Obama Elected — What’s To Come?
Now that Barack Obama has been elected president, how will things change? A Democratic Congress and a Democratic president will face a staggering budget deficit, an economic contraction unlike any seen in decades, and costly wars abroad. Where will this alarming combination take us? Count on Northwest Territorial Mint Precious Metals Monthly to watch developments closely and call out any that will affect your investments — or your need to invest — in silver, gold, platinum, and palladium.
The tumble of precious metals prices continued in October, with silver dropping below $10 for the first time since June 14, 2006. Gold had been above $700 since September of 2007, and platinum fell below $1,000 for the first time since January 6, 2006. Palladium had not been below $200 since October 7, 2005.
Gold and silver attempted to rally mid-month, but by month’s end, institutional pressures were driving spot prices lower at the same time individual investor demand spiked. Platinum and palladium were driven lower by expectations of reduced autocatalyst demand.
Gold/Silver Ratio
During October, the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold – began the month in the high 60s, which, relative to several months ago, is high. But what followed could give one motion sickness: the ratio spiked to the low-to-mid 80s then dropped to the mid 70s three successive times, ending the month at 73.5. Gold will now buy approximately 33% more silver than just three months ago.
| October Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $13.00 | $934.45 | $217.50 | $1057.50 |
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| Low | $8.52 | $682.38 | $168.00 | $760.00 |
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| Open | $12.24 | $875.40 | $206.00 | $1040.50 |
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| Close | $9.91 | $726.95 | $203.50 | $833.00 |
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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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CHARTS
The following charts display the daily low and high spot price of each metal for the month of October, 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 October, 2008.
The Growing Interest in Silver
by Ross Hansen
The one question that seems to be on the lips of every silver investor today is this: If so little retail silver is available, why hasn’t the price moved upwards instead of falling 50% off the recent highs?
Many pundits – who unfortunately have access to the high-tech megaphone known as the Internet but possess little or no understanding of the silver market — will tell you that the price fall is all a result of government conspiracies, conjuring up evil backroom dealings between shady banks and unnamed sinister government agencies looking to rip off the American investor.
The reality is that for many years investment demand for silver had been waning. Most western nations stopped using it for coinage in the second half of the 20th century. Governments and central banks sold off their reserves. After being led to believe that silver was no longer money, the general public came to see it primarily as an industrial metal, good mostly for making earrings and film. Equities were king makers (remember the dotcoms?)
With so little interest in silver products as investments, the silver price continued to fall. Major companies such as Johnson Matthey and Engelhard stopped making investment silver products entirely, leaving manufacture to independent companies like Northwest Territorial Mint to pick up the slack.
However, the recent financial crisis has created a commodities boom. As the financial flummery of the U.S. economy has come to the fore, investors concerned about preserving their wealth are once again flocking to the safe haven of precious metals. Each economic impropriety — the dotcom bust, growing inflation, the subprime crisis, the housing bubble, skyrocketing oil prices, unemployment — only accelerated interest among those previously disinclined to consider hard assets.
Silver is very much in demand now. The U.S. Mint has sold 54% more 1-oz. silver American Eagle coins so far in 2008 than it did in all of 2007, according to its own web site.
And although premiums on silver transactions have risen, the spot price hasn’t, because the demand for silver as an investment remains a very small portion of the overall demand for refined silver. Even accounting for growth, the retail silver market — which, at 38 million ounces, accounted for an estimated 4% of total demand in 2007 — is still too small to influence the total market. Those of you who read the World Silver Survey produced by GFMS already know this. (Check out the data yourself at the Silver Institute's web site.)
Overall silver production is up. The World Silver Survey says that the annual production of silver has grown substantially since 1998 — 24 percent more silver was mined in 2007 than in 1998.
Source: World Silver Survey 2008
Mine production, in general, is up. The growing economy and the need for industrial metals like copper, zinc, and lead have helped boost silver production, because silver is often a byproduct of efforts to mine these base metals.
Industrial demand for silver has also been increasing. GFMS shows a 44% growth in industrial silver demand from 1998 to 2007 (the last full year of figures).
But, during that same period, photographic use is down nearly 100 million ounces per year, and silverware use is down an additional 55 million ounces. Reduced demand at that scale does mean reduced price.
The reality is that a surplus of 13.5 million ounces of silver is not going where it used to and not yet finding its way to the investment market.
And so, the problem rests on investment silver production. Something similar has happened in the automobile industry. When gasoline prices zoomed upward recently, consumers in the U.S. sought more fuel-efficient vehicles. The resulting shortage of hybrids created waitlists. Plenty of vehicles are still for sale (ask GM and Ford), but the super-sized SUVs on the showroom floors aren’t what consumers want now.
Silver is experiencing a similar situation. The silver available now on the open market just isn’t in the form that investors want. Mints and refiners can get plenty of silver, but a lot of it requires additional manufacturing to size it properly for investment users. As with GM and Ford, production increases are necessary for the products that silver investors want.
And that is already happening.
Even if you don’t remember it, surely you’ve learned about World War II. Upon entering the war, the U.S. had a fraction of the armed forces and weaponry it needed to fight to victory. According to the U.S. Centennial of Flight Commission, only 2,000 military aircraft per year were produced prior to the war. At peak wartime production, 4,000 military aircraft were produced every month.
Responding to the basic law of supply and demand, the retail silver business will inevitably — if more slowly than individual investors would like — make the same type of production capacity improvements. Mines will continue to ramp up production. Mints and refineries will work longer hours or add extra shifts to convert the silver already above ground into the products that investors want to own. And silver will once again regain its lustrous position as a trusted unit of account, a store of value, and a medium of exchange — in short, as money.
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: Thankful for Something
by Joe Nicholson
At the start of October gold appeared to begin a new impulsive move higher that could take it to new highs. The critical areas to watch were the previous high near $930 and the September low below $750.
As the month wore on, the sheer panic of financial collapse that had buoyed gold just weeks before finally began to dissipate thanks to the overwhelming force of Fed and Treasury intervention, not to mention a Congressionally-approved bailout and a globally-coordinated rate cut. In the place of abject fear was the more general malaise of weak earnings and lowered earnings guidance, and these are never particularly good for precious metals. The euro declined in response to the rate cut and a deteriorating economy, which only further contributed to the collapse of gold through the September low.
When gold broke through the September low it also negated the possibility that a strong, new upward thrust had begun. It has since returned, marking it again as a critical area from which to trade.
Since the lower lows of late October, gold has now retraced back to the September bottom, but the push and pull of truly historic upheavals in global markets continues to make Elliott wave-counting a hazardous exercise. To put it mildly, the number of waves is unclear. But, to be sure, analysis provides no reason to expect huge gains in the near term – gold would have to penetrate solid resistance to get traders once again believing in a new upward impulse. In fact, the recent move higher can easily be a classic fourth wave retracement, which would likely unfold as a shallow consolidation before a move to fresh lows and the completion of a five-wave pattern from the most recent high.
This appears all the more likely when looking at a more long-term picture of gold.
The $650 level may become a magnet pulling gold to new lows as confidence gradually returns to credit markets. Previous resistance/support, as well as the 200-week moving average, makes this a compelling area to watch.
The good news, though, is that gold is probably much cheaper now than it will be five or ten years from now. Two forces, over time, will work to move gold higher and buyers today may very well be thankful later. Panic, as has been seen, can produce higher prices in the short term, but those gains are ultimately unsustainable. Instead, declines in production may become a reality, forced by higher costs and lower profit margins. And already one of the more hawkish Fed Presidents, Jefferey Lacker, who will be a voting FOMC member next year, is expressing concern about leaving rates too low for too long. How exactly the credit crunch and recession will play out is yet to be seen, but economic recovery will most likely eventually mean that all the liquidity used to defrost bank lending, and the loans from which they will someday stem, will eventually inflate the money supply, even if government measures of price inflation continue to decline in the near term.
In the meantime, the precipitous decline in silver, which has returned the white metal to 2005 prices, gives occasion to discuss a curious development in precious metals markets. Rumors of shortages aren’t exactly correct, but even where metal is available, it’s almost always at a significant premium to the spot price, a larger than normal spread. The fact that investor demand has outstripped the rate of manufacture for bullion should suggest these low prices are not sustainable, and over the longer term that will probably be the case, even if weakness in the spot market continues in the near term.
In a clearly impulsive move down from its high, silver failed to stop its decline at virtually any suspected technical support. Fundamental factors artificially suppressing price will probably have to be alleviated before significant gains can be made.
As in gold, silver has clear resistance which must be exceeded, first at the 5-week moving average, then at $11 before serious consideration can be given to a move higher. More likely is a prolonged consolidation at these levels, perhaps in a range from $9 to $11, before a possible new low. But, even if that new low is required to complete the decline, current prices of silver and gold represent deep value and low prices for which investors can be thankful.
* 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.”
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.
Texas Congressman’s Bill to Set Gold Price to $500 Still in Committee
by Northwest Territorial Mint Staff
The bill introduced in the House on July 31 by Rep. Ted Poe (R-TX) directing the Fed to “make the value of the U.S. dollar equal to the market value of 0.05 of a troy ounce of gold and maintain the value of the United States dollar at this level” remains in committee.
Part of an overall bill entitled, “The Sound Dollar and Economic Stimulus Act of 2008,” Rep. Poe’s attempt to limit gold to $500 also calls for 100% depreciation of all business assets in the year acquired.
According to Poe, writing in RealClearMarkets, “The Fed would do this by announcing that its Open Market Desk was prepared to sell government bonds and contract the monetary base until the price of gold falls to $500 per ounce.”
Poe says that the monetary base was $827 billion the last time gold sold for $500, in December 2005. The base has since expanded, and was $872 billion at the time he wrote, which would mean the Fed would need to sell about $45 billion worth of bonds to remove currency from circulation.
The 110th Congress will be in session beginning November 17, at which point it will be seen whether the lame duck House moves the bill out of the House Budget Committee.
Precious Metals Worldwide
News & Trends from Around the Globe
Gold Mining Execs See Gold Back to $1,000
AngloGold Ashanti CEO Mark Cutifani said in an article on MineWeb, that, as a result of failure to invest properly in the industry, world gold production would decline by about 3% annually for the next five years. Without predicting precisely when it would happen, Cutifani estimated that “fundamentals will drive an improvement in the gold price” in three to six months. Barrick Chairman and interim CEO Peter Munk told analysts in a recent conference call that, “because of the U.S. dollar has been overly appreciated against everything in the world today... I think the outlook for gold is a hell of a lot more positive than anything else you can think of.” Likewise, in a radio interview on SAfm Radio in South Africa, Gold Fields CEO Nick Holland said, “I believe gold will go through $1,000 and stay there during the course of 2009,” adding that a gold price of $1,000 is what’s needed “just to actually restore the margin and keep this industry going.”
Silicone Rubber With Platinum Cures Faster
A new silicone rubber compound made with platinum for fast curing was announced recently by Wacker Silicones. Their product, Elastosil C 1200, now cures at room temperature without shrinking on vacuum bags, which are strong rubber-coated fabrics or films used to bond or laminate materials by use of a vacuum pump. The fast-drying compound greatly increases the size of materials that may be formed.