January was a strong month for all of the precious metals, with more upward pressure and prices setting records. Electrical outages in the South African mines contributed to gold production problems, with gold blasting above $900 to reach $933 on January 29. Though South African mines were not an influence, silver did rise with gold to reach a 28-year record at $17.03.
Platinum set an all-time record at $1746, also driven by South Africa production troubles from electrical disruptions. South Africa is a bit less of a factor for palladium, but platinum still pulled palladium up to reach $397 and test the $400 mark.
Gold/Silver Ratio
During January, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month in the mid-56 range before declining to the mid-54 range at the end of the month — with a roller-coaster ride in between.
| January Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $17.03 | $933.19 | $397.00 | $1746.50 |
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| Low | $14.81 | $834.16 | $363.50 | $1512.00 |
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| Open | $14.83 | $834.16 | $366.00 | $1538.00 |
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| Close | $16.96 | $927.40 | $397.00 | $1735.00 |
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CONTENTS
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 January, 2008. 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 November, 2007.
Do You Have Flood Insurance?
by Ross Hansen
Not too long ago here in the Pacific Northwest we had severe winter storms that created flooding. Rivers overflowed and homes were inundated with wave after wave of brackish water, leaving residents cut off from supplies and emergency help. Rescuers went door-to-door, able only to offer drinking water, or perhaps a blanket. Twenty miles of Interstate 5 were closed, making access (or escape) often dangerous or impossible.
Naturally, we all sympathize as we watch the weeping families who now must recover from so much devastation. The tales of homes ruined by the rain and unrecoverable losses because of missing insurance? Maybe they hurt the worst.
But, you have to wonder... Why were these homes built on a flood plain? Why didn’t the people who owned them have flood insurance, or a plan to protect themselves in the event of probable disaster?
Of course I want the people whose lives and property were destroyed to recover. But wouldn’t careful planning have been more prudent? For instance, we know of one fellow who lives in Louisiana whose home survived the Katrina flooding because he had been clever enough to raise its foundation higher than the flood level he knew would one day come.
The Coming Economic Flood
A river of debt is now rising all around us. Huge torrents of risky, overdue, and unsupported obligations are filling every valley and indentation in our economy, damaging huge financial institutions and our friends and neighbors. That deluge of insolvency will be compounded by unfunded government liabilities such as Social Security, Medicare, and prescription drug payments. This will all pool in the $3.1-trillion-deep trench that is the Fiscal Year 2009 budget as proposed by President Bush -- itself a lead weight burdened by a $400 billion deficit with billions more off-book for Afghanistan and Iraq. The U.S. Comptroller General, David M. Walker, has been a voice on a desert island throughout this perfect financial storm. In his presentations, he says, “I’m going to show you some numbers… they’re all big and they’re all bad.”
Until now, figurative levees have held back the rising river of monetary disaster. Foreign investment has propped up those sagging walls by sopping up our watery Federal Reserve notes, buying Treasury bills, and breaking off chunks of Wall Street investment firms. Eventually, however -- and sooner than we will like -- China, Japan, and Dubai will grow weary of throwing more sand bags at our problems and will leave us to drown in our own overwhelming debt.
Since that time will most certainly come, my question to you is: Are you prepared? Do you have flood insurance? Do you have a plan?
Ironically, what will protect you best against this terrible tide are rock-solid, reliable, good-throughout-the-millennia precious metals. In the world’s markets, already the smarter investors are building life rafts of the stuff. As the dollar's value erodes with each passing month, more and more investors are seeking the security of precious metals to prevent the wealth they've accumulated from disappearing into the drink. The history of the past hundred years is a Sargasso Sea dotted with the sunken wrecks of the fiat currency of so many nations that it presents an easy-to-read nautical chart for even the greenest observer. The rise in the price of gold in direct proportion to the devaluation of the dollar is very relevant.
I do not want to weep for you. Your friends, neighbors, and loved ones do not want to weep for you.
Therefore, my advice is to buy the insurance you need for that rainiest of days. Protect your lifetime of work by devoting a share of your income to precious metals. Whether you start small or make larger investments, remember to think of them as insurance against the flood. Because it’s coming.
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: Tech a Look at PGMs
by Joe Nicholson
The recent run-ups in gold and silver have gotten plenty of attention from mainstream media. But under the radar, a much more powerful rally in the platinum group metals (PGMs) -- led by platinum and palladium -- has gone largely unnoticed by the mainstream.
While gold and silver’s monetary aspect keeps them subject to traders using ETFs and futures to hedge against a weak dollar and low interest rates, the PGMs have always been less liquid. Like traditional commodities, they are, for the most part, more sensitive to supply-and-demand fundamentals rather than currency and monetary trends. A perfect illustration of this came just last week on the first day of February: gold and silver declined steeply on a reversal in the dollar, while platinum and palladium continued to soar.
Unlike other precious metals, which are scattered over every almost every continent on the planet, PGMs are found in only a few concentrated locations. South Africa, which contributes about 70% of the world’s platinum supply, is by far the most important source. As you may know, flooding has crimped coal supply and led to power disruptions in South Africa, which platinum miners have felt severely. A single company alone claims to be losing 3,500 ounces each day the blackouts result in limited production. Others have halted underground mining or ceased production altogether. The supply of gold outside of South Africa is still relatively bountiful; South Africa has been a declining part of total new gold supply. But these power outages to African mines strike a blow to the very heart of platinum production.
To further sweeten the deal, this acute supply disruption comes against the backdrop of growing interest for platinum as the chic jewelry material among a growing wealthy class -- particularly in emerging countries, where it outshines gold in the eyes of the super-rich. PGMs are also widely used industrially, especially in the catalytic converters of trucks and other automobiles. Palladium is also being used by researchers investigating alternative power sources. The charts for these metals, not surprisingly, show strong bullish technical patterns.
Platinum has broken out and looks to produce another leg upward.
The chart above shows platinum moving higher in a powerful, multi-year impulse. The recent new high in the Relative Strength Index (RSI) suggests that, in terms of Elliott Wave analysis, this long-term rally is still a Wave 3, meaning Wave 5 is yet to come. Commodities frequently extend their Fifth Waves, which means that prices for platinum have stratospheric potential. Of course, there should be a Fourth Wave consolidation between now and then, but that will continue to be postponed as long as the profound bullish fundamentals for PGMs remain intact. The chart suggests a move to the upper trendline as a possible target for the current move.
Palladium, a metal similar to platinum but more plentiful, has a much more complex chart. The recent break of multi-month resistance level, however, also tilts the picture dramatically to the upside. The recent break of $390 in palladium futures invalidates the possibility of a five-wave move down to below $325 and instead suggests an impulse upward beyond the 2006 highs, currently in its Third Wave. Even the alternate a,b,c count -- which keeps this rally corrective -- requires a five-wave move higher. The reaction to a Fibonacci target at about $469 should determine the operative count.
Palladium's chart also indicates it will move upward.
The record highs in platinum reflect dramatically bullish disruptions to supply and ever-increasing demand. The break of old resistance in palladium is very bullish for that metal and bodes well for the PGMs in general. Now showing technical breakouts in their charts, risk/reward favors accumulating platinum group metals.
* RSI is a technical measure of whether an asset is overbought or oversold, and indicates whether it is likely to reverse.
** 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.”
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, and Trader's Log, and has written for Futures magazine.
Brief History of the Gold Clause in Contracts
by Mark K. Funke, Esq.
It is a fiction for us to believe that the dollar (or any other currency) has a fixed value over an extended period of time. For centuries humans pondered how to protect themselves against a wasting currency. Lawyers writing long-term contracts have faced this question for a long time. In the 1700s, 1800s and early 1900s, long-term contracts commonly included a “gold clause.” A gold clause generally allows one party to demand payment in gold based upon a pre-established fineness and quantity.
For example, if you own real estate and sign a tenant to a long-term lease, you want to make sure that your tenant can’t pay you with worthless dollars 10, 15 or 20 years in the future. What may look like a great lease rate today (“wow, I get a 10% bump in rents every 5 years!”) could turn out to be a disaster in runaway inflation. With a gold clause the landlord could demand payment of rent in a set amount of gold, regardless of how inflation ravaged the U.S. dollar. From the founding of our country through the 1930s, the gold clause was the protection clients desired and attorneys provided.
In June 1933 all gold clauses were declared against public policy by a joint resolution of U.S. Congress: “Every provision contained in or made with respect to any obligation which purports to give the obligee a right to require payment in gold or a particular kind of coin or currency, or in an amount in money of the United States measured thereby, is declared to be against public policy…” 31 U.S.C. §463 (effective June 5, 1933; repealed, 1977).
Within 10 years of issuing the joint resolution, six cases made their way to the U.S. Supreme Court to challenge it. In every single case the U.S. Supreme Court sided with the U.S. Congress. The U.S. Constitution, in Article 1, § 10 contains an explicit prohibition “against impairing the obligation of contracts…” Regardless, the U.S. Supreme Court pronounced the joint resolution constitutional, and therefore it is.
During the early part of the 20th Century the railroads issued millions of dollars in bonds. These bonds promised interest payments for 100 years. Consequently, many of these bonds are still traded in the open markets today. The railroads convinced the public to purchase these bonds because a gold clause insured that the public did not have to worry about the government’s printing presses. My research shows that the 1933 joint resolution came about because the railroads successfully lobbied Congress. First the railroads sold millions of dollars in long-term bonds to finance their expansion; then they convinced the U.S. Congress to let them pay back those obligations in quickly eroding currency. The official reason given by Congress for the joint resolution was that hoarding and extensive speculation was diminishing the gold reserves of the United States.
Norman v. Baltimore & O.R. Co. (294 U.S. 240, 1935) was the first case challenging the 1933 joint resolution brought to the U.S. Supreme Court. That case was brought by railroad bond holders, who challenged the debasement of their bonds by the 1933 joint resolution. Although the Court majority upheld the constitutionality of the resolution, a biting dissent was written by Justice McReynolds: “This Court has not heretofore ruled that Congress may require the holder of an obligation to accept payment in subsequently devalued coins, or promises by the government to pay in such coins. The legislation before us attempts this very thing. If this is permissible then a gold dollar containing one grain of gold may become the standard, all contract rights fall, and huge profits appear on the Treasury books.” He further accused the resolution of creating “counterfeit profits” and warned that “[l]oss of reputation for honorable dealing will bring us unending humiliation…” Little did Justice McReynolds know that within a few decades the United States would be entirely removed from the gold standard, relying on nothing more than fiat currency.
In 1977, U.S. Congress passed a statute again permitting contracts to be valued or paid in gold, provided the contract was entered into after October 27, 1977 (See 31 U.S.C. §5188(d)(2)). So yes, these days you can have your attorney draft a lease or other payment obligation which includes a gold clause – although there is no protection against Congress changing its mind, just as it did in 1933.
Rather than a gold clause, the more “modern” anti-inflation provision is a clause linking payments to the Consumer Price Index (“CPI”). Some commentators believe that the federal government intentionally manipulates CPI to help boost the economy. John Williams of www.shadowstats.com does an impeccable job of analyzing and attacking CPI. If you don’t trust the U.S. Government to keep its currency stable, then how can you trust it to accurately report CPI? The gold clause is an alternative to CPI-linked payments. Although many of us believe that gold has significant and intrinsic value, that value may not always track the value of the underlying obligation. For example, the run-up in gold prices from 1979 to 1982 was a speculative bubble, which had a limited relation to the value of the underlying currency. A gold clause in 1980 would have created a windfall profit for the party enforcing it.
Gold clauses are an interesting idea and may serve useful in some contracts. Perhaps the most value is in the historical lesson. Laws are made and interpreted by the government, which can have a tremendous economic effect. Every law passed or repealed either fattens or thins someone’s pocketbook. Although we may all be afraid of the government’s printing press, who needs the ability to print money if you can just change the laws and the U.S. Supreme Court blindly approves those new laws?
Mark K. Funke is a real estate and estate-planning attorney in Seattle, Washington; he’s also a gold-bug. For more information about his law practice visit www.funkelaw.com or call him at (206) 632-1535. He is licensed in Washington State only, but maintains a close network of attorneys around the country that could assist you. The aforementioned should not be construed as legal advice or advice to lie to any government official; that would be wrong.
Precious Metals Worldwide
News & Trends from Around the Globe
Energy Woes Create Production Problems in South Africa
South Africa's Eskom power company was forced to reduce power to wide swaths of the nation for much of January when flooding reduced output from coal mines. The estimated daily loss was $193 million rand, or $25,871,317 US dollars, as reported by Business Day. The result was a spike in the price of both platinum and gold. While mines reportedly would work to make up the lost production, Eskom has announced that power will be problematic for the next five years as it attempts to build capacity to meet increasing demand. A director at Barclays Capital was quoted by Bloomberg.com, saying that platinum output was likely to be reduced by more than 9% in 2008.
Small Mining Surges With Gold Price
A story filed by the Associated Press reported that small scale mining has increased as the price of gold has jumped. Membership has grown enormously in gold prospecting clubs, according to the story, which also noted that such clubs handle the paperwork that enables individuals to mine without establishing claims.
Platinum Prices Create Crime
With the escalating price of platinum has come a new kind of theft: catalytic converter theft. Catalytic converters are a required part of every American automobile's exhaust system as a way of combating hydrocarbon pollution. They need platinum (or other platinum-group metals) to function. Reports have come in from all over the nation of criminals cutting catalytic converters off automobiles, reselling the few grains of platinum within and leaving owners with replacement bills measuring in the thousands of dollars.