December’s precious metals recovery became a rally in January, although not before surviving an early slide.
Gold, palladium, and platinum bottomed on the 14th; silver’s low for the month came on the 15th. But by the end of the month, gold had risen 13.5% off its January low, up 5.4% for the month. Palladium rose 2.3% for the month, 7.1% off the mid-month low; platinum rose 5.7% for the month, 7.5% from the mid-month low. But it was silver that caught fire, up 11.9% for the month, and a sizzling 19.3% from its January 15th low.
The jump in silver reduced the gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold. Starting January at 78, by month’s end it had fallen to below 73. It remains well above the 2008 average gold/silver ratio of 58.
| January Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $12.73 | $929.95 | $210.00 | $1010.00 |
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| Low | $10.38 | $803.64 | $178.50 | $907.00 |
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| Open | $11.42 | $882.70 | $185.50 | $908.50 |
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| Close | $12.72 | $929.80 | $196.00 | $990.50 |
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CONTENTS
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Market Summary - January 2009 |
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Ross Hansen: Obama and You |
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Joe Nicholson: Building a Breakout |
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Gold, the Dollar, and the Euro |
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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 January, 2009. 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 January 2009.
In the first handful of days the new U.S. President, Barack Obama, has been in office, he’s ordered Guantanamo closed and had more trouble finding Cabinet members than selecting a family dog. None of these efforts moves closer to fixing America’s broken economy.
The nuts and bolts of President Obama’s plan to prop up the formerly rock-solid economy with piles of paper may well survive the U.S. Congress relatively intact. The result, however, will only step up the pace of the flight to precious metals as a means to preserve wealth.
Let us examine some problematical elements of the President’s plan.
First, he proposes to disseminate additional federal funds to average taxpayers. The goal is to stimulate retail purchases. The 2008 stimulus checks – remember them? – did little to jolt the economy. Instead Obama called for a $1,000 tax credit (or maybe just $800) for middle-class American married couples that probably will go to pay off credit card debt on old purchases rather than stimulate any new buying. A January 9, 2009 article in the Christian Science Monitor reports that consumer spending is expected to plummet this year, perhaps to the lowest level since 1942. This same economy lost 2.6 million jobs in 2008 – the most since 1945. January was worse – the official unemployment rate accelerated to 7.6%, with another half-million workers receiving pink slips.
President Obama’s plan also calls for substantial investments in infrastructure of all sorts – building alternative energy production, computerizing medical records, expanding broadband Internet access to rural areas, refurbishing school classrooms and equipment, and modernizing federal buildings. These 21st-century versions of President Franklin D. Roosevelt’s New Deal will pump billions of dollars into the American economy, adding to inflation. You might remember that President Roosevelt solved that problem by deflating the currency – raising the price of gold from $20.67 to $35 per ounce. Unless President Obama undoes the work of President Nixon (whose Executive Order ended the government’s exchange of dollars for gold), the only tool remaining to tamp down inflation is to use the Federal Reserve Bank to constrict the money supply. Such a move would be a startling about-face for a Fed that is currently employing an enormous variety of methods to give banks (at least the ones still in business) even more Federal Reserve Notes.
Some factors in the final days of the administration of President George W. Bush are currently working in the new chief executive’s favor. The dollar index revealed that the greenback gained against other currencies, recovering from the precipitous fallback lasting roughly between Thanksgiving and Christmas. This relative strengthening of the dollar – seen against the weakening of other currencies – is primarily the result of the recession finally reaching the rest of the developed world and not by anything done or proposed by Obama.
Perhaps these same factors are why gold surged 2.5% on the day the new president was inaugurated, and was up 11.9% between January 19 and the end of the month. Silver was up 14.6% after the inauguration as well. Even platinum (4.6%) and palladium (6.8%) rose, despite their connection to the crashing automobile industry.
Whether this trend will continue remains to be seen. However, only the most optimistic projections call for any sort of improvement in the economy by mid-year. All of the negatives that drive interest in precious metals as a safe haven – imploding financial institutions, political instability, terrorism, sinking home values, mushrooming growth in the money supply, and 0% T-Bills – remain rooted in place, in clear sight, for anyone to see.
As those who sunk everything into Mr. Madoff’s charade now painfully know, diversity in investments is key. Having a reasonable portion of one’s wealth secured in precious metals is a time-tested investment that has weathered many storms and will surely attract more investors looking for a safe port in the rough financial seas ahead.
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: Building a Breakout
by Joe Nicholson
As described last month, the gold rally was showing signs of maturing at the start of the new year. Gold quickly shot up to the top of its trading range and then entered a consolidation pattern, allowing its technical indicators to recover from overbought conditions. This is precisely what is meant when chartists refer to a “healthy pullback.” Gold now stands in a much-improved technical situation, with a breakout and a bullish moving-average crossover much more likely (which can be seen clearly in the chart below).
After reaching the top of the trading range, gold spent much of January consolidating and coming off from an overbought RSI. As a result, a breakout now appears more likely.
Another way to view this pullback is to draw the upward channel created by gold from its November lows. While multiple Elliott Wave counts are possible, a breakout to $1,000 and beyond will suggest an impulsive 3rd wave, the most powerful rally in Elliott analysis. (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.”) Finding support at $925, though not an immediate certainty, will confirm the breakout and open the door to a retest of last year’s high. In any case, very strong support between $850 and $900, even if retested first, seems unlikely to give way in the near term.
Without breaking out of its upward channel, gold could trade back above $1,000 in the near term. If gold completed a 5-wave impulsive into the level marked “1” above, a powerful 3rd-wave rally could be expected soon.
But, as predicted, the real star of the past month has been silver, which outperformed gold quite impressively. After finding support at the 50-day moving average, silver leaped higher by more than 20 percent to trade within the near-term target range. Of course, the other side to this recent strength is that silver remains near overbought levels with strong resistance looming ahead.
Silver has outperformed gold in the last 30 days, and has moved into the anticipated target range. As a result, the RSI continues to hover near overbought levels as price approaches strong resistance between $13.50 and $14.
Precious metals do well in periods of panic and inflation. The drumbeat of job losses and declining earnings continued through January, even as those championing the current economic stimulus bill predicted further deterioration before a real recovery begins. But, the promise of inflation once the economy restarts is now widely perceived. Gold and stocks can trade in the same direction if economic growth (or recovery) generates modest amounts of inflation. Just as many remained in denial about the extent to which the economy would deteriorate, scoffing at those who predicted a recession, many currently doubt the analysts who expect huge double-digit inflation.
Still, economic optimism will likely prevail as new attempts at stimulus are allowed to work, and the global economy shows signs of resilience. This should continue to bode well for precious metals, though it could mitigate the potential for explosive upside in the coming few weeks. Ultimately, precious metals benefit from either panic or greed. As long as sentiment vacillates between these two, gold and silver remain among the few relatively safe assets by which to weather the coming storm.
The Dow Jones Industrial Average, as priced in ounces of gold, has been steadily losing value, but the pace increased again in January when the Dow broke decisively below 10 ounces of gold.
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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.
Gold, the Dollar, and the Euro
by Northwest Territorial Mint Staff
Through much of last year, as the dollar declined, gold inversely climbed. During that time frame, the euro climbed as well. The consensus of analysts was that all of this reflected lack of faith in the dollar.
As American financial crises unfurled early in the year, the Atlanta Federal Reserve Bank observed that the dollar showed poorly against European currencies (including, and especially, the euro). At the same time, gold continued to trade near or above $900 per ounce – short of March 2008’s record above $1,000, but still easily above the old record high of $870.
But come fall, the dollar saw a surge in strength. In part, the new strength was due to optimism about the financial bailout plan, but primarily it was due to the recognition that Europe, too, was in recession and had economic problems of its own. In November, a G20 summit was held to discuss the crisis, with the European Union and the U.S. agreeing to take “whatever further actions are necessary to stabilize the financial system,” as reported in EU Insight.
Also in the fall, European financial observers began to worry about possible bad loans to emerging markets, which is a primarily European problem. According to Telegraph.co.uk, outstanding loans are equal to huge chunks of many countries’ gross domestic product – 23 percent for Spain, 24 percent for the UK, 25 percent for Sweden, 50 percent for Switzerland and a stunning 85 percent for Austria. By contrast, the US exposure is 4 percent.
Many of these loans were made in dollars, accounting for the momentary strength of the greenback. As noted by Chris Gaffney at Daily Reckoning, “Institutional investors and hedge funds [had] to pay down some of the loans which they have taken out over the past few years. These investors had been rolling over loans in the lower yielding currencies of the yen, franc, and dollar in order to pick up the ‘carry’ between these low interest loans and their higher yielding investments.” But the global credit crunch has caused banks to not renew these loans, meaning the institutional investors must sell their investments and buy back the dollar to pay off the loans.
The dollar seems poised to enjoy this market demand as long as such loans remain unrenewable. Additionally, many investors in the secondary mortgage markets must buy dollars to cover their losses. The phrase for this is “global deleveraging.”
The U.S. and Europe appear to be out of sync by about six months. Could this mean that a change in the fundamental relationship will signal a change in interest in gold (and, therefore, silver, platinum, and palladium)? It bears watching.
Source of Dollar Index Data: Atlanta Federal Reserve Bank
Source of Gold Prices: Northwest Territorial Mint Closing Price
Precious Metals Worldwide
News & Trends from Around the Globe
Australia’s Top Gold Miner Still Finds Funds
Newcrest Mining Ltd, Australia’s top gold mining company, recently raised $472 million in a share placement to major financial institutions, according to a Mineweb.com story. Intended to repay debt and develop new mines, the most relevant information for gold investors is that the recent upswing in gold prices has created an environment in which institutional interest in mining companies has increased, and that mining companies are seeking to develop additional mines, which will bring new metal to market.
Bill to Price Gold at $500 Reintroduced
Texas Rep. Ted Poe’s bill that would require the Federal Reserve Bank to perform operations that maintain the value of the U.S. dollar at .0002 of one Troy ounce of gold died in committee in the 110th Congress, but was reintroduced by Poe in the 111th Congress on February 3 as HR 835. The bill was referred to three committees – House Financial Services, House Ways and Means, and House Budget Committee – that same day.