Though spring came a little earlier this year, wearing $1,000 gold and $21 silver, May indicated that the precious metals bull has strong legs. Though all metals peaked toward the end of the month before falling to roughly where they’d started the month, they were holding on to the gains made at the end of 2007, when gold’s all-time high simply became its new standard.
In fact, gold, palladium, and platinum all left the month at higher prices than they began. Gold was up 1.2%; palladium was up 2.6%; and platinum was 4.2% stronger. Only silver, off by less than one percent, did not exit the month higher.
In fact, all of the metals began May by falling, then rallying for most of the month before the three-day U.S. holiday and a reinvigorated dollar tempered the gains.
Gold/Silver Ratio
During May, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month at 52.5, saw two significant declines to 51.2 and 50.6 respectively, and rebounded at month’s end to the same place it started .
| May Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $18.37 | $935.75 | $464.00 | $2235.50 |
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| Low | $16.04 | $847.10 | $405.00 | $1840.00 |
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| Open | $16.99 | $876.50 | $426.00 | $1942.00 |
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| Close | $16.84 | $887.35 | $437.00 | $2023.50 |
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CONTENTS
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Market Summary - May 2008 |
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Ross Hansen: How May’s Late-Month Sell-Off Reveals Gold’s Strength |
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Joe Nicholson: Is This Trend Your Friend? |
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Put Your Dollars to Work This Summer |
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Precious Metals Worldwide |
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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 May, 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 May, 2008.
How May’s Late-Month Sell-Off Reveals Gold’s Strength
by Ross Hansen
After a strong showing throughout most of May, gold traded downward at the end of the month, slipping to $887.35 per ounce. This caused many armchair analysts to prognosticate the end of the commodities boom. But much like predicting that the Pennsylvania Primary would determine the Democratic Party nominee, pegging any imagined long-term decline of precious metals to a few consecutive sell-off sessions is premature. In fact, some experts see evidence to the contrary, arguing that the late-May decline in the gold price only gives it more room to run this summer.
Comparisons have often been made between the spike in gold prices in early 1980 and the dramatic upswing of the last several months. And rightly so. In both cases, soaring oil prices coupled with stampeding inflation sparked record physical demand for gold. As also now seems to be the case, the market corrected after gold touched $850 per ounce in January 1980. Though gold dropped sharply in the months that followed, renewed demand pushed the gold price back above $700 by September of that year.
Could we be entering a similar phase for gold right now? Many respected gold watchers champion this line of thinking. But even if you reject any parallels between 1980 and today, don’t ignore the presence of a number of factors proven to place upward pressure on the gold price.
Precious metal prices tend to drift during the summer months, but this summer is not ordinary. Consider the potential impact of the convergence of $5-per-gallon gas (as summer demand heats up in the U.S.); crude oil trading at $150 per barrel; a softening U.S. dollar; and a hotly contested U.S. presidential election.
And there’s more.
Federal Reserve Meeting in June
The Open Market Committee of the Federal Reserve will hold its next meeting at the end of June. Analysts always watch this meeting closely, as the recommendations made by the Fed’s governors typically have a tangible impact on markets worldwide. But June’s meeting is even more anticipated than usual, and the stakes are higher than they have been in a long time. After aggressively cutting interest rates, which generally pushes stock markets higher and triggers a sell-off in precious metals, the Fed is expected by many market watchers to consider raising interest rates to tamp inflation. The problem is that the traditional relationship between the Dow Jones Industrial Average [DJIA] and gold has evaporated of late; both have gone up. So if the Fed makes a modest adjustment upward in interest rates, it might send gold prices upward along with a rise in DJIA, or a renewed faith in the equities markets could spark a major round of gold selling. Whatever happens will happen quickly. If you want to take a long-term view of what the Fed will do, remember its actions are due to inexorable financial difficulties — and during those times, many people seek the security of gold.
Oil Market Fundamentals
Henry Paulson, U.S. Treasury Secretary, recently stated that high oil prices have no “quick fix.” Speaking to reporters in Qatar, one of the world’s leading oil-producing nations, Paulson stated that high oil prices are the result of current supply-and-demand realities, and that as long as demand from China and other emerging markets continues to surge, he sees crude oil prices holding steady or even rising in the short term. In his remarks, Paulson also affirmed the downturn in the U.S. economy and hinted at the weakness of the U.S. dollar.
Forecast for 2008 Hurricane Season Looks Grim
According to several trusted sources, the forecast for the 2008 hurricane season shows a likely increase in the frequency and severity of high-powered storms affecting the U.S. Atlantic basin. The forecast team from Colorado State University, which releases an annual report of its research, predicts at least 8 hurricanes this year. Analysts have suggested that, because damage caused by such storms could have a substantial impact on U.S. and Mexican oil production, they may play a significant role in driving oil prices higher. (Remember that, in the U.S., the first time the price hit $3 at retail was in the wake of Hurricanes Katrina and Rita.) In a market where demand continues to far outstrip available supply, disruption to any supply capacity could have an immediate impact on global crude oil prices. This, in turn, would likely fuel higher gold prices on world markets.
M3 Growth
In 2006, the Board of Governors of the Federal Reserve System ceased publication of the M3 monetary aggregate, claiming that “M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years.”
M3 growth at the time was 8% per month; as this is written, it’s above 16% and growing. (Thanks to John Williams at Shadow Government Statistics for continuing to disseminate this information.) M1 and M2 measure cash, checking accounts and small savings accounts and time deposits less than $100,000. M3 includes all of those plus time deposits greater than $100,000, institutional money funds, repos, and eurodollar deposits (notably, the Fed stopped measuring eurodollars at the same time it stopped reporting M3).
The Fed has pumped a large amount of liquidity into the monetary system since last summer, inflating M3. Combined with doubled oil prices over the same time span and the resultant inflation, the dollar has declined in value relative to gold (as well as the other precious metals). Concerned investors are taking advantage of gold's function as a hedge against inflation, increasing demand. Fearful investors believe that hyperinflation may be around the corner; if that's the case, gold will certainly be essential to own.
So, even if you don’t buy the comparisons to 1980 – when gold spiked during a second wave of buying after a drop in demand – plenty of additional reasons point to why gold could be poised for a breakout this summer, starting in June. And historical precedent is good for more than just comparing price charts. It goes to show that those who have bought and held gold through the years have been handsomely rewarded.
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: Is This Trend Your Friend?
by Joe Nicholson
A month ago, this space was calling it a “good time” to be in precious metals as they rallied off the lows of the year, but also said the oversold bounce due to gold’s fall of more than 15% just weeks earlier was likely to give way to new lows. Since that time, the strength in gold has unfolded in a classic three-wave move that, according to Elliott Wave* theory, suggests a relief rally in an ongoing corrective downtrend rather than a new bullish leg upward.
The trend continues to be down in gold after a $90 advance over the last month. MACD suggests the possibility of support and a break higher, but continuation of the trend could send gold significantly lower.
June begins with support at a rising trendline from the recent lows, and with MACD** convergence. If this support continues to hold, a break up and out of the declining channel will be an obvious buying opportunity. On the other hand, a test of the lower trendline could bring a significantly lower low, making the trendline support a crucial gauge of current price action.
Silver followed a rising channel of trendlines over $21, but has since fallen out of the uptrend and failed a retest from underneath in late May. The horizontal lines represent increasingly strong support levels.
Taking a longer term view in silver, the white metal clearly described a distinct upward channel in its long ascent from $11 just last fall to over $21 in March. Notice, after an initial decline that subsequently rallied back into the up channel, failure at the lower trendline of the channel in mid-April led to a lower low weeks later. Since then, silver has managed to rally along a sliding parallel to the original upward channel to retest the channel from underneath. Failure there, and the subsequent loss of the sliding parallel, tends to confirm silver may have entered a corrective phase within a new downward channel. As with gold, a breakout of the downward channel is a clear buy signal, while support at the lower levels outlined in the chart above also represent bargain prices for new acquisitions.
With the significant and rapid appreciation in value precious metals have enjoyed over the months and years, some period of cooling should be expected. This is precisely what a correction means, an opportunity within a strong bull market for gains to be digested before a new leg upward can begin. As inflation expectations increase amid ever-dwindling inventories of physical supply, the long term view of precious metals remains profoundly bullish. Using technical analysis, even a downtrend can be your friend if you are able to seize upon the opportune moment to buy.
*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.”
**MACD is a technical indicator that illustrates the direction and intensity of a trend.
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.
Put Your Dollars to Work This Summer
by Northwest Territorial Mint Staff
Summer is a wonderful time to take a vacation. Many people do, including investors, and quite often, that’s a mistake. Acquiring precious metals during the summer, just like acquiring equities, is quite often a smart decision, because dollars spent during the summer go farther than dollars spent during the fall.
When you examine the price of gold (in this case, the daily London fix) since 1999, a summer dip of noteworthy proportion in most years, followed by a resurgence in price come the fall, can clearly be seen. Gold sold for an average of 13.9% more dollars come September and October versus the low of the summer during this time period.
Only twice — in 2000 and 2006 — did the price in the fall not exceed the price in the spring.
Previous price behavior is not an indication of future performance; we all know that. But ignoring this trend may come with a price. If you are accumulating precious metals — whether gold, silver, platinum, or palladium — summer looks like no time to let your wealth take a holiday.
Summer dips are bigger in some years than others, but appear to show a trend worth considering for a long term investor.
Precious Metals Worldwide
News & Trends from Around the Globe
Peru Miners Threaten Strike in June
Peru, the world’s leading silver producer, faces a strike by miners in mid-June. Miners are unhappy that the country’s legislature would not pass a proposed law that would permit miners a larger share in mining profits. Current law caps how much miners may participate in earnings over their lifetime. A strike vote will take place on June 6-7, with the possible strike on June 16. The possible strike comes on the heels of two other mining strikes in Peru in 2007.
Silver Again Fights Infections
According to a Science Daily story, a silver-coated endotracheal tube may reduce infections by highly resistant bacteria by nearly half when compared to traditional tubes. Patients on ventilators often develop ventilator-associated pneumonia (VAP), which is always costly and often deadly. In a large randomized trial, a silver-coated endotracheal tube reduced VAP by nearly 40 percent and highly resistant infections were less than half as likely to occur.
Silver-Coated Nanowires Detect Latent Prints on Human Skin
A type of spectroscopic analysis using a dielectric nanowire coated with silver has shown to reveal fingerprints on human skin, which will soon assist crime scene investigators. Oak Ridge National Laboratory and Naval Research Laboratory are now working to develop a batch processing technique to enable the technology to be implemented in the field.
U.S. House Wants Palladium Saint-Gaudens
On May 15, the U.S. House of Representatives passed a bill calling for the creation of a .995-pure palladium reproduction of the famed “Double Eagle” coins struck from 1907-1933. The bill authorizes the creation of new .999-pure gold “Double Eagle,” but only in the first year of minting, which would be 2009. Both coins, which contain 1 Troy ounce of precious metal, would measure 27 mm in diameter. No fractional issues would be struck. The bill now requires Senate approval before going to the president for signature.
USGS Study Shows Precious Metals Production Increased In 2007
The 2008 USGS Mineral Commodities Survey estimated a 4.1% increase in world platinum production (to 230 metric tons from 221); a 3.6% increase in world palladium production (to 232 metric tons from 224); a 1.6% increase in world gold production (to 2,500 metric tons from 2,460); and world silver production increased 1.5% (to 20,500 metric tons from 20,200). The USGS collects information from a variety of sources including media reports, and is not reported to directly by either governments or companies.