and platinum at $1,139.50. And then prices went down. In just a few days, silver had dropped 6%, with gold (5%), and platinum (2%), also looking as if they had been overbought. In August, silver was down 11% against the 2007 opening, and palladium, 4%.

But if you traded the metals you bought at their lows for dollars at the highs for the year, you could be up 39% in platinum; 38% in gold; 35% in silver, and, had you traded at its April high versus the open, 16% in palladium.

The problem is that you'd be trading those metals for dollars. Dollars, which are rapidly dwindling in value, not just against a dozen or so other fiat currencies of the world like the euro, the yen, the pound sterling, or the yuan, but against the very things you need to have in order to live — gasoline, housing, and food.

So, while we're proud that we began wondering early in the year when gold would hit $700, and first began to speculate about $900 before the last-quarter rally began, I would suggest that you examine what an ounce of gold will buy now versus what dollars will buy.

For instance, gasoline cost $2.38 on January 1 of 2007 according to the US Dept of Energy's Energy Information Agency. On December 31, that same fuel cost $3.10. That's an increase of 30%. Even though the official figures from the Bureau of Labor Statistics had prices up just 8%, remember that fuel is required to deliver everything you need (but isn't included in the official inflation rates from the BLS). The dollar itself has slid 10% against the basket of foreign currencies comprising the Dollar Index.

So, if in January of 2007 you had $637.50 to buy an ounce of gold, you could have bought 1 ounce of gold, or 267 gallons of gas. With that same $637.50 today, you could only buy about three-quarters of an ounce of gold, or 205 gallons of gas.

Why doesn't the price of gold matter? If you were using gold as your standard, you'll discover that you can buy about the same amount of gas (actually, a little more) with the same ounce of gold you had on January 1.

You see, what matters is what's happening to our economic system. Inflation — and perhaps that dreaded beast of the 1970s, stagflation — is right around the corner. The Fed continues to reduce interest rates in order to generate more "liquidity." More dollars chasing the same amount of goods means inflation.

All precious metals are a store of value and a hedge against inflation. Even silver, whose increases tend to lag gold's because of the perception that its industrial value will decline during inflation and recession, will hold its value better than dollars in tough economic times.

If you're looking to retain your wealth, you have to consider holding metals, and holding them long-term. That's the perspective gained from 2007, and I know I'm not alone.

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.

Technical Take: Precious Metals: Past, Present and Future
by Joe Nicholson

A year ago this month, after five years of spectacular outperformance, 2007 was shaping up to be the year gold and silver could add insult to injury.  Having already more than doubled since 2001, precious metals really got broad attention in April and May of 2006 as they arced on a parabolic rally that seemed never-ending.  But the rally did end, with rather a fiasco.  And while gold and silver both closed higher in 2006 than they started, the technical picture as 2007 began looked less than inspiring — with the streak of market-beating returns threatening to be at an end as well. 

Then as now, metals had struggled early in December but rallied into year-end.   But after relative strength at the close of 2006, precious metals were dealt a pullback greater than 5% in the first few weeks of the new trading year. As we approach that same season a year later, the most pressing question is whether metals will see a similar correction this month.

The major difference between now and a year ago is that in early 2007 precious metals still looked corrective. That is, they were still digesting the rapid gains they had made into the May 2006 highs.  And, though they were off the lows of the considerable sell-off following that peak, they did not appear finished with their consolidation. 

The rally in 2007 risked being the middle of a three-wave correction, with the peak in November leading to new lows.

Despite relative strength in gold, silver traded in a downward channel in the fourth quarter of 2007.

Less risky, but none the more inspiring, silver, for all its potential, could not garner any upside momentum at all.  However, the tide has now turned and both gold and silver appear to have recently broken out of corrective patterns that should give them lasting momentum into the new year.  Rallies during the fall months, and now in recent weeks, helped gold close 2007 with an impressive 32% rise, with a notable 15% increase in silver.  Most importantly, though, the chart below shows gold’s gains have thrust it up out of a Fourth-Wave triangle into what should now be the bullish Fifth Wave rally that follows.

This fourth-quarter 2007 chart indicates a Fifth Wave rally underway.

This is not the only Elliott Wave count possible in gold, but if this one were to prove correct, from a technical standpoint, gold would still have room to run, at least up to the November high but probably well beyond. Clearing $855 should finally put to rest any lingering suspicions of a deeper correction.
The breakout in gold also led to a strong year-end in silver, which rallied nearly 7% for the month of December alone.  Whereas the technical picture in the white metal had been pointing lower, the recent performance in tandem with gold now supports a more optimistic outlook.

A silver rally could begin with ask prices above $15 per ounce.

The chart immediately above shows significant resistance in silver at $15.  With silver breaking through this level earlier in the week, this former resistance level should now act as support. 

Confirmation of this move could come if the 50-day simple moving average [SMA] crosses over $15 for the first time in this bull market.  If selling takes place before that happens and $15 is lost, support will be at the convergence of the down trend line and the 50-day simple moving average, currently at about $14.60.  As mentioned, gold has a decidedly bullish look about it, and an impulse there beyond $855 would probably be matched with silver moving to the $15.40 -15.50 area.  Record highs in gold may be a precursor of the return to $16 silver.

If such a scenario unfolds, conventional wisdom has it that commodities tend to create extended Fifth Waves, with the final legs of their bullish impulses typically pushing much further than the minimum criteria for Fifth Waves.  With gold appearing to have broken out of a Fourth Wave triangle, some are now raising their expectations in gold to $1,000 and beyond.  With the Fed expected to further cut interest rates, and housing continuing to deteriorate, the argument to support these targets is compelling.

Still, while these are certainly legitimate long-term targets, it’s far from certain they will be reached directly without some further consolidation first.  In fact, how housing markets and the U.S. economy will affect precious metals next year is uncertain; the outlook is still ambiguous and the Fed’s ultimate course remains unclear.  While periods of financial crisis can be a boost to metals, a recession might not.  Moreover, with China starting a renminbi-denominated futures exchange in a few weeks, and with summer typically their weakest season, gold and silver may have precious little time to achieve the targets they’re now being assigned.

An even more near-term consideration for metals is the tendency for currencies to stage trend reversals around the start of the new year.  It is clear that 2007's dollar downtrend benefited gold and silver.  If this cycle or some other catalyst initiates a steady trend higher in the greenback come January, it’s difficult to imagine precious metals exceeding already lofty expectations. 

A period of selling and consolidation is natural after any strong rally, and precious metals have been hot for the past several weeks now.  But with a realistic understanding of the risks in place, it’s safe to say the technical breakouts shown above in both gold and silver should keep the precious metals trending higher and moving toward record highs in 2008, even if there are temporary setbacks, so long as these breakouts are not invalidated.  Despite potential headwinds, the technical outlook in metals is vastly improved from a year ago, even a month ago, and momentum is in their favor.  If precious metals should happen to get the additional benefit of bullish economics, the result could be a year that exceeds most investors’ dreams!  And in that case, as has happened so frequently in this bull market, those on the sidelines will be left behind wondering why they missed one of the greatest opportunities of the decade.

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

Potanin Will Not Control Half of World's Palladium
Vladimir Potanin's Interros investment company declined to pay cash for one-quarter of Norilsk Nickel, clearing the way for United Company RUSAL to buy 25% plus one share for cash and stock.

The deal makes RUSAL one of the world's largest mining companies.

Norilsk Nickel owns 54% of Stillwater Palladium Company, and itself mines half of the world's palladium.

The Moscow City Arbitration Court, at the request of Potanin, blocked the sale of an additional 2% of Norilsk to RUSAL. This smaller stake is owned by KM Invest, which is owned in partnership between Potanin and Mikhail Prokhorov. Potanin and Prokhorov are dissolving their partnership.

Gold in Catalytic Converters
Nanostellar, which provides nano-engineered catalyst materials that reduce exhaust emissions and increase the effectiveness of precious metals in catalysts, has entered into an arrangement with the World Gold Council (WGC) to develop strategies for introducing gold into the auto catalyst market.

WGC, which seeks to bolster global gold demand, has invested cash and will provide marketing expertise.

Nanostellar's NS Gold product was introduced last year, and, by using less-expensive gold in combination with costly platinum and lower-cost palladium, promises to reduce noxious emissions by as much as 40% more than the pure-platinum catalysts currently used.

New Peru Law Means Mining Companies Must Move Fast
Peru's ministerial Cabinet approved a bill setting a five-year limit for companies to produce minerals or else face penalties.

Should a mining company still not produce minerals after 12 years, its mining concession would be revoked.

According to Peru's President Alan Garcia, "This bill brings an end to the bad custom of staking a lot of claims without investing any money to develop them."

The government will strip companies of concessions seven years after that, he said. "Often decades, not just years, pass by without state concessions being used," Garcia said. According to the Mining & Metallurgical Geology Institute, Peru saw the greatest number of claims in more than a decade in 2007, due to increasing metals prices.

Peru is the world's fifth-largest gold producer.