The price trend for metals during an otherwise busy April was lower. Price strength was greatest mid-month. Oil was establishing new highs and the dollar new lows, sending investors of all stripes to all of the metals as an inflation hedge. That said, at no time during April did metals approach the heights of mid-March.
At month’s end, only platinum had edged up, though less than 1%; gold (-1.3%), silver (-1.2%), and palladium (-4.4%) had all declined.
Gold/Silver Ratio
During April, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – traded the month within a range of 51 to 53, fluctuating a number of times between each extreme.
| April Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $18.76 | $953.24 | $474.00 | $2080.50 |
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| Low | $16.38 | $863.15 | $417.00 | $1886.00 |
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| Open | $16.91 | $907.93 | $434.50 | $1945.00 |
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| Close | $17.00 | $877.15 | $425.50 | $1942.00 |
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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 bullion.nwtmint.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 March, 2008. Source: Northwest Territorial Mint spot prices as posted at bullion.nwtmint.com.
The following charts display the daily spot price range of each metal for the six months ending March, 2008.
The Sky Is Falling! Wait, No It’s Not! Wait, Yes It Is!
by Ross Hansen
If you look at the price of precious metals day-to-day, as I must, neck muscles can get sore awfully quickly. Silver’s up. Gold is down. Platinum is way up. Palladium is way down. But wait, palladium is up. Gold is up. Platinum is down.
Every transaction is the result of an agreement between a buyer and a seller. Both are factoring in many things that bring the two parties to agreement. No transaction is alike, even if it’s between the same two parties. That’s because at the very least, time passes, changing the relationship of the variables that each party considers before making an agreement.
For instance, in late April, gold had spent several days trading below $900, the first time it had spent an extended period of time at that level since January.
What was different?
The dollar was — it was rebounding off an all-time low against the euro and a basket of currencies. Many who are buying precious metals are concerned that the dollar has lost value and that gold, silver, platinum, and palladium are a store of value. Like jumping off a broken elevator onto the 47th floor landing; you might be bumped and bruised, but nothing like your condition if you remain in the elevator all the way to the bottom.
Oil was briefly moderating from record highs. Higher oil prices have amplified inflation worries. Like gold, most oil futures are bought and sold in dollars; a weaker dollar means more dollars are needed to buy the same amount of oil. Oil has been moderating only when the U.S. economy shows signs that it is, or will be, in recession, reducing demand as fewer commutes are made and fewer vacations are undertaken.
Efforts were underway to bolster the most damaged parts of the U.S. economy, leading to strength in the equities markets. In turn, some institutional investors transferred positions in precious metals to stocks.
And yet, at the end of April, gold stood at $877.15, up 29% versus a year ago. Silver was up 26%, palladium 15%, and platinum 50%. According to the U.S. Bureau of Labor Statistics, inflation from March 2007 through March 2008 (the last month available at this writing) was 4%, though a much better indicator might be energy prices, which, despite the federal government’s best efforts to hide the problem, had risen 17% during that span.
What does this mean in your efforts to preserve your wealth and broaden your portfolio?
Very little.
Anyone actively trading in a market knows that the price of a planned investment will change even between dialing a phone number and someone answering. Market-timing is a difficult enterprise.
More important is that you understand why you should own precious metals and act as best you can when you’re ready to invest. Precious metals always have value; precious metals are portable; precious metals are accepted in every society.
Consider instead that having more precious metals under certain circumstances is better. When the economy is in upheaval, converting more of your dollars into silver, gold, platinum, or palladium might be more prudent. Such instances might be times of rampant inflation; times of high unemployment; or times when the major markets are struggling for equilibrium.
The same is true for political turmoil. In times of war or when war is threatened; in times when civil unrest appears to be nearby or has arrived; in times when fundamental changes will likely be made to the government — all are times when having precious metals may be more useful than having all of your wealth held as fiat currency. This is true even now, while the euro is ascendant against the dollar. Remember that the economies of Europe are still essentially linked with those of the United States. Any true disaster will affect both, and a dollar worth 50% less won’t be much worse than a euro worth 47% less.
So, please don’t be deterred by day-to-day price movements on the precious metals you know you need to own. Gold may move three-tenths of a percent today, or silver may move a quarter of a percent, but those are blips when compared with the larger changes that are easy to spot and easy to react to.
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: When Will You Buy Precious Metals Next?
by Joe Nicholson
As traders buy and sell in an open market, they negotiate and ultimately determine price, often with a pre-determined target in mind. For the market technician, a chart contains information about the fears and ambitions of market participants, and reads like the story of those negotiations.
Take, for example, the daily chart of gold below, which shows the culmination of a three-wave correction into technical support. As price crossed important technical levels like the 5- and 50-day simple moving averages [SMA], market participants were forced to evaluate the future value of gold versus its then-current price, all the while weighing risks of inflation against a potential rally in the dollar. Clearly, since the March 17 top, bullish perceptions about how many dollars to trade for gold have been tamped down.
A decline in the perceived value of gold produces a three-wave correction to technical support at previous resistance. While this fulfills minimum requirements for a correction, the shift in market sentiment suggests a coming three-wave move higher followed by another decline in price.
Corrections in Elliott Wave analysis* typically come in three-wave formations such as the a,b,c pattern in gold. Just as corrections occur because prices move too high too quickly, the middle (b) wave, of a correction is often produced when the initial decline reaches oversold levels as measured by the relative strength indicator [RSI]** and technical support in price. Notice the termination of that movement at former resistance, which is a significant technical level. The force of the bounce up from there testifies to both the investment demand for gold as well as the importance of this technical level. For short-term traders, this presented an ideal entry point for a trade; investors might also test the waters. The three-wave nature of the downward move thus far suggests a correction rather than the impulsive leg down that might signal the end of a bull market. Just remember that a rally when a commodity is oversold is still likely to produce new lows later on. And, the unfolding of price action from here is always subject to new developments.
Silver has finally taken out a multi-month trendline and the April 1 low. The three-wave correction mirrors the wave count in gold, which broke down sooner.
Another market insight comes from comparing the gold chart with this weekly silver chart. Traders faced a crucial decision as silver descended into the trendline from last fall. The white metal performed notably better than gold over the past few months, suggesting outperformance when the rallies resume. Traders attempted to hold the April 1 low and did until sentiment shifted to bullish on the dollar and bearish on commodities generally on May 1, producing a similar three-wave correction in silver.
The good news about market corrections is the buying opportunities they provide. When looking for good levels at which to acquire more precious metals, it is why to remember that market sentiment had an important role in shaping past data contained in a chart. Therefore, shifting sentiment can alter expected outcomes. For example, the 50-week SMA has been strong support for the past several years of the bull market rally, but if the consensus emerges, rightly or wrongly, that the bull market is over, support at that level may not materialize. That said, the 50-week SMA, as well as textbook Elliott Wave analysis, signal a strong buying opportunity near $800 in gold and $15 in silver.
The 50-week moving average in gold has been important support for the past five years and will likely continue to do so. Both the moving average and the Elliott Wave projection suggest good buying opportunities near $800 in gold.
Support in silver is less obvious, but trendlines exist at $15 and $14.
Technical analysis uses information about the past contained in charts to make judgments about the present and forecasts for the future. When integrated into a thorough understanding of the forces driving the market, technical analysis becomes a versatile tool for the short-term trader and long term investor alike.
*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.”
** RSI is an additional trend gauge reflecting a measure of current performance relative to recent past performance.
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.
Highly Improbable Events And Their Impact On Your Investments
by Mark K. Funke, Esq.
Nassim Nicholas Taleb’s 2007 book, The Black Swan: The Impact of the Highly Improbable, is a must-read for all precious metals investors. A “Black Swan Event,” as coined by Taleb, is an exceptional, unpredictable event that carries a huge impact (either positive or negative). Taleb argues that most dramatic historical changes occurred through Black Swans, which we in hindsight explain as rational; but to the people living through the events, are random.
The history of humanity is an endless list of unpredictable events with paradigm-shifting impacts: hunger epidemics; currency-devaluation; war; technological changes such as the Internet; medical advances such as penicillin and birth control; economic changes such as Enron and the current subprime fiasco. Although we can always rationalize a Black Swan after the fact, rarely can we accurately predict the next big positive or negative change (and even if our prediction was correct, perhaps we were just lucky).
The Black Swan is not a book about investments; rather it should be classified as a sociological study of humanity. Yet the lessons enumerated by Taleb apply well to the investment advice barraging us. Whenever reading standard investment advice, one is always well-advised to keep in mind the potential Black Swan. Imagine a discourse between a monkey-see, monkey-do investor (i.e. the average investor who acts on what he reads without thinking) and the Black Swan investor (who prepares for the unpreparable):
Monkey Money: Your 401K is safe; on average the stock market earns 8% a year, so stick it out for the long run.
Black Swan: What about the Japanese stock market during the 1980s and beyond? Their market still has not recovered from that high more than 20 years later. Is the United States so special that what happened in Japan cannot happen here?
Monkey Money: There is nothing safer than T-bills and bonds. Buy U.S. bonds if you want ultimate security.
Black Swan: What about all the fiat currencies that have devalued during history? Just think of Argentina, Russia, or the Mexican Peso crisis. All those countries issued bonds as well – they are now only useful as wallpaper. Inflation could at any time wipe out your long-term bond investments and even short-term bonds are subject to the viability of a particular currency.
Monkey Money: You can’t go wrong with real estate.
Black Swan: Actually you can. You can now buy houses in Detroit for less than $10,000 and building lots for $2,000. That property was worth more in the 1980s. We are now all well aware of the subprime fiasco continuing to rip through the landscape.
Monkey Money: Gold has held its value over centuries. The only true money is gold.
Black Swan: Gold is without doubt money. However, you can’t control your government. In 1933 President Roosevelt outlawed the private ownership of most gold, and a period of government confiscation lasted until 1977. No one can control the irrationality of a government. Nor can one protect against the possibility of an extremely large natural gold find or a future technology that may allow us to combine atoms and play alchemist — just a hundred years ago, man-made diamonds were unimaginable.
Perhaps the Black Swan should be renamed Chicken Little. With every possible investment we can always think of a way that the sky could fall and the investment becomes worthless.
What Taleb argues in his book is that these Black Swan Events are far more frequent than most people believe. Society and the media provide us with the psychological positive reinforcement that we need to believe great stories (or, to borrow from the postmodern jargon: metanarratives) such as: “Don’t worry, your account is FDIC insured,” or “the dollar is as good as gold.” All of us, however, can lift the curtain of history by imagining ourselves living the life of our grandparents or our great-grandparents. I wager that for the majority of us, our personal family history of the last 100-plus years is marked with a series of highly unpredictable events with large effects. I agree with Taleb that most of what we take for granted as stable is in reality far less stable than we fool ourselves into believing.
The challenge is how to invest and how to live our lives given the knowledge that Black Swan events are out there. Former libertarian presidential candidate Harry Browne proposed an interesting theory set forth in his book Fail-Safe Investing. Browne proposes a strategy of investing for all seasons by placing 25% of your investments in gold, 25% in long-term U.S. Bonds, 25% in T-bills, and 25% in broad market-based index funds. As he explains in his books, by broadly diversifying over so many asset classes he attempts to create a portfolio which will accommodate inflation, deflation, prosperity and depression. Browne’s portfolio — which, some may note, includes more gold than is usually recommended — has done very well over the years, averaging a return of 8-9% from 1970-2003. Similarly, the Permanent Portfolio Mutual Fund invests in a broad base of traditional and non-traditional assets to create an investment environment for all seasons.
I acknowledge that nothing in the investment world is sacred and I challenge you, the reader, to e-mail me and tell me how you believe one can structure a portfolio for all times. What reasonable actions should people take to account for the unpredictable world that we all live in?
Mark K. Funke is a transactional 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
Randgold Resources Profit Up
Despite higher costs and lower gold output, CEO Mark Bristow announced that he remains extremely confident about the company’s short- to medium-term prospects, with a number of new key mines and exploration projects showing strong potential. In announcing Randgold’s earnings in London, he reported net profit up 25% on the previous quarter and 42% on the corresponding quarter in 2007. This was in spite of intensifying industry-wide cost pressures, most notably the sharp rise in the oil price. Although attributable production was down 13% on the previous quarter and total cash cost of $440 per oz. was up 12%, Bristow said both were in line with plans considering the rise in oil price. (The company’s mines rely on diesel fuel for self-generated power.)
Silver Institute and GFMS Release Annual World Silver Survey
Among the report’s findings:
• Silver mine production is expected to record a sixth consecutive increase, and even accelerate this year, as several new major mines come on stream.
• The growth in industrial demand for silver is countering the effects of dwindling silver consumption in photography (photography still accounts for 16% of silver consumption).
• Silver price gains remain impressive, with 2007’s annual average representing a 23-year high amidst growth in price volatility.
• World silver cash costs increased 43% in 2007, due to cost increases in labor, consumables, and energy.
• Net investment demand is a relatively small portion of silver’s overall supply/demand balance, but investors play a larger role than their metal usage indicates.
• Silver investment activity in 2007 closely followed gold’s lead, but throughout 2007 gold outperformed silver.
• Silver prices are driven by more than investors. Fairly high levels of producer de-hedging and the resilience of fabrication were also instrumental.
NYMEX Margins Changed for Platinum, Palladium
As prices fell, the New York Mercantile Exchange (NYMEX) reduced margins for its platinum and palladium futures contracts effective May 5. Platinum futures decreased to $6,000 from $7,000 for clearing members, to $6,600 from $7,700 for members, and to $8,100 from $9,450 for customers. Palladium futures margins decreased to $2,750 from $4,500 for clearing members, to $3,025 from $4,950 for members, and to $3,713 from $6,075 for customers.