Market Summary —
September 2008
Precious metals bucked and shimmied all through September, driven by jaw-dropping developments in the financial world. These included the U.S. government’s seizure of Fannie Mae and Freddie Mac; the bankruptcy of 158-year-old Lehman Brothers; the $85-billion federal bailout of American International Group, the world’s 18th-largest company; the seizure and sale of 119-year-old Washington Mutual to JP Morgan Chase; and the bargain-basement sale of Merrill Lynch to Bank of America.
On September 17, gold had its single biggest one-day price gain in a decade, jumping from $783.55 to $870.14. Further buffeted by the bailout — first the rumor of one, then the actual proposal by U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, then the debate and subsequent rejection of it in the U.S. House of Representatives — gold stayed steady and silver regained strength up until the very last day of the month, when indications were the U.S. Senate would rush a “recovery plan” through. During all of this, the Dow Jones Industrial Average gyrated like a drunken frat pledge on homecoming weekend. On the day the House rejected the bailout plan, the DJIA swooned 778 points, the biggest plunge in two decades; the very next day, it soared just short of 500.
The spot price of precious metals oscillated just as wildly. Gold showed a 5% gain for the month, but ranged from a low of $738.53 and a high of $927.90. Silver’s September high was 39.4% above its low, but finished the month down 10.8%. Palladium ( off 32.8%) and platinum (off 28.4% for the month, and more than half of its price of six months ago) fell precipitously into bargain territory.
Gold/Silver Ratio
During September, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month elevated to the low 60s. As turmoil prevailed in the financial markets and safe-haven investors chose gold over silver, the ratio climbed to the low 70s, retreated to the mid 60s then returned to near 70.
| September Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $14.42 | $927.90 | $309.50 | $1466.00 |
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| Low | $10.34 | $738.53 | $201.00 | $1005.00 |
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| Open | $13.74 | $834.20 | $306.50 | $1450.50 |
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| Close | $12.25 | $876.15 | $206.00 | $1038.50 |
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HIGH CALL VOLUMES
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CONTENTS
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Market Summary - September 2008 |
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Ross Hansen: Premiums and Risk — Financial Insurance on Sale |
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Joe Nicholson: Push and Pull |
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Silver From the Mine to You |
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Precious Metals Worldwide |
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CHARTS
The following charts display the daily low and high spot price of each metal for the month of September, 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 September, 2008.
Premiums and Risk — Financial Insurance on Sale
by Ross Hansen
Recently, to get my life insurance renewed, a physical exam was required. The physical revealed what I already knew — a few extra pounds and a few minor health issues in my middle age. Because of these actuarial risks, the premium I pay to keep my insurance went up. This doesn’t make me happy, but the increase is necessary to keep me fully insured.
Protection against financial risk requires the same sort of attention, even at the macro level. With the risks associated with today’s economy, gold and silver are the premium you pay to protect the rest of your financial investments.
Last month saw a substantial downturn in the U.S. economy punctuated by record single-day nose-dives in the Dow Jones Industrial Average and massive federal bailouts. And there was more:
• Home sales were down 2.2% in August and home prices were down 9.5% compared to a year ago (National Association of Realtors).
• M3, still not measured by the government, is in double-digits (Shadowstats).
• The dollar index is down 4.4% from August 2007 to August 2008 (Federal Reserve Bank of Atlanta).
• Banks are going bankrupt and credit is tightening (pick up any newspaper).
Consider gold and silver as insurance for this financial instability. You’d expect that the insurance premiums for these risks would be high, and, historically, they are — gold closed September at a price higher than what had been its all-time high until the first of this year. But right now the metals are practically on sale when you compare them with prices — and associated risks — from six months ago.
For millennia, countries have come and gone and empires have risen and fallen, but through it all, gold and silver have been a reliable long-term store of value. While the price of gold and silver might seem to ride on the short-term whims of the market, if you graph them over any length of time, you’ll find a steadily increasing upward momentum.
Today, these two precious metals should be purchased and held as a kind of personal insurance policy against sudden downturns of the economy and collapsing values of the dollar. If you were conducting an insurance physical on the U.S. economy, you wouldn’t need an actuarial table to know that risk is on the rise. And accordingly, the cost of financial insurance (the price of precious metals) is also on the rise.
Two thousand years later, coins from ancient Greece and Rome still hold their value. Do you expect your paper money to do the same?
Most Americans today are concerned less about the return on their investment than they are about getting the return of their investment. The way to avoid the complete loss of your principal is to make sound, logical, long-term investments in precious metals and not engage in the speculative frenzy that has engulfed Wall Street.
When you are a speculator, you have to worry about the rise and fall of precious metals on a daily basis. Every incremental movement in price wrenches the gut, hammers the brain, and strains the eye.
But when you are an investor, you focus on the protection of wealth. You look to the long term knowing that the fruit of your efforts is held in a commodity that has always been valued and always will be. Compared to stocks and bonds, gold and silver are less vulnerable to the vagaries of Wall Street manipulators or slick con men (elected and otherwise).
In this space, I have often written against the practice of breathless investing and the heady dizziness it creates. I urge you to just stop and take a long, deep breath. Buy a little insurance. Invest in gold and silver. Pay those premiums regularly.
You’ll sleep better at night.
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: Push and Pull
by Joe Nicholson
The tug of war between inflation and deflation — and between expansion and recession — can be seen in the charts of gold and silver. These metals came off record highs when the Federal Reserve took an uncharacteristically hard line against inflation earlier in the year, and went on to some of their worst performances in recent memory as softness in banking snowballed into a massive global deleveraging. But, more recently, the Fed has shown a willingness to use its infinite balance sheet to reinflate the financial markets as best it can, which has investors again turning to precious metals as a classic store of wealth and liquidity in an uncertain, inflationary world.
As shown in the chart below, gold appears to have completed a necessary correction at the September lows, then rallying as central banks around the world provided a lifeline for a fragile banking system on the brink. At some point this government money will no doubt have to be removed from the system, but inflationary consequences are unlikely to be avoided entirely once the immediate crisis is averted. In fact, inflation, some would argue at this point, is exactly what’s needed. To say the least, the situation is volatile, but a focus on panic as a short-term catalyst and inflation as the long-term driver will keep investors on the right side of the precious metals trade.
Gold appears to have completed a three-wave correction at the September low and could be in the beginnings of a new impulsive leg to $1000 or higher.
Even so, the bullish picture is not entirely certain as weekly relative strength index (RSI) and moving average convergence/divergence (MACD) approach resistance and the five-week simple moving average (SMA) remains below the 50-week SMA. Crossovers in these three indicators will be a stronger buy signal for the swing trader, even as continued support at the five-week SMA can keep those focused on the short-term in a bullish trade. The resistance is clearer in the daily chart below, where the five-day moving average was turned down at the 50-day SMA. Good support exists at $850 if necessary, and so long as the September low holds, buyers can bid with confidence, particularly if they are holding for the long term.
With the 200-day SMA above the faster moving averages, a strong technical picture has yet to emerge, but as long as gold stays above the five-day SMA, the situation is encouraging.
But for all the attention lavished on gold as a safe haven against the insanity of a fiat banking system gone wild, other precious metals have not fared so well — particularly those with any perceived exposure to global industrial demand. Like oil, which has shed some 40% from its peak not long ago, silver and platinum have been shunned by investors who see a weakening global economy reducing demand for these items. Of course, the result has been bargain prices for the vigilant precious metals investor.
The decline in silver has an impulsive look, with a fourth-wave consolidation likely producing a new low near $10. The more bullish alternative needs a move above $14 to become compelling.
Whereas gold has the look of a correction from the highs, the steep decline in silver looks decidedly impulsive. Maintaining a range between $11 and $14 would suggest a fourth-wave triangle that should produce one more low, though strong resistance at the 200-day moving average around $12 could limit this movement. The alternative is that silver, like gold, is resuming a bullish advance, a situation that is unlikely without stabilization of the banking system and global economy. In either event, silver remains at historically low levels that represent a rare buying opportunity for the long term.
Broken support will now be resistance in platinum, but the deeply oversold condition suggests a bottom may be near.
Platinum, after spiking to record highs on production disruptions in Africa, has been the hardest hit of the precious metals because the auto industry is staggering under the one-two punch of expensive fuel and a shrinking economy. Having sliced through several support levels, platinum is the most deeply oversold of the precious metals. A quick return to recent highs is unlikely in the short term, especially with the auto industry on life support and the role of platinum in a clean fuel economy uncertain; however, extraordinarily low prices should tempt long term investors with a relatively favorable risk/reward opportunity.
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.
Silver From the Mine to You
by Northwest Territorial Mint Staff
Silver has long been mined, refined, struck into coinage or formed into ornaments and items for thousands of years. As often as we buy and sell it, we rarely think about the amazing process that liberates silver from the earth and places it into our possession. For those who are curious — but not engineers — this summary is intended to highlight some of the science involved in the process.
Silver and lead are often found together, and, in fact, silver is usually a byproduct of mining for lead, or often copper or gold. To mine silver, it must first be pulled from the ground as ore — a metal-bearing rock material that is valuable enough to be mined. If the ore is sufficiently close to the surface, the mine may be an open pit style surface mine. If it is too deep, shafts down to the ore are dug and the ore is brought to the surface.
In order to obtain usable metal from the rock, many steps requiring massive equipment and immense power are required.
First, the rocks containing the desired metal are pulverized, crushed until small enough to fall through a sieve, then added to water, making a muddy slurry. A solution is added that enables the silver (and gold, often) to dissolve.
Once dissolved, the silver is separated with the help of carbon. When introduced to the slurry, the carbon attracts the silver, which binds to it; the rest of the slurry is directed away, leaving a tank full of precious-metal-coated carbon.
The metal is washed off of the carbon with water, then the carbon removed, leaving a muddle of silver and water. To finally get the silver from this mixture, electricity is run through the mixture, drawing the silver particles to stainless steel cathodes, where it adheres. After the water is removed, the silver sludge adhered to the cathodes is permitted to dry, leaving a silver powder.
After exposing the powder to enormously high temperature and a chemical agent that attracts impurities, the powder melts. When poured into molds, only the silver and gold pour off; everything else is left behind. What emerges from the molds is a bar of about 99% pure silver and gold weighing about 50 lbs.
These bars are sent to be further refined, separating the metals to a purity of 99.9% or higher. The refined metal is poured into large bars of approximately 1,000 ounces for delivery to industry.
Refined silver bars such as these make their way to mints (although not every mint works with bars; the US Mint, for example, buys its blanks from other vendors, and only strikes its coins).
At Northwest Territorial Mint, however, these bars are further melted into smaller billets (cylinders of silver). The warmed billets are fed into an extruding machine, which, through vast pressure, converts the billets into strips of silver of the correct thickness for 100-ounce bars all the way down to 1-ounce rounds.
To create the blanks for the die-struck bars or rounds, the extruded silver strips are fed into a blanking machine, which punches the correct shape out of the strip; the leftover is then melted again for the next production run. Blanks are then struck with dies at up to a thousand tons of pressure to create the silver product that investors buy at a rate of tens of thousands of ounces per day.
This process is remarkable and capital-intensive, yielding an ancient asset that is beautiful, enduring... and always valuable.
To learn more, and see images of the minting process, please visit here.
Precious Metals Worldwide
News & Trends from Around the Globe
World’s No. 2 Platinum Miner To Secure Additional Resources
Impala Platinum Ltd. of South Africa, the world’s second-largest platinum mining company, plans to buy Mvelaphanda Resources and Northam Platinum in a cash and shares deal worth $2.65 billion. After consummation, the combined group would hold 316 million ounces platinum group metals in the ground, more than Gold Fields Limited, which currently holds 286 million ounces in the ground. Gold Fields, Xstrata (Switzerland) and Lonmin (UK) have all been rumored to have been interested in acquiring Mvelaphanda because of its highly desirable Booysendal deposit, said to contain 103 million ounces.
Central Banks Sell Record Low Amount of Gold
According to the World Gold Council, a record low of 357.20 metric tons of gold were sold by the signatories of the Central Bank Gold agreement for the year ended September 26, 2008. The current agreement, which sets the annual ceiling at 500 metric tons, is the second five-year agreement and ends next September 26; the initial agreement was enacted in 1999. The previous low of 385 metric tons was recorded in 2004, the final year of the first agreement. The goal of the agreements is the reduction of the price effects of selling gold reserves into the market. Leading sellers were the central banks of Switzerland (113 metric tons) and France (106.8 metric tons). Total gold possessed by the signatories to the agreement is approximately 12,000 metric tons.
Gold Tested in Search For Cancer Cure
In a breakthrough that could advance non-invasive cancer treatment, research scientists at Swinburne University’s Centre for Micro-Photonics in Australia have pioneered an experimental technique that utilizes gold to kill cancer cells. The concept of photothermal therapy places a reactive compound into a tumor, then bathes the compound with laser light; this heats the compound and destroys the cancer cells. This new advance utilizes gold nanorods with a biological coating as the reactive compound that attaches to the cancerous cells.