Metals prices fell hard in August. Gold (down 8.7% for the month) had not been below $800 per ounce since late December; silver (down 22.6%) had not been in the $12.50 range since September 2007; platinum (down 16.4%) had not closed at $1,315 since May 2007; and palladium (down 19.6%) had not been near $272.50 since the first week of 2006.
Driving metals lower were the prices of oil (down) and the value of the U.S. dollar (up). But all markets were generally turbulent. While metals tumbled, the Dow Jones Industrial Average jerked and dove like a kite all month. That volatility, combined with prices that many seemed to think were temporarily low, sent record numbers of buyers to the precious metals window.
Gold/Silver Ratio
During August, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month in the mid-51 range and climbed in the first half of the month to the low-60s as silver declined faster than gold. The last half of the month saw the low-60s ratio tested and held.
| August Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $17.74 | $916.34 | $382.00 | $1743.50 |
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| Low | $12.48 | $778.10 | $272.50 | $1315.00 |
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| Open | $17.69 | $910.86 | $381.00 | $1741.50 |
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| Close | $13.69 | $831.30 | $306.50 | $1455.50 |
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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 August, 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 August, 2008.
Breathless (Gasp!) Investing
by Ross Hansen
Remember the Cold War era – when those supposedly in the know told us we had to buy up gold and silver because the Russians were going to nuke us into the Stone Age?
Ah, memories. Can you name any other events of the past half-century that panicked some investors into wild and irrational behavior? Here’s just a few…
1. Two oil jolts in the 1970s spawned two straight years of double-digit inflation during the Carter administration. No surprise, then, that gold hit $850 and silver reached $50 in 1980!
2. Then, foreign policy cowboy President Reagan faced down the Soviet Union’s Evil Empire. Expecting that nuclear Armageddon was soon to come, many frightened investors scurried to buy silver and gold.
Communism collapsed and uncertainty reigned in the time that followed.
3. The first Gulf War resurrected fears of the end of civilization.
4. Y2K conjured up anxiety that the world’s computers would grind to a halt on January 1, 2000, and millions squirreled away precious metals, food, and weapons.
5. The attacks on 9/11 created panic everywhere.
6. Gulf War (again).
7. The dollar tumbled (again).
8. Oil prices soared (again).
9. Inflation (again)…
Surely other events come to mind. My point is that something is always happening that drives people, wide-eyed in terror, to pick up the telephone, empty their safe deposit boxes, or climb into a hole in their back yards.
And when that happens, out come the carnival barkers: “Hurry, hurry, hurry. Step right up!”
You know who these people are. They’re the ones selling you a solution to a problem that would normally take you only two minutes to figure out for yourself — that is, if they weren’t shouting so breathlessly that you need to “Do it now, now, NOW!” They’ll remind you about missiles in Cuba, claim terrorists are at the ticket counter, and shriek of the certainty of calamities to come – from toad extinctions to missing Russian nukes. They’ll tip open their magic hat and pull out a massive conspiracy that unfairly holds down (or shores up) the price of [insert name of whatever-market-they’re-in here]. They freely share their information on all the evil people, corporations, governments, or cartels that have plans to corner the market in concrete, shoe polish, chewing gum, or… you name it.
“Step right up, friends,” says the barker, “and view how our once-beautiful economy – the envy of all nations – has become a hideous creature to be feared and loathed.”
“But you can protect yourself,” the barker consoles. “Buy gold and hide it before the government sends thugs to your house and takes it from your children. Buy silver and stash it away before it disappears from the face of the earth like the dodo and common courtesy.”
And over there, on the other side of the investment carnival Midway, are those hawking the opposite view: “Sell, sell, sell your metals now, before they totally lose their value!”
Now, please don’t get me wrong. Considering your circumstances is always wise. You might live near a geologic fault line, or in a state prone to tornadoes, or on a coastline targeted by hurricanes. Preparing for the worst case is always prudent, because, eventually, something bad will happen – and it may be something you cannot even predict. You don’t need to make a special trip to buy your emergency preparedness kit. You just need to remember to get the bottled water, canned food, battery-powered radio, flashlight, and batteries the next time you go to the store.
Remembering the past can help predict one thing for sure – the carnival barkers will always be out there selling something. Just take the time to understand the information you’re being given. If it’s being delivered loud and fast, look for gaps in the logic. Ask questions. Does it really make sense that Tuesdays after a solar eclipse in the winter of odd-numbered years are the best time to make an investment? Look behind the curtain. If the barker won’t let you see what’s back there, perhaps nothing is there at all.
So, before you pass your pocket change (or more) to the carnival barkers of the investment world, feel free to take a breath… relax… chill. Then, buy when it makes sense for you.
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.
Investing in Gold: A Defensive Asset
Guest commentary by Jamie Ellis, Whiskey & Gunpowder
With the economy reeling as it has been in recent months, many people are looking for a way to diversify their investments. Some are simply frustrated with poor returns from their current portfolios, and others are looking for protection and safety in the long term. No matter which camp you find yourself in, turning toward gold as an investment is a surefire way to solidify a foundering portfolio or shore up your wealth.
Nothing is like gold bullion, the ultimate expression of pure value. Historically, many civilizations have recognized the permanence of gold's value. For example, Egyptian civilizations buried vast amounts of gold with deceased pharaohs in the belief that they would be able to use it in the afterlife. Great wars were fought to pillage stores of gold, among other reasons.
Why the allure? Gold is the only real money, and its value cannot be changed or controlled by government fiat — the underlying reason for governments to go off the gold standard, unfortunately.
Gold’s value will rise, based on the pure forces of supply and demand, no matter what Mr. Bernanke decrees regarding interest rates or greenbacks in circulation. The big disadvantage to owning gold is that it tends to trade with a wide spread between bid and ask prices. So don’t expect to turn a fast profit. You’ll buy at retail and sell at wholesale, so you'll need a big price jump just to break even.
However, you should not view gold as a speculative asset, but as a defensive asset for holding value. Since your dollars are going to fall in value, gold is the best place to preserve value. The best form of gold ownership is minted coins: 1 ounce South African Krugerrands, Canadian Maple Leafs or American Eagles.
Because of the precarious state of the U.S. dollar, you can almost be sure that gold will remain a more reliable store of wealth. Thirty-seven years ago, the U.S. decided to drop its gold standard and revert to a purely fiat currency system. Now that our currency is no longer tied to anything with tangible worth, the supply of money is sure to increase and the value of those dollars will fall. The damage to the dollar’s worth will raise the value of gold.
Of course, as with everything else, the real value of gold has to do with supply and demand. But unlike most resources, the actual supply of gold in the world changes very little. While a small amount of gold is being mined every day, the gold that has been previously mined is still largely around. That means that a great deal of gold hoarding is going on, which in turn controls the gold supply. Much of the world’s gold is hoarded, be it used in the making of jewelry and other luxury items or simply stored in a safe or warehouse.
But that gold still holds the potential to one day be brought to market. This is one of the biggest factors influencing the price. When the market goes through a gold bull market, gold traders will be more likely to bring their gold to market in an attempt to pull in that long-awaited profit. Of course, this will have a negative impact on the price of gold if too much is brought to market at once.
Of course, you can invest in gold in many ways once you’re convinced it’s the right idea for you. But few methods can compare with the physical ownership of gold. Even exchange-traded funds and gold certificates of deposit can be susceptible to unforeseen calamity. But the physical gold that you keep in your possession will always be worth something. It has an intrinsic value that has been admired for centuries. All you have to do is hold some gold coins or bars in your bare hands to understand why. Gold has long been synonymous with wealth and prestige, and we have been conditioned to admire gold’s physical beauty.
That’s why I mentioned gold’s value as a defensive asset. And that’s also why you won’t find too much mention of the precious metal in the mainstream financial press. Gold is a defensive, counterculture investment meant to keep you financially solvent should ever a day come when our organized financial systems break down. Should that day ever come, there’s no telling how quickly the value of fiat dollars will shrink to zero. But that gold you own will still be worth something and will more than likely be the main form of currency once again.
The biggest problem with owning physical gold is liquidity. Gold will never be confused with the most liquid of investment vehicles. But that is not the aim of venturing into the gold market. Gold should be seen as a hedge against your dollar-dominated investments. Your portfolio can be considered diversified when a good portion of it is tied to the value of gold.
No matter how you acquire your gold bullion, you can be confident that your investment will pay off over time. We’ve already seen what’s happened to the dollar recently, and every indicator shows that inflation should be here for some time. That means the price of gold should be going up, and may even double in the near term. If you’ve been thinking about investing in gold, don’t wait too much longer. We’re looking toward a huge gold bull market, and you’ll want to make sure you get aboard while you can still afford to.
P.S. Whiskey & Gunpowder — a FREE e-letter — is your source for gold, energy, oil, and commodity news. At Whiskey & Gunpowder we’ll give you up-to-date analysis from some of the leading names in the field. We provide insight in a straightforward and informative way five days a week. And we’ll even attempt to entertain you in the process. To start your FREE subscription visit here.
Technical Take: The Damage Done and How to Profit
by Joe Nicholson
You probably don’t need to be told about the gut-wrenchingly steep selloff in precious metals of late. The question is whether it’s time to buy again. The charts show that long term investors have significant upside potential from current levels, but also that even cheaper prices could still be ahead.
Coming into August, savvy traders had an Elliott triangle pattern to watch, knowing support at the lower trendline could be an excellent buying opportunity. Conversely, losing the lower trendline meant gold would descend much further.
The triangle pattern failed in early August as the dollar rallied. Notice selling pressure accelerated after the triangle break and a kissback to the broken trendline.
Rather than guess what would happen, technically-oriented traders let the market decide and then acted accordingly. Notice how once the triangle was broken to the downside, gold did a classic kissback to the broken trendline. If looking for a short, that’s a picture-perfect, textbook entry point. As the chart reveals, selling accelerated significantly from there.
Silver found support at the trendline from the summer 2006 lows, suggesting the bull market is still intact. But will it hold?
The good news is that despite trading below their 50-week moving averages, gold and silver have so far held rising multi-year trendlines that suggest the long term bull market survived the recent onslaught. After the dramatic rise earlier in the year, a period of correction was to be expected – as early as six months ago, this newsletter anticipated a deep correction to $800 or even lower that could ensue without breaking the overall uptrend. Now that the correction has materialized and sentiment is profoundly negative, investors interesting in acquiring physical metal are returning to the buy side taking their supply from backward speculators who couldn’t buy enough as gold screamed to new highs, but don’t want to touch the stuff when it’s on sale at a deep discount.
While precious metals are now available at the best prices in months, and risk for buyers is significantly lower than even just a few weeks ago, caution is still key. By now you’ve probably heard the term “technical damage,” or some reference to the “broken charts” in precious metals. While this doesn’t necessarily mean the bull market is over, it is important. Remember that technical analysis is simply a means of reading traders’ thoughts and emotions at different price levels – they reflect real-world and real-money positions. Many traders who bought gold or silver at higher prices and would now simply be relieved to get some or most of their investment back will become a drag on these markets as prices attempt to move higher, a headwind that’s likely to prevent a quick recovery in precious metals in the near term.
Gold could trade higher in a corrective, three-wave pattern back to nearly $900 before the final leg down.
So, since touching lows in mid-August, precious metals have gained back a little of the lost ground. But bounces after a severe decline are normal and don’t necessarily preclude new lows or at least retests of the lows. The chart above shows a possible scenario in gold where a three-wave into significant resistance in the $860-890 area appears to be the start of a new upleg, but is actually a consolidation before a final low. The way to play this possibility depends on timeframe and risk tolerance. Waiting until gold has cleared the resistance area and found solid support there minimizes the chance of ever holding a position at a loss. Accumulating at current levels and adding to the position if price moves lower maximizes profit potential while also increasing risk dramatically.
While months or even years are likely before precious metals reach all-time new highs, gold and silver could quite conceivably be priced significantly higher in the reasonably short term. In any event, technical analysis is a powerful tool for analyzing price action and planning your next purchase of precious metals.
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.
Precious Metals Worldwide
News & Trends from Around the Globe
Northwest Territorial Mint to Display a Ton of Silver at the Silver Summit
Northwest Territorial Mint will display a ton of silver at the Silver Summit in Coeur d’Alene, ID on September 18 and September 19. Silver Summit attendees will be encouraged to have their photograph taken with the silvery stack. The display is intended to highlight the beauty and intrinsic value of silver, as well as encourage investment. Northwest Territorial Mint strikes custom silver products for clients, as well as bullion products for Pan American Silver Corp. and Northwest Territorial Mint itself.
Japan’s Trash Is Precious
According to a recent story in the Times of London, Japan would be the fifth largest source of some elements if the mobile phones, televisions, computers, and MP3 devices trashed or stored unused in drawers were mined for their component metals, including gold, silver, and platinum. Japan’s National Institute for Materials Science (NIMS) has recently calculated that Japan has accumulated three times as much gold and silver as the entire world uses or buys in a single year. There may be six times as much platinum in these “urban mines.” The Ministry of Economy, Trade and Industry has advocated countrywide collections of old electronics from homes and is seeking ideas for recovering metals from Japan’s landfills. Some companies already recover metals; Asahi Pretec is said to have retrieved about 15 tonnes of gold last year from a variety of industrial waste.
Gold as Catalyst
Researchers from Lehigh University in Bethlehem, PA, and Cardiff University in the UK say they have identified the ideal point at which oxidation occurs when gold is supported on iron oxide. This continues work from the 1980s, when it was first learned that gold in extraordinarily small size — 5 billionths of a meter, or about the size of 25 atoms — was extremely catalytic. Possible applications include oxidation of carbon monoxide for fire fighters and others who must enter burning buildings, and the protection of hydrogen fuel cells from carbon monoxide contamination.