Market Summary —
February 2008
February was a record-setting month for platinum and gold, with silver and palladium establishing highs not seen since 1980 and 2001.
Gold rose on continued U.S. economy worries, adding 5% despite a brief worry that the proposed International Monetary Fund sale of a portion of its gold reserves would dilute the market. Silver surged in late February, finishing the month up 16.7%.
The big story of the month continued to be platinum and palladium. Supply concerns deepened, driving platinum up 25% to a new all-time high and causing the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange to raise the margins for platinum transactions. Palladium was white-hot in February, however, jumping 43.6% on the strength of speculation that it would be sought out as a substitute in autocatalysts. (Not surprisingly, the NYMEX raised margins for palladium transactions, also.)
Gold/Silver Ratio
During February, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month in the mid-54 range, then over three weeks declined to near 52. The final week marked a precipitous drop to below 49.
| Feb Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $19.96 | $976.30 | $589.00 | $2202.00 |
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| Low | $16.26 | $885.90 | $394.00 | $1735.00 |
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| Open | $16.94 | $927.00 | $397.00 | $1735.50 |
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| Close | $19.79 | $973.55 | $570.00 | $2168.00 |
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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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New improved Charts
Our charts at www.nwtmintbullion.com have changed. They contain more information about precious metals and are easier to read. You can now see not just the bid and ask price at the moment, but the day’s low and high, and see the change since the previous close. Price movement up will be displayed in green type; price movement down will be displayed in red type. See here.
CHARTS
The following charts display the daily low and high spot price of each metal for the month of February, 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 February, 2008.
What to Do When Gold Hits $1,000
by Ross Hansen
Note the inverse movement of the DJIA and the continuous gold contract. Balance your portfolio by moving more of your wealth into and out of precious metals as the performance of the economy dictates.
As gold’s spot price has set records daily, many precious metals pundits seem to have already accepted gold priced at $1,000 per ounce. Silver has surged, as well, as many observers wonder why its price hasn’t exceeded its 1980 high, while gold’s has. Platinum has also zoomed to record territory, drawing palladium up with it.
Even the most conservative investor should have 10% of his portfolio in precious metals by now. Armies of financial planners recommend up to 20%.
But, is 10-20% enough?
And, at $1,000, should you start to sell gold?
Well, it depends.
First, remember that you shouldn’t spend a lot of time watching the price of precious metals. You need to have it in your portfolio at any price, and, once it’s there, you need to keep it there. Only those who have been speculating on price might be tempted to take a profit in dollars. Just bear in mind those dollars are essentially monetized debt. On the other hand, your silver and gold are real, tangible wealth that are understood and will be accepted in any culture around the world.
If you’re not speculating, here are reasons you might choose to hold, or even buy more:
1. Inflation is not under control.
Since September 18, 2007, the Fed has cut the federal funds rate five times to ward off a recession. The result is that inflation has grown at a 3-4% annual rate each month since then. Investors have near-unanimously flocked to commodities (and not just precious metals) as a hedge against inflation. The effect has been even more inflationary pressure, as basic goods such as wheat, oil, and sugar have their price increases magnified at each step in the distribution chain.
2. Equities are in free-fall.
In October, the Dow Jones Industrial Average (DJIA) hit its all-time record high of 14,164. It closed February at 12,266, down 13%. The generally accepted definition of a bear market is a 20% drop in the DJIA. Volume on the New York Stock Exchange is way down — the money is elsewhere. We have not yet met the technical definition of a recession — two consecutive quarters of a decline in Gross Domestic Product — but it sure feels like one is coming along.
3. Housing prices are falling.
Much of the fuel for the economic momentum in recent years has been as a result of the appreciation of home prices and the subsequent use of credit based on those prices. Subprime mortgages left both lender and homeowner in dire straits. At least 25 lending institutions have experienced huge losses or bankruptcies. Worse, homeowners who can’t meet their increased adjustable mortgage payments can ill-afford to buy the hardware, automobiles, and vacations that keep the economy growing.
4. Global concerns are worsening.
The U.S. Director of National Intelligence testified to Congress in February that the threat posed by al-Qaida was increasing. In Afghanistan, attacks against Afghan forces and the western military presence are increasing. In Pakistan, where Osama bin Laden is presumed to be hiding, the assassination of opposition leader Benazir Bhutto has created the expectation that any successor to Prime Minister Pervez Musharraf will be less tough on terror and al-Qaida. And the war in Iraq has cast doubt on whether more terrorism will be concocted on Iraqi soil.
There may be a price at which you should begin to think about divesting yourself of gold, but it will relate to the degree that these four concerns have been reduced. While this precious metals bull market has seen price dips, they don’t last and seem to be about profit-taking by speculators. These declines have been followed by higher highs, and my most recent trip to the New York Mercantile Exchange web site reveals that far more investors are taking long positions than short ones. Given that most dollar-denominated assets are falling (including the dollar), perhaps the question you most need to address is whether 10-20% of your portfolio is enough to invest in precious metals.
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:
Trend-Spotting: 3 Easy Technical Indicators for Buying Gold
by Joe Nicholson
Buy low, sell high? Buy high, sell higher? With precious metals, as in any fast-moving market, knowing with any degree of certainty when price is low or when it’ll be moving higher is difficult, and is precisely why the field of technical analysis has evolved: to help traders interpret fluctuations in price. But like any other field of specialization, technical analysis relies on jargon, complex relationships and mathematic computations that can intimidate the outsider. Still, the basic goal of all technical analysis is to help plan profitable trades. The following three basic technical indicators can be used by virtually anyone to accumulate precious metals through well-timed purchases.
Simple Moving Averages
The first and easiest technical indicator is the simple moving average, or SMA. Moving averages are a common technical tool used to flatten out short-term volatility and indicate trends. Smoother and slower-moving than the mathematically more complex exponential moving average (EMA), the SMA is an excellent tool for judging support and resistance in the futures market in time frames longer than intraday trades. Support levels serve as important, low-risk buying opportunities.
Simple Moving Averages help to identify support and resistance within trends. A change in the trend may be signaled when price crosses the SMA line.
The above chart shows a recent daily chart of gold futures overlaid with 5-, 50-, and 200-day simple moving averages. The shorter time frame of the 5-day moving average allows tracking the day-to-day price rather closely; the 200-day SMA, because of the rapid appreciation in gold over the past several years, does not appear in the range of this chart at all. As shown, when price consistently remains above the 5-day SMA, and uses that level as support, a healthy rally is taking place. When price falls below the 5-day SMA, a correction is happening, and movements across this level can be used to identify a change in the short-term trend. Finding support at the 5-day SMA is a good sign the trend will continue upward for at least the next few days.
Support and resistance using Simple Moving Average on the longer time frame of a weekly chart.
Moving Average Convergence/Divergence
The second basic trend indicator is the MACD (moving average convergence/divergence) indicator. This measures the difference between a fast moving average and a slow moving average to illustrate both the direction and intensity of a trend. The chart below shows a common MACD configuration below the price graph. The numbers 12, 26, 9 refer to exponential moving averages (EMA) of 12 days, 26 days, and 9 days. The EMA of the MACD (in this case, 9) is called the “signal line.” Plotted on top of the MACD, it is a prompt for buy and sell signals. (Don’t worry about the math; this article is only intended to show you how to recognize the tools and use them appropriately. Many software packages will do the math for you.)
When price action is flat, the two lines move closer together (convergence), indicating a decrease in the difference between short-term and longer-term price averages. Markets trending quickly in one direction or the other will result in MACD lines moving away from each other; this is called divergence. The colored bars at the bottom of the indicator chart are a histogram showing the difference between the two moving average lines, which reflects the relative pace of the trend. The zero level is called the “centerline”; the further the bars extend from the centerline in either direction, the faster the trend.
The fast moving average crosses over the slow moving average in late August, indicating a likely price rally.
The most common application of the MACD is called a “crossover,” when either the fast or slow moving average line literally crosses over the other. In the chart above, a bullish crossover of the fast line (black) over the slow line (red) shows the makings of an uptrend and an excellent buying opportunity. The growing divergence of the lines in subsequent week shows acceleration in the rally. The failure of the December 2007 consolidation to form a bearish crossover in the MACD meant demand would likely drive prices higher (and did).
Another important application of the MACD is in its relationship to price. During gold’s brief bounce in the summer of 2006, price moved higher quickly, but the move was not confirmed by the MACD. The failure to realize a bullish crossover, as well as the continuation lower of both the fast and slow average lines, was an early indicator the bounce would fail (i.e., prices would fall). Not until the successful centerline test in October 2006, roughly corresponding with support at the 50-week SMA, did technical analysts see a likelihood that prices would not get lower.
Relative Strength Indicator
The third technical indicator is RSI, the relative strength indicator. RSI is an additional trend gauge reflecting a measure of current performance relative to recent past performance. Again, I’ll leave out the math. Generally speaking, an RSI over 70 begins to indicate “overbought” levels that could suggest a rally is nearing completion (that is, not enough new buyers).
MACD and RSI demonstrate conditions where market sentiment will lead to price change.
Together, all three charts provide a fairly broad measure of current and recent trends in price action. Notice how the May 2006 high in gold occurred at an RSI of 90 and showed it to be deeply overbought. This corresponded to a sudden broad divergence in MACD. The high in November 2007 came at a lower RSI level and with a more gradual MACD divergence, subsequently continuing and resulting in dramatically higher prices. During the period between these two highs, RSI remained relatively trendless between 70 and 30. Those watching the market used this as an opportunity to acquire the physical metal with RSI support at a reading of 50. The MACD crossover in late August corresponded with a trendline breakout of the RSI, and aggressive purchasing at this technical indication has been rewarded with a rapid appreciation in price.
Together, all three charts provide a fairly broad measure of current and recent trends in price action. Notice how the May 2006 high in gold occurred at an RSI of 90 and showed it to be deeply overbought. This corresponded to a sudden broad divergence in MACD. The high in November 2007 came at a lower RSI level and with a more gradual MACD divergence, subsequently continuing and resulting in dramatically higher prices. During the period between these two highs, RSI remained relatively trendless between 70 and 30. Those watching the market used this as an opportunity to acquire the physical metal with RSI support at a reading of 50. The MACD crossover in late August corresponded with a trendline breakout of the RSI, and aggressive purchasing at this confluence of technical indications has been rewarded with a rapid appreciation in price.
Adding these simple technical indicators to your existing understanding of a market can vastly improve the timing and profitability of your purchases, though knowing the market fundamentals can provide advance insight into how price will react. For example, gold has been in a powerful bull market for years, which is why the 50-week moving average has worked so well as support after major declines. Losing this key technical level would indicate a fundamental change in the market, just as each successful retest confirms its continuation. In acquiring precious metals for your portfolio, a blending of these two disciplines creates profound opportunities to build your wealth.
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.
From The Gold Report
Hans Peter Schmidlin, Precious Capital Ltd: “Buy When the Cannon is Shooting”
The Gold Report interviews analysts and money managers with unique insights into gold and precious metals markets. Though Schmidlin discusses mining stocks as well as the broader market, we thought this interview, presenting a different perspective on metals, would be of interest to our readers.
The Gold Report recently spoke with Hans Peter Schmidlin, CEO of Precious Capital Ltd. in Zurich. The firm’s Precious Capital Global Mining & Metals Fund invests mainly in the leading global mining companies as well as some junior companies in the mining sector. Schmidlin, who has over 20 years experience in technical analysis, is the former Head of Trading ABN Amro Bank, Zurich, and Founder and editor TnP Research, Baar.
TGR: Tell us a bit about Europeans and their experience in investing in mining companies.
HPS: Europeans don’t know that much about mining companies. Traders like myself who are in their mid-40s or younger have never experienced a bull market in mining companies like we’ve had in gold. Although the Swiss have a huge tradition in gold and silver, there is a lack of knowledge about investing in mining companies, and they prefer to invest in ETFs and in the spot markets. So the demand for gold is increasing a lot over here, and there is a lot invested in spot markets in gold and silver. But with the general markets having problems, people are afraid of investing in small cap companies. It either has either to do with the fact they haven’t performed very well over the last two years because of rising costs for the big caps or lots of dilution in the small caps. Or, it has also to do with what I mentioned earlier, lack of knowledge. It’s a big point that we shouldn’t underestimate in Europe.
Personally, I believe gold is going to go up way more… in the short term to over $1,000 and we may see it go over $1,200 this year. And that has to do with the financial system. You’ve seen what happened with UBS over here. UBS is a very big Swiss bank, and they just lost $20 billion, which is investors over here just can’t understand — the number is too large.
TGR: Are you seeing a rush to gold as an alternative currency?
HPS: As an alternative to US dollars? Absolutely.
TGR: Do you see the gold price rise to $1,000 to $1,200 as a phenomenon that will happen for 2008 and then adjust in 2009, or do you see it going for more than a year?
HPS: For more than a year. In the long term, I actually believe we have to go back to the gold standard currency, even though that sounds very strange at the moment. But I believe that we will lose trust in the fiat paper money currencies. The subprime crash is only the tip of the iceberg.
Many of the national banks have driven liquidity into the market and it can’t continue like that — it will drive us into inflation. I believe strongly that sooner or later inflation will come back.
TGR: How do you see this affecting mining companies?
HPS: The young exploration companies are at a very ridiculous level right now. Long-term investors will have to pick the right ones and have the courage and the nerves to stay with them for some time. At the moment, it is very difficult and will become more difficult for the exploration companies to raise money. Companies that have a big dilution don’t have big success in finding new ore bodies. They will have trouble.
TGR: Do you see the large companies starting to take off the better-run exploration companies?
HPS: Absolutely. I mean it’s still cheaper to buy a company than to explore by yourself. That is a very important additional point. There’s a huge basket to choose from now; they just have to pick out the right ones. Companies will go to younger and younger companies to pick up new assets, new potential assets. The political point is also very important — the exploration companies in politically stable countries will become more and more of a target. For the moment I believe that the risk-averse stand of most investors against exploration companies will continue, with some exceptions.
TGR: Can you tell us about a couple of companies you’re following that you think are undervalued?
HPS: One company I like, Miranda Gold Corp. (MAD:TSX-V), has a market cap of $25 million and $12 million in cash, and has one of the best, if not the best, geological teams in Nevada, That’s value you can’t get, especially if you have a labor shortage. Miranda has a low cash burn because of their model, and the cash burn is not big enough for them to get into liquidity trouble. They have 12 to 15 promising properties, which I visited last year. So, I believe that is one of the companies that is way too cheap at the moment.
I also follow another company, Sable Resources Ltd. (SAE.V). They have a mill built by DuPont in the late ’80s for $100 million, which still has a replacement value of about $50 million. Their market value now is about $25 million, which makes no sense at all. They have completed initial underground development at the mine site and will be starting up the mill before the end of this month. They expect to generate cash flow of more than CAD 12 mil per year.
TGR: Where are their properties?
HPS: Their properties are in British Colombia.
TGR: What’s providing the million a month cash flow?
HPS: The ores they have from the late ’80s and ’90s. Unfortunately they are not “43-101”-compliant [National Instrument 43-101 is a law which sets conditions under which public exploration and mining companies are required to publish technical reports]; that may be the big thing affecting their stock price. I just had a talk with them in Vancouver a few weeks ago and said, “please spend $50,000 to complete the 43-101. Investors must know what you have, and if you want to be quoted at a fair price in the market, then you have to deliver information to the people making the market cap of your company.” You have to deliver the information that they can see, that they can realize that you’re absolutely at a ridiculous level.
Another company I like is GoldQuest Mining Corporation (CDNX:GQC.V). Their properties are in the Dominican Republic, a politically stable island. One property, Piedra Imán, is right beside the Pueblo Viejo mine (18.1 million ounces of gold and 88 million ounces of silver), which Barrick and GoldCorp just bought for a billion bucks from Placer. GoldQuest is run by a young geologist, Alistair Waddell, a really great guy. It looks like they really just found a really interesting mineralization. Barrick and GoldCorp have great, big, huge open pits at Pueblo Viejo right beside GoldQuest, so that means it’s just a matter of time until Barrick and GoldCorp say “let’s take this property, too.” Actually, Gold Fields owns under 10 percent of GoldQuest due to a joint venture they are currently working on with them.
TGR: I would like to hear you talk a bit about other precious metals. We’ve talked a lot about gold and what’s happening and how it’s going to affect the financial markets. Will we see a similar reaction in other precious metals or will they act independently of this crisis?
HPS: I am not a big specialist in these metals. I have to be honest that I missed the upturn in platinum because I was focusing on gold, silver, and base metals.
I think silver is very much underpriced because investors don’t see all the potential silver has. A growing number of people think that it’s an industrial metal, but I am not of this opinion. Lots of people think silver is not in big demand any more because it’s going out of style for photography, since it isn’t used in digital photography. But they don’t see that silver is antiseptic; it has a huge potential in medicology or medicine.
In base metals, I am half-bullish, half-bearish. Everybody talks about China and India and how they have to build up a huge infrastructure. This is kind of true, but on the other hand, you have much less demand in America. And you also have China producing more goods, but many of those goods were produced before in Western countries, like Europe or North America. So, it’s actually just a transfer of production. That doesn’t mean they have more demand in China. But on the other hand, you have less demand in Europe, North and South America. So, you have to be careful about all this talk about China.
TGR: As far as your overall portfolio, what percent do you have in mining stocks, and gold itself?
HPS: The current breakdown is approximately 50 percent gold; 23 percent silver; and 5 percent uranium, which we are going to increase. We have no soft commodities, and no oil and no gas. We own only metals. We also have about 8 percent in copper; that’s mainly through the big companies which have a certain part in copper—like Rio Tinto, BHP, or other companies, because copper is so often a by-product of kinds of gold.
TGR: So, if I add up these numbers, the rest I am assuming is in cash or the actual metals?
HPS: I just gave you a metallurgical breakdown; if I gave the breakdown by the size of companies, we have about 50 percent in large caps, because those are the ones that move at the moment, and mid caps are about 30 percent because those are the takeover candidates. We also look at companies that are newly producing. We don’t like companies that are in the feasibility study stage, which costs a lot. When the companies are just going through feasibility studies, over maybe a year, then their stock isn’t moving much. Then we have some small caps, which we reduced a lot because of what we discussed earlier. But I still have about 20 percent in small caps because I really like some pearls, like the three I told you, which are bargains, long bargains actually.
TGR: Thanks for giving us this overview. We appreciate your time. Any final thoughts?
HPS: Two things I can tell you that I always tell to my investors or to my potential investors: First of all, I like to eat bread, but I like to invest in the baker. I like gold but I like to invest in the producers. And the second one is a saying in German, my mother language. To translate it word by word: “Buy when the cannon shoots and sell when the angels are singing.” What we have now is pretty much cannon shooting.
Precious Metals Worldwide
News & Trends from Around the Globe
Gold Futures Will Be Taxed in India
Finance Minister Palaniappan Chidambaram proposed to the Indian parliament on February 29 a tax to range from 0.017 percent to 0.125 percent of the traded value of commodities futures on the country’s four-year-old Multi Commodity Exchange Ltd. Analysts immediately feared a dip in volume in India’s commodities markets. India is the world’s largest user of gold.
More Palladium From Norilsk in 2008
Norilsk Nickel, producer of about half of the world’s palladium, forecasts more palladium production in 2008 due to upgrades at its main precious metals refinery. Overall, Norilsk expects to produce 3.02-3.07 million ounces.
Physicists Discover Gold Can Be Magnetic
Gold at nanoscale — measuring one-billionth of a meter — exhibits magnetic properties when gold nanowires are oxygenated. Physicists at the Georgia Institute of Technology were also surprised to discover that up to a certain length, these oxygenated gold nanowires function as a conducting metal, but in larger size, become insulators. The researchers focused their investigations on gold nanostructures because of the well-known chemical inertness of gold in its bulk form.