Market Summary —
December 2008
After a cold-shower November, gold, silver, and even platinum recovered in December.
Metals generally moved northward all month long. Silver finished the month up 26% against its December low, although down 23% for the year as it was brought down by industrial shortfalls that could not overcome increased investor interest. Gold gained 7.9%, and platinum 6% for December.
Gold finished higher in 2008 – up 4% – than it closed 2007, a year-to-year gain for the eighth consecutive year. However, palladium and platinum were hammered, again primarily on industrial declines. U.S. auto sales (including sales of foreign nameplates) alone were lower by 18% in 2008, which contributed to palladium’s 69% spot price decline and platinum’s 41% tumble.
Gold/Silver Ratio
Silver remains priced remarkably low as compared with gold, although its late-December rally narrowed the gap. The gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — opened November above 82, dipped and rose, but still finished at 78, slightly higher than November’s close, and well above the 2008 average gold/silver ratio of 58.
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 the year, platinum had fallen to just a little more than 4% over gold’s spot price, and, on December 12, closed only 20 cents higher than gold.
| December Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $11.60 | $891.35 | $197.50 | $948.00 |
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| Low | $9.19 | $742.93 | $164.50 | $793.00 |
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| Open | $10.16 | $806.54 | $191.00 | $857.00 |
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| Close | $11.42 | $870.25 | $185.50 | $908.50 |
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| 2008 Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $21.37 | $1032.50 | $597.50 | $2303.00 |
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| Low | $8.52 | $682.38 | $164.50 | $760.00 |
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| Open | $14.83 | $834.16 | $366.00 | $1538.00 |
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| Close | $11.42 | $870.25 | $185.50 | $908.50 |
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CONTENTS
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Market Summary - December 2008 |
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Ross Hansen: 2008: The Year We Pulled Back the Curtain |
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Joe Nicholson: Limbo |
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Treasury Bills Down To Zero |
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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 December, 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 year of 2008.
2008: The Year We Pulled Back the Curtain
by Ross Hansen
The world’s monetary system is an artfully crafted illusion based on faith and good wishes. This only works as long as everybody agrees to see the same illusion. However, once the curtain has been drawn back on the great and powerful Oz – known this side of Kansas tornadoes as Federal Reserve Chairman Ben Bernanke – the delusion is difficult to maintain.
The year 2008, now concluded, will be noted by future generations as the year we pulled back the curtain. A realization is growing among the general public that fiat money increasingly has little more value than the paper on which it’s printed.
First and foremost, remember that the root of our problems is debt. The national debt as of December 31, 2008 was nearly $11 trillion. From fiscal year 2002 through fiscal year 2008 alone, the federal budget deficit was $2.1 trillion, with at least another trillion added this past year (which doesn’t include off-budget items, also measuring into the trillions).
Reading more like a rap sheet than a news story, the roll of the past year’s financial flummery includes: the shotgun weddings of Bank of America and Countrywide, Bank of America and Merrill Lynch, JP Morgan Chase and Bear Stearns, and Wells Fargo and Wachovia. The U.S. government took over Fannie Mae and Freddie Mac. The U.S. government bailed AIG out — twice, including accepting preferred stock in the insurance giant. IndyMac, Lehman Brothers, and Washington Mutual all collapsed. Goldman Sachs and Morgan Stanley were transformed into bank holding companies. Topping off the rap sheet of Wall Street's rescue were billions and billions of freshly printed dollars added to the U.S. economy as “liquidity” by the Fed, with other central banks (England, China, Japan, India, and the European Central Bank) following suit (and with many also sending lending rates downward at the speed of light). Inflation whipsawed from runaway gasoline prices, decimating the U.S. automobile industry and, finally, a recession was officially declared on December 1.
With this as backdrop, many people rightly feared for their wealth, which was all on paper and not just Federal Reserve notes. In the wake of the subprime mortgage massacre, home values continued to fall, and, fueled by job losses as well as mortgages that exceed home value, more home owners found themselves not meeting their loan obligations. Overall U.S. home sales were down 8.8% as compared with 2007, and the average home price was down 12.8%, both according to the National Association of Realtors. Equities soon followed – the Dow Jones Industrial Average not only fell 33.8% in 2008, but investors flooded the market with their shares. The NYSE’s 16 all-time highest volume days were all recorded after September 15, 2008, when Wall Street’s disintegration peaked with Lehman, Merrill, AIG, and Washington Mutual leading to the $700-million dollar bailout package pandered by the Congress and the President.
The government also lost credibility in the eyes of its citizen-investors. State and local governments faced budget shortfalls as consumers reduced purchasing and consequently reduced tax revenue. Expect more screams as taxing authorities face the problem of diminishing home values at the same time they will require property tax stability. Still, all the pigs went straight to the trough, led by AIG, GM, Ford, and Chrysler, called to slop by Farmer Bernanke.
Additional debt will arrive with the new Obama Administration, as the new President seeks to stimulate the economy by spending on new programs while simultaneously decreasing taxes.
And so, with most things considered valuable until recently now seeming to have none, investors have turned to precious metals… in droves! As a consequence, supply chains that had been adequate for years could no longer keep up with surging demand for bullion. People — who had years before put their financial faith in the U.S. dollar, a McMansion, or the NASDAQ — made a beeline for gold, silver, palladium, and platinum. When you give away something of little value – and the fiat money of the U.S. and the other linked world economies has less and less – other people don’t want it either, and its value falls even further. Instead, they want something they can trust, something tangible.
Gold. Silver. Palladium. Platinum.
The year 2008 was the dawn of a new financial day. We are living in a time when many more will question the role of government should its tilts at the windmills of the economy prove fruitless. All signs point to even more interest in precious metals in 2009.
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: Limbo
by Joe Nicholson
In 2008, precious metals seemed to be in a world-class game of limbo, with investors asking, “How low can they go?” But, after stabilizing in the final quarter of the year and rallying into the start of 2009, gold and silver remain mired between the opposing forces of inflation and deflation, relegated to a rangebound limbo. Investors are expecting to see a renewed bull market in gold. However, even the most casual observer knows precious metals tend to do best in the winter months, often rising into the new year and even doing well in the first quarter — before taking the spring and summer months off (to say the least). Now, with a strong December in the history books and January upon them, traders are looking to the charts for a clue whether precious metals can build on their recent strength.
2008 was a year characterized by a steady downtrend in gold after record highs in the first quarter. The year ended with a strong rally off a strong support level just below $750, but gold has so far failed to break out of its broader trading range as RSI and MACD approach overbought levels.
The gold chart presents two interesting features for the intermediate term. First is the overbought level beginning to emerge in the RSI and MACD indicators. While they can still move higher, both suggest a mature rally in its waning stages. This need not necessarily lead to a serious price decline, but some consolidation, at least, appears likely. The second interesting feature is the curl upwards of the 50-day moving average (in blue). While the 50-day moving average remains below the 200-day average (in red), gold remains in an established downtrend, best illustrated by the trendline from the July highs. This level is currently acting as resistance at about $900. The curl upward in the 50-day moving average is at present is merely a reflection of the price gains in the past four weeks, but if it’s to be a positive sign of things to come, gold could meander in the recent range between $825 and $925 until a bullish moving average crossover provides the impetus to rally up and out of the range and the downtrend.
Gold finds resistance near $900 as the 50- and 200-day moving averages begin to converge. A crossover could be confirmation of a new bull market in gold. In the meantime, gold has established a tighter trading band between $825 and $925.
The view in silver is similar, with a rally off the fall lows reaching near-term maturity. But after having fallen much further in 2008, silver has already put in a solid support base and is holding above the 50-day moving average, which, as with gold, has begun to curl upward. Nevertheless, as promising as this may be, silver faces strong resistance between $12 and $14, and has yet to reverse much of the damage sustained in last year’s decline. Just as it will take time for the benefit of extremely low interest rates and fiscal stimulus to work its way through the economy, it will probably be some time before silver can realize a bullish crossover of the 50-day MA over the 200. Until then, precious metals remain in a sort of limbo, but savvy investors should be aware the process of recovery is clearly underway.
Silver is riding a steady uptrend off the late October low and has good support at the 50-day moving average. Resistance between $12 and $14, as well as RSI approaching overbought levels, suggests it will take some time for the white metal to undo the technical damage of last year’s decline.
...
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.
Treasury Bills Down To Zero
by Northwest Territorial Mint Staff
As investors in precious metals know, one objection frequently made about taking possession of gold, silver, palladium, and platinum, is that they earn no interest.
In December, neither did Treasury Bills.
During December, the U.S. Treasury sold billions of dollars of four-week debt at 0% interest.
The rest of the month wasn’t a whole lot different either. In fact, three times – on December 9, December 16, and December 23, the four-week Treasury Bills went for 0% interest. On December 8, the 13-week T-Bill sold for 0.01% interest.
Treasury debt purchasers are usually institutions and governments, not individuals.
Even using the latest inflation figures from the U.S. Bureau of Labor Statistics — pegged at 1.07% (inflation ran between 3.66% and 5.60% during 2008’s first ten months) — Wall Street money mavens are willing to lose a little of real value when parking their clients’ capital.
In a December 9 MarketWatch story on the low rates, chief investment strategist Robert Tipp of Prudential Fixed Income Management was quoted as saying, “Money funds are being forced to stay [in the shortest maturities] because of a lack of ability to forecast volatility.” In short, the big players are afraid to commit to investments because they do not have confidence in their ability to avoid the wrong place when an investment vehicle makes a huge move downward. In a year when the Dow Jones Industrial Average lost more than one-third of its value, just giving clients’ assets to the federal government to hold seems like a safe bet.
What do analysts think this will mean for precious metals in 2009? Patrick Heller, a columnist for Numismaster.com, wrote on December 14 that investment money will “flow into gold and silver,” expecting a small increase in demand to result in “far higher prices.” He further noted that open interest on gold on COMEX had declined by 55%, hinting that those who remained with open interest would have little interest in selling in the current market.
Can investors be sure of this? Of course not.
But investors with open eyes know the U.S. Federal Reserve has reduced its federal funds rate to 0.25%, which makes the cost of borrowing for financial institutions less dear. At the same time, a huge pile of “liquidity” — dollars whipped into existence by the Fed — has entered the economy, which most observers expect to continue to have inflationary effect.
With a finite supply of precious metals in the world – and a large percentage of it in central bank vaults – the question in 2009 might well be, “Is earning 0% less inflation on institutional investments better than earning 0% plus inflation by holding precious metals?”
Precious Metals Worldwide
News & Trends from Around the Globe
Leading Investment Banks Continue to Like Gold
In December, Goldman Sachs, Scotia Mocatta, and HSBC all forecast upward price movement in 2009 for gold, and Goldman Sachs also pegged silver to increase. Goldman Sachs based its prediction on the value of both metals as safe havens against a weaker dollar. A survey by Bloomberg showed similar optimism for gold, with an average prediction for 2009 of $910 per ounce for gold, with estimates ranging from $1,200 to $780.
Gold Jewelry Sales Sluggish in Tourist Center Dubai
Jewelers in Dubai were concerned about a collapse of “as much as 80 percent” in December as tourists had become window shoppers in one of the world’s most affluent cities, according to a Mineweb story. A merchant quoted in the story noted that gold continued to rise in dollar terms, unlike oil and other commodities.
Bank of China Overpays for Gold (Briefly), Then Corrects Its Error
A computer error at the world’s largest bank, the Industrial and Commercial Bank of China, listed the bid price of gold at six times the intended rate for 23 minutes in December. Traders online between 1:52 am and 2:15 am local time sold 10 million yuan ($1.46 million) to the bank. When the error was spotted, ICBC canceled all the related trades in accordance with its posted terms.