Market Summary —
November 2008
November provided a very bumpy ride for metals prices, many dropping to levels not seen for years — silver hadn’t been so low since January 2006; nor had gold. Platinum was at a price not seen since July of 2004, and palladium continued to trade at levels not seen since October of 2005.
Gold, however, rallied off its early-November lows to finish up nearly 11% for the month. Platinum also managed to finish up 3.4% for the month, though still 4% below its November high. Silver dropped nearly $2 per ounce from the November high to low, but managed to rally to finish slightly higher than the open. Palladium, however, finished lower by 6.6%.
Gold/Silver Ratio
Silver is priced remarkably low as compared with gold. The gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — opened November at 72, rose to 86, and finished at 77. By comparison, the year’s average gold/silver ratio for the year is 58, so while most metals have become more affordable, gold has retained more of its favor. The gold/silver ratio has increased 75% since the March 4 low of 47.
Also of note is the fall of the platinum/gold ratio (the quantity, in Troy ounces, of gold required to obtain one ounce of platinum). As late as July 16, platinum’s spot was double that of gold’s. At the end of November, platinum had fallen to just a little more than 9% over gold’s spot price.
| November Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $10.82 | $829.80 | $242.50 | $903.50 |
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| Low | $8.86 | $701.40 | $178.00 | $779.00 |
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| Open | $9.92 | $727.85 | $204.50 | $838.00 |
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| Close | $10.18 | $806.90 | $191.00 | $867.00 |
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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 November, 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.
Cash is King…
(…but the king has no clothes on!)
by Ross Hansen
Headline after headline has bemoaned the decline in the economy, the collapse of the stock market, and the disintegration in consumer and investor confidence. With financial instruments from collateralized mortgage obligations to General Motors stock to contracts on North Sea Brent Crude crumbling under the weight of Wall Street Armageddon, experts and average Joes alike are steering away from everything and just holding on to their cash.
The hard truth is that stuffing your mattress with Federal Reserve Notes will not provide lift in stormy economic skies.
These very retail and institutional investors, who have been notoriously wrong at predicting the future, now point to the presumed “resurrection” of the U.S. dollar against other world currencies. To some degree, they’re right: as of December 1, the dollar had gained 21% from its July 15, 2008 low against the euro.
Cash has become king, but the harsh reality is that this king has no clothes on.
The American dollar only appears to have strengthened relative to other countries which are themselves experiencing the same insanity of fiat currency. It’s as if all the world currencies have jumped off a building, with the U.S. dollar bragging that it is higher than the rest as they all plummet to the pavement below.
Nor is this recovery the result of any sort of economic epiphany in Congress to adopt sound fiscal policy. Its bailouts and market interventions have done little to head off escalating unemployment, the decline in real personal income, sinking industrial production, and tumbling wholesale and retail sales. So, while the December 1 acknowledgment that the U.S. has been in recession for a year was no surprise, there is nothing to indicate that the pretenders to the throne in Washington, D.C. have the sort of fiscal altimeter or monetary sextant needed to navigate successfully through the really bad economic weather approaching.
Consider, then, the survival kit and vest included in military aircraft. Even as engineers sought to eliminate every burdensome ounce of extra weight, the survival gear always included a few grams of solid gold and silver blocks to use behind enemy lines. When I asked why not instead include some hundred-dollar bills to reduce the weight, I was told the hard facts of hard currency: gold and silver are tenderable in all cultures in every country. Precious metals don’t burn, tear, or wear out. They won’t be easily traced and won’t raise suspicion the way the sudden appearance of large denominations of paper currency could. In short, gold and silver improved survivability better than mere printed paper.
So, as you look at your fiscal flight plan, ignore the siren song of the dash to cash, and put some gold and silver in your personal financial bailout kit. Don’t count on the king who has no clothes.
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: Selling v. Holding, Should I Stay or Should I Go?
by Joe Nicholson
Buying physical metal should be viewed as an intermediate-to-long-term investment, not just because the practical matters of such transactions don’t lend themselves to very short-term trading, but because the cycle of value on which such an investment is predicated spans many years. Since gold and silver are no longer official currency, their investment value comes mainly as a hedge against the declining purchasing power of the dollars as well as currencies being linked to macroeconomic forces like monetary and fiscal policy and global economic growth. Therefore savvy precious metals investors should take the long view when deciding whether to buy, sell, or hold precious metals.
Gold has no perfect correlation with any other market, even currencies, but common sense suggests metals should be purchased when interest rates are at their ebb. First, low rates make precious metals, which pay no interest, more competitive as an asset class. Second, low rates often precede monetary inflation and currency devaluation. So, investors who bought in when then-Federal Reserve Chairman Alan Greenspan first took rates to 1% in late 2001 got in on the ground floor of what would become a huge multi-year bull market. Even those who waited until late 2005, when the writing was on the wall about inflation and the Fed began its incremental rate hike policy, still captured most of the move into early 2008.
A bull market in gold began in 2001 and accelerated dramatically in 2005 as the Fed raised rates in response to inflationary concerns. The aggressive rate cuts of 2007-08 have not prevented a deflationary trend, and reinflation may not yet be imminent.
Reason suggests that the time to sell gold will coincide with interest rates at or near a peak. Yes, contrary to what some precious metals owners might believe, there is a time to sell. As the cost of living increases, precious metals roughly retain their original purchasing power, but, because they tend to react to monetary inflation before consumer prices rise, the difference can actually be realized as profit. Even if the goal is to acquire metals over time or prepare for a catastrophe, timely sales help investors by actually increasing purchasing power. The latest major top in metals coincided with a bottom in the dollar while the federal funds rate was near its peak of the cycle.
The steep decline in gold suggests price is closer to a bottom than a top, but upside in the near term may be limited and lower support retested.
The question of buying, selling, or holding becomes a matter of evaluating the future buying power of metals by evaluating the current position in the up and down of economies and interest rates. Current Federal Reserve Chairman Ben Bernanke has said explicitly that further rate cuts by the Fed are not off the table, and Europe is only beginning to accept the need to lower key interest rates as a tactic to fight the accelerating global recession. This suggests deflationary forces persist and that, therefore, the ultimate bottom in metals may not have yet arrived. The extent to which rates can be lowered further is limited, but this doesn’t guarantee a speedy recovery. All of which is exactly what someone holding precious metals from higher prices doesn’t want to hear. What they should consider, is that the vast amounts of money being borrowed by the Treasury to fund bailouts and the huge expansion of the Fed’s balance sheet will likely trigger reflation (at the least) as the economy stabilizes. Hyperinflation is also a possibility, should foreign investment dry up and force the Fed to finance government debt by creating additional new money. In either case, owning precious metals will be essential to preserving wealth and it’s probably not too early to start acquiring.
After vibrating around the level of the September low, gold appears to be describing a wedge pattern that needs one more high to complete. This could lead to retests of recent peaks.
As suggested here for the last two months, the September low was a crucial level. While the short term pattern in gold appears to be an ascending wedge that would see price move higher in the short term, the likelihood of a retest and even new lows remains distinct. Taking the long view, however, and assuming that today’s Keynesianism will lead to tomorrow’s inflation, buying the dips in precious metals, not selling into weakness, seems to be the prudent move.
Joe Nicholson is a contributor to www.tradingdanumbas.com. His work appears at Safehaven.com, Financial Sense University, Gold-Eagle.com, Market Oracle, and Trader’s Log, and he has written for Futures magazine.
Ten Questions with David Morgan
by Northwest Territorial Mint Staff
The well-traveled and prolific David Morgan has contributed to Northwest Territorial Mint Precious Metals Monthly in the past, and has achieved recognition for his insights into the silver market and investing in general. As a follower of the silver market for more than 30 years, he is the author of Get the Skinny on Silver Investing, and his web site, www.Silver-Investor.com, is a leading source for serious investors. If you add yourself to his free e-mail list, the first thing you will receive — for free — is the “Ten Rules of Silver Investing,” written several years ago for The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors, published in the United Kingdom. These rules are pithy, timeless, and will pay big dividends to new investors and seasoned professionals alike. We asked him to share his knowledge as the precious metals markets have become as turbulent as Wall Street’s.
D.M. As I explained in my book, Get the Skinny on Silver Investing, when American coinage went from silver to slugs in 1965 I was an 11- year old kid, but it had a profound impact upon me and I have pursued the truth about money ever since. The data are out there. I just took the time to understand commodity trading and price effects, silver leasing, and leveraged investments. I also ran down the facts about photography and silver, and aggressively pursued any information about new uses for silver. It’s just by doing that, consistently and regularly, that has helped me truly understand silver.
NWTM. Are investors smarter, or just more afraid these days? Is that what’s sending them to silver?
D.M. Silver and gold are the only “money” free from default. This is money outside the system — no matter what falls or fails gold and silver are left standing. So maybe they’re a little of both. As long as fear leads to learning, and not panic, investors will be successful, and silver and gold will help preserve their wealth.
NWTM. GFMS statistics show that traditional uses for silver — photographic film and silverware — have fallen more than new industrial demand has risen, more than offsetting new investor demand. Do you see these trends growing?
D.M. Ultimately, photographic silver is a zero-sum game. What goes out comes back for re-use. As for silverware, these numbers are very difficult to verify and, in my opinion, are over-emphasized by GFMS. Industrial use is at 54% of all silver demand according to GFMS. If industrial use increases by 1 percent in 54% of the market, that’s a much bigger number than a 1 percent rise in 17% of the market, or whatever number they claim is used for silverware. So industrial demand is increasing but may slow during the current recession. The main trend of investment-grade silver for wealth appreciation and preservation will continue.
NWTM. Should silver remain at these current levels — half of last spring’s heights — do you recommend that investors slow down or speed up their acquisition?
D.M. That is always an individual choice. If you don’t have any, buy, even if you need to pay a premium. If you have thought this through some time ago and have some real silver and gold, then relax... the worst case is probably not as bad as your imagination.
NWTM. What signs should investors watch as they consider whether to buy more silver, or sell what they already have (or should they ever sell what they have)?
D.M. To give a meaningful answer, this would have to be addressed on a case-by-case basis. When we get to the mania or panic phase, most should consider selling some or all depending upon their personal situation.
NWTM. What effect, if any, will the incoming Obama Administration have on the financial markets, precious metals, and silver, in particular?
D.M. Difficult to say at this point. If he is less favorable to mining than the present Administration, that will put even more pressure on the physical market. But both gold and silver will regain strength again at some point, regardless of which party is in office. The financial markets may rally on the “hope” factor, but it will be short-lived. Governments always try and print their way out of these messes, and most of us understand wealth cannot be printed — it must be earned!
NWTM. What should silver investors know about silver in relation to gold and the other precious metals?
D.M. Silver is the most useful of all the metals. It has been used as money for longer periods of time and in more places in the world than gold. Silver was in circulation in the United States through 1964, but gold left the scene in 1933. Silver has less quantity available for investment purposes than gold, but more than platinum or palladium. The word “silver” and the word “money” are synonymous in Latin-based languages.
NWTM. Is your precious metals investment portfolio exclusively in silver, and why?
D.M. No, I look at the entire resource sector for mining, and have always advocated a gold and silver position. Diversification remains a way of spreading risk. As some people are now learning the hard way, risk can lead to great loss as well as great reward. We have had good success with recommendations outside of the precious metals. For example, we have a drilling company that has done well for us and offers a great opportunity at current levels.
NWTM. Are there any forms of silver that you like better than any other?
D.M. Not really, but a new investor should concentrate on coins first, then they can move to bars. By bars I mean larger bars, in 100-ounce or 1,000-ounce increments. Coins are best for making small transactions, if things ever get to that point.
NWTM. You publish an e-mail newsletter, run a silver web site, and consult individually with silver investors. Do you ever feel like you’ve overspecialized? What can an investor expect from your commentaries and consultations?
D.M. I don’t think I am overspecialized. Look at my mission statement: “To teach and empower people to understand the benefits of an honest monetary system.” As you can see the words “silver” and “gold” do not even appear in it. However, they do play a very significant role. No, I am a macroeconomist — a big picture, deep thinker with very good analytical skills. People who know me at more than a surface level understand this and that’s why they’re willing to pay a fee for consultation, not just in precious metals, but in many areas of finance. People usually are overwhelmed by the depth of the consultations. Most of what I teach cannot be answered in any satisfying way in a simple interview.
As far as my commentaries are concerned, people can get a huge amount of free-market thinking — a real education in how the financial system really operates — from my web site . Unfortunately, it seems that almost everyone on the Internet has ADD. If someone really is interested in my work and reads everything I have produced in the public domain over the past ten years, they too will be an expert.
Anyone who wants proof or additional answers should go to my site, www.Silver-Investor.com — especially now, because the entire Members Only section is available to everyone from now until the end of the year, just for signing up.
GFMS Interim Review of the Silver Market in 2008
by GFMS
We invited the precious metals consultancy GFMS, which specializes in research into the global gold, silver, platinum and palladium markets, to share its most recent review of the silver market with readers of this newsletter. Based in London, GFMS also has representation in Australia, India, China, Germany, France, Spain, and Russia, with contacts and associates across the world. Its research team of 15 full-time analysts is composed of economists and geologists, with two consultants researching important regional markets.
GFMS presented its interim review of the silver market at the annual New York Silver Dinner on November 20, 2008, an event organized by The Silver Institute. This review included the consultancy’s provisional supply and demand forecasts for 2008 and its expectations for silver supply, demand and prices in 2009.
According to GFMS, total supply is forecast to decline by around 4% this year. Only modest growth in supply is now expected in 2009, contrary to previous expectations of a substantial mine production-led rise.
Mine production is forecast to rise only moderately this year, by some 5 million ounces (171 metric tons) or just under 1%. Strong growth is expected in Bolivia (more than 100% at San Cristobal), Russia (Kupol and Dukat), Argentina (Manantial Espejo) and in Mexico (including Alamo Dorado and Cerro San Pedro). These additions will be partially offset by declines in Australia, the United States and, significantly, Chile. Continued growth in silver production is expected in 2009, with most of the gains coming from a full year of output at Kupol and San Bartolome (Bolivia) plus anticipated growth in Mexico. Next year’s rise will, however, be significantly lower than had been previously projected. With regards to forward selling, GFMS expect de-hedging to have slowed this year from the elevated level seen in 2007.
GFMS estimates that scrap supply will fall by 6% this year, due to a continued reduction in the amount of silver recovered from photographic products, the main source of recycled metal. At the same time, the price is deemed not sufficiently high to stimulate additional recycling of jewelry and silverware.
Government sales are forecast to drop sharply in 2008 according to GFMS. Russia appears to have again accounted for the bulk of government sales.
Chart 1 – World Silver Supply
Source: GFMS
On the demand side, fabrication demand is forecast to be broadly unchanged on a level with 2007, with expectations currently for an increase of around 1% year-on-year. In contrast, a substantial drop is forecast for 2009.
Interestingly, industrial demand looks to have enjoyed some growth in 2008, but has slowed markedly in recent months. GFMS is currently forecasting a full year gain of just over 1%. However, a decline in industrial demand is widely expected in 2009, due to the impact of much weaker GDP growth and global industrial production, which in turn will lead to a downturn, for example, in the electronics industry.
Photographic demand is anticipated to post a marked decline this year, due to the ongoing impact of digital technology and, at the margin, some increase in thrifting.
Jewelry and silverware fabrication is estimated to have dropped in 2008. Several key markets have been affected either by high silver prices (earlier in 2008) and a faltering economic backdrop. However, some substitution gains have been seen in jewelry at gold’s expense. Indian demand has also surged recently on lower local silver prices, reflected in the massive jump in bullion imports recorded in recent months.
In contrast to jewelry and silverware, according to GFMS coin demand has increased substantially in 2008 due to a substantial rise in retail investment.
Chart 2 – World Silver Demand
Source: GFMS
Investment has been a key factor for silver since the fourth quarter of 2003 (note, two years after gold) and has been particularly relevant to the drive into double-digit prices. It is worth noting that silver investment is generally led by gold and also, to some extent, by base metals.
According to GFMS, similar factors to those driving gold investment in 2008 have also been at work for silver — namely U.S. dollar weakness, the credit market crisis, inflationary fears, and growth in commodities as an asset class.
Looking at the market this year, silver investment generally rose during the first half of 2008, reflected in a rise of over 35 million ounces (1,101 metric tons) in exchange-traded fund (ETF) holdings and over 44 million ounces (1,372 metric tons) in net speculative long positions on the COMEX. However, since mid-July, in common with gold and other commodities, the market has experienced a massive sell-off in silver via the over-the-counter market and on COMEX. In contrast, ETF holdings have actually risen over same period by close to 32 million ounces.
Overall, GFMS expects to see a rebound in investment demand over the next few months, for several reasons: long positions, as noted above, have been scaled back, raising the opportunity for new positions to be established; renewed weakness in the U.S. dollar is expected, and “de-leveraging” by the wider investor community will, broadly speaking, have largely run its course. GFMS therefore predicts that silver is likely to be seen as “cheap” on a ratio basis, particularly as gold is also expected to move higher over the coming months.
In terms of the price outlook, GFMS expects silver’s supply-and-demand fundamentals (excluding investment) to turn negative in 2009 due mainly to lower fabrication demand, though the supply side should pose less of a threat than previously expected. The silver market will therefore move back into substantial surplus but this metal should be absorbed by investors. GFMS now forecasts an average price of $14.65 per ounce in 2008, while the recent range of $9 to $10 per ounce can be taken as a probable low for the rest of this year. Looking ahead to 2009, GFMS, under its base case scenario, currently forecast a full year average of around $13 per ounce.
You can download the full version of the presentation from the GFMS website: www.gfms.co.uk.
All rights reserved. This article was produced to be published in Northwest Territorial Mint Precious Metals Monthly only. No part of this article may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner.
This data is released for general informational purposes only, and is not for use in documents with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background briefings on the precious metals markets associated with marketing a particular business or business offering, or similar such documents without prior written agreement of GFMS.
GFMS retains all intellectual and commercial property rights associated with the data contained herein and any unauthorised use of this data is a violation of applicable international laws and agreements. GFMS can grant permission for the re-publication of our material in both print and electronic format subject to a copyright fee. If you would like permission to reproduce our material in any form please contact GFMS directly in writing.
Precious Metals Worldwide
News & Trends from Around the Globe
China May Buy 3,400 Metric Tons of Gold
China’s central bank may increase its gold reserves to 4,000 metric tons from its current 600 metric tons, according to a story reported by the Guangzhou Daily and disseminated by some financial news institutions, including Bloomberg. The story, which ran on November 19, was followed by a gold price rally, including a November 21 single-day rise of $58.10 per ounce, or nearly 8%. According to Bloomberg, China now owns more U.S. Treasuries than any other holder — nearly $600 billion worth. Many observers have long expected China to seek to diversify its holdings in foreign currencies, especially U.S. dollars. Stories about China's interest in obtaining additional gold reserves followed indications that Iran had acquired additional gold reserves as the price of oil declined, and that Saudi investors were also buying gold.
China’s Silver Imports Also Expected to Rise
Growing industrial demand for refined silver in China — accompanied by increasing production costs and reduced silver prices — is close to ending the growing economy's ability to produce enough internally, said Zhou Juqiu, chairman of the gold and silver division at the China Non-ferrous Metals Industry Association, in a story reported at Chinamining.org. According to Li Xiaoni, vice president of China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters, Chinese industrial consumption is 70 percent of the global total. With 26,000 metric tons of silver reserves, China ranks fifth globally.
Falling Palladium Demand Will Reduce Norilsk Metals 2009 Production
Norilsk Nickel, the world’s leading producer of palladium, says it will reduce 2009 output by at least 7.9%, refining 2.764 million ounces instead of the 3.00-3.05 million ounces it had earlier forecast.
Germanium Creates Tarnish-Free Silver Alloy
Germanium, alloyed with silver, is stronger and better resists tarnish than sterling silver, and may replace sterling silver as the standard for wrought silver items. This claim is made by a company called Argentium International, which owns the patent and is marketing the metal to companies using sterling silver now. The germanium attracts oxygen and migrates it to the outer layer of any item fashioned with the alloy, which is being called argentium. Tarnish in sterling is the result of oxygen combining with the copper that composes 7.5% of the classic silver alloy. Adding germanium enables less copper to be used in creating champagne buckets and the like. Fire stain — darkening as a result of heating the metals to form sterling — is also eliminated in the new alloy.