Market Summary —
February 2009
Gold stole the precious metal headlines in February, breaking through the $1,000 benchmark for the first time since setting its all-time high in March 2008, but silver was the steadier performer, up 3.4% for the month. Gold ended off 7% from its February 20 high, but still managed to rise just under 1% for the month. Palladium gained 1.5% and platinum 8.2% for February.
The precious metals market reflected the frenzied atmosphere of the stock market as the indices steep rise seen in late month trading gave way to sharp drops before ending higher at month’s close. Lows came at the beginning of the month with gold’s bottom arriving on February 9, silver’s on February 2 and palladium and platinum bottoming on February 3.
Gold/Silver Ratio
Silver’s performance maintained the gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold. The February ratio fluctuated between 68 and 74, before settling below 72 for the month, just below its January 2008 close of 73.
| February Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $14.67 | $1006.03 | $226.00 | $1117.50 |
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| Low | $12.22 | $890.20 | $193.00 | $958.50 |
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| Open | $12.72 | $933.45 | $195.50 | $994.00 |
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| Close | $13.15 | $940.55 | $198.50 | $1076.00 |
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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 February, 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 February 2009.
Basic Instincts — Women’s Intuition
by Ross Hansen
Recently I’ve noticed a very interesting demographic shift in our customer base.
Traditionally, investing in precious metals has been a very male-oriented activity, with men making up 80 to 90 percent of the customer base.
However, the ratio has begun to change. Now I’d have to say that no more than 60 percent of precious metals investors are men, which means that women are now closer to 40 percent of all those investing in precious metals.
That change is more than a shift; in fact, it’s practically a revolution.
I’d like to attribute this to women’s basic instincts. Most men should know by now that women tend to have better instincts than men when making decisions. While men tend to take greater risks in the investment world, women are more cautious with their investments. For example, you’ll find them seeking out institutional types of investments and government-backed securities like FDIC insured accounts, savings bonds, and treasury bills.
So, with the economy going down like the Titanic – and Congress and the Fed trying to steer it right back into the iceberg – it’s little surprise that women are looking to be even more cautious than usual and are reverting back to fundamentals.
It turns out that they have the right basic instincts.
Anyone paying attention knows the score: unfunded liabilities, ballooning budget numbers, increased government spending, massive deficits. I won’t bore you with the numbers, but as former U.S. Comptroller General David M. Walker has been saying, the numbers are all big and they’re all bad. The worst of it is not that these numbers are horrific (they are!), but that they’re being reported by the very same foxes who are watching the henhouse. At best, it should cause us to view the numbers with great skepticism if not outright suspicion.
In his book, The Tipping Point, Malcolm Gladwell describes a tipping point as “the levels at which the momentum for change becomes unstoppable."
If you have been saving for a rainy day, the storm is upon us. The winds are swirling, momentum is building, and people are sensing that it’s going to get a lot worse. That’s why prices of most commodities – including oil – have fallen off even when world currencies are taking it on the chin. And that’s also why we see gold and silver prices at or near record highs whether you measure them in euros or Swiss francs. And precious gold recently bounced off its all-time high in terms of dollars.
Women intuitively see that this country’s economy has reached a tipping point. Something different is clearly going to happen, and, being the more risk-averse gender, they’re counting on the historical assurance of gold and silver as a means to preserve wealth. Echoing the quote attributed to Mark Twain, they are more concerned about the return of their money than the return on their 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.
Feedback
Last month, our “Obama and You” piece generated substantial reader response. Read the feedback here.
Technical Take: Stimulus/Response
by Joe Nicholson
Despite attempts at bipartisanship, the politicians have formed little consensus about the fiscal stimulus championed by the new president and now signed into law. Markets, on the other hand, speak with a more unified voice, and their response has been marked. Equities have crashed to fresh multi-year lows as expectation of recovery ebbs. Meanwhile, money has flowed into gold and silver, which have ridden waves of buying.
A weekly chart reveals the extent of the rally in gold since last fall.
The commentators agree only that the stimulus represents a huge increase in government spending that most likely will not be sufficient in itself. The record $1.75 trillion annual deficit could cause the U.S. currency to crater under its weight — except that the global nature of the crisis has kept Treasury debt relatively attractive to investors. Nevertheless, long-term strategists hear inflation — if not outright financial collapse — in both of these formulations, which explains why precious metals have increased alongside the dollar.
In what seemed unlikely a few months ago, silver has rallied into its 50-week moving average. Consolidation in the $13-$14 level is necessary before a renewed rally.
Still, Wall Street will sometimes sell the news, and this appears to have happened in gold and silver. After reaching the unlikely targets described here two months ago, these precious metals climaxed in high-volume buying frenzies just as the details of the stimulus were solidifying in Washington. A retracement is now appropriate, and its extent will indicate future expectations for inflation and calamity.
A daily chart in gold shows obvious support at about the $900 level. A retrace to this level could restart the gold rally.
On a daily chart, the recent rally is not so much a parabolic spike as an orderly upward channel. The lower end of the channel, combined with the rising 50-week moving average and previous support indicate a powerful buying opportunity should gold move back to the $875 - $900 range. Falling below this level suggests a more protracted consolidation period. Silver, similarly, has an obvious buying target price between $11.50 and $12.50 should the declines continue. The extent of the recent declines has taken RSI to the centerline in both gold and silver, indicating that a large part of the near term drop in price has probably already occurred.
Silver has strong support waiting between $12.50 and $11.50. The steep decline has pushed RSI to the centerline, which means the immediate price decline could be largely complete in the short term.
A year ago this month, gold and silver hit all time highs before reversing and spending much of the next several months sliding. But, remember, a year ago, the economic climate was much different — a rare analyst then would admit the U.S. was heading for a recession. Deflation had yet to really hit the housing market, let alone bank balance sheets, and how the Fed would respond was unclear. Now, though precious metals could spend several weeks consolidating after huge runs, the government has joined the fight with both fiscal and monetary stimulus. The markets will remain volatile, so reading the charts is always important. However, gold and silver now appear set to not repeat their mid-2008 crash.
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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.
Slouching Toward Empire
by Bill Bonner and Addison Wiggin
With interest in precious metals and their relationship to the declining economy growing by the day, we turned to financial experts Bill Bonner and Addison Wiggin, who share an excerpt from their forthcoming book, The New Empire of Debt. This is the second edition of The Empire of Debt, which inspired the award-winning documentary film I.O.U.S.A. Both Bonner and Wiggin have authored several New York Times best-selling books including Financial Reckoning Day, which they also wrote together.
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Americans do not seem particularly concerned about their debts. They, like the economists who advise them, come to believe what they must. And just as they come to these beliefs as circumstances change—not by pure thinking—so do they give them up. They continue believing in these fantasies and conceits until they are crushed out of them. Then, and only then, do they take up new beliefs.
The belief in the American empire—in American cultural, political, social, and economic superiority—must also be crushed out somehow. That is the likely next phase… the degenerate stage of empire… which could last one hundred years.
The theory we have been teasing out is that politics and markets follow similar cyclical patterns—boom, bust, bubble and bamboozle. A handful of companies usually take a dominant position in the market; sometimes a single one does. So do a few countries dominate world politics… “empires” they are called. The difference between a regular nation and an empire is profound. A regular nation—such as Belgium or Bulgaria—tends its own affairs. An empire looks outward, taking on its shoulders the fate of much of the world. An empire is like a bull market. It grows, it develops… often it passes into a bubble phase, when people come to believe the most absurd things.
We don’t know what stage the American empire has reached… but we look around and see so many degenerate and absurd things, we guess: we must be nearer the end than the beginning.
How will it end? What will happen next? We don’t know, but we note that people do not give up their self-serving conceits and illusions readily. They hold onto them as long as possible. “America still has the greatest, most dynamic economy on earth,” they tell themselves, even as the nation loses money (its income is less than its expenses). This kind of madness is hard not to like; it is like an aging woman who thinks she becomes more fetching with each passing year. The gap between perception and reality grows wider every day, until finally, the mirror cracks.
In the coming real slump, assets of all sorts are likely to be marked down—especially those with a debtor on the other side of the transaction. Gold is what people will buy when they start to wonder about the empire . . . and its money. We guess that they will begin to wonder more and more… .
“I read in the Figaro that the American economy has become completely dependent on China,” said a friend at a dinner party recently. “But I guess the Chinese have no choice. They need Americans to continue buying their products.”
We are alarmed. Even chemists and shoe clerks have taken up macroeconomics. Everyone thinks he understands how the world economy works.
“Well, it is a little like that,” we began to explain. “The Chinese do sell to the U.S. and they do lend money back to the U.S. But no law says this has to continue.”
“Imagine a shopkeeper whose biggest customer was having a hard time paying his bills. The shopkeeper extends credit, hoping the man will get his finances in order. But the more credit he gives him, the worse the man’s finances are. It would be very nice if that could work out. But it rarely does. Instead, it eventually blows up. The customer has to stop buying and the shopkeeper has to stop lending. There’s going to be hell to pay, in other words.”
“What should an investor do to protect himself,” our friend asked.
“Buy gold.”
“Gold? What a strange idea. I haven’t heard anyone mention gold in many years. It seems so out-of-date. I didn’t think anyone bought gold anymore.”
“That’s why you should buy it.”
Bill Bonner and Addison Wiggin are founder and editorial director, respectively, of The Daily Reckoning.
Now in its 10th anniversary year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of their team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Sign up FREE here.
Letters to the editor may be edited for length and clarity.
Regarding the article “Obama and You”:
Thank you for the analytical look at our “new” Carter. Other suppliers have jumped the bandwagon to sell his wares, I am happy to see you have taken the high road. —HP
Try not to be so political when you’re trying to sell things. I already believe in precious metals, I don’t need your thinly veiled opinions to help me along the way. Bush is every bit of the dope — and then some — that you feel Obama (who has been president for less than one month) might be. Less commentary, please. —DZ
Thank you for both your comments. As politics and market forces are often intertwined, we will continue to keep our clients up on the latest news from both sectors and how both may affect your precious metals investments.
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We all know we’re in trouble; the debate is how deeply in trouble and for how long. Global hope with Obama is already beginning to erode, and confidence in the U.S. Dollar is going with it. Those that see unsettling similarities in the current stimulus iteration are quite right; it will work as long as the finances last, and then projects will lag.
Precious metals appear to be approaching a perplexing phase in their history. In my opinion, valuations that we’ve witnessed haven’t been purely a result of fear-based flight to safety, or U.S. Dollar correlations, or commodity re-valuation, or supply and global demand, or the fact that other investment vehicles are not as attractive.
What we’re witnessing is a staggering loss of trust on a global scale, with underpinnings that point directly at standard of living, consumption and financial (credit) excess and abuse. It’s not the same world any more, and we won’t see it again to the degree we’ve become accustomed.
The only ones that will survive relatively unscathed are those that drastically reduce their cost of living and become serious saver/investors. Gold will be key, but we may finally see thousands of years of misperception end regarding platinum valuation, not to mention palladium and fresh water.
Other investment verticals such as agriculture, energy, and bulk transportation are obvious choices, but finding the right organizations for the long term is challenging already. Cheers (so to speak). –Robin
The term “credit” comes from the Latin meaning “to trust or believe.” As you point out, no one in our current financial climate is doing much of either these days.
Precious Metals Worldwide
News & Trends from Around the Globe
World Gold Council Says Gold Most Favored Investment of 2009
The World Gold Council said a survey of investment advisors across Europe picked gold as the most favored investment of 2009, according to a Bloomberg.com story. In the survey, 31 investment advisors ranked gold ahead of investments such as cash, investment grade credit and equities as the top preferred investment for the year. Gold reached an 11-month high of $1,006.29 on Feb 20 and demand for a store of value has pushed bullion assets in exchange-traded funds (ETFs) to all-time highs.
World’s Largest Silver Producer to Meet Demand in Face of Refinery Strike
In response to a three-week strike by workers at its MetMex complex, Mexico’s Industrias Peñoles, S.A.B. de C.V., the largest silver producer in the world, said it will have enough gold and silver to meet client’s needs for “months,” according to a MineWeb.com story. The company plans to refine gold and silver in Canada, Eastern Europe and South America to fill orders not covered by existing inventories. On February 8, 300 workers stopped working to demand salary increases at the company’s refinery in the northern state of Coahuila.
Hindustan Zinc to Become Asia’s Largest Silver Producer by 2013
Hindustan Zinc Limited, India’s biggest silver producer, will become Asia’s largest silver producer by 2013, according to a Commodityonline.com story. Based on estimates of present mine expansion, Hindustan Zinc will be producing 500,000 kg of silver by 2013. Once current expansion efforts in the company’s Rajasthan mines are completed, silver production is poised to increase considerably.
World Gold Mine Supply to Drop in 2009
The world gold mine supply will drop by 1.3% in 2009 due to expected shortfalls in South African, Australian and Canadian production, according to precious metals analysts at the VM Group. Though a fall in production could be somewhat offset by increased output in China, Russia and Peru, the VM Group’s 2009 Yellow Book report predicted that mine capacity issues and lack of available credit will contribute to a year-on-year decrease.
Information provided here should not be considered as advice or as an offer or enticement to buy, sell or trade. The contents of this publication, including any opinions and analysis, are strictly intended for educational use. Opinions expressed in bylined articles are those of the individual author and do not necessarily reflect the views of Northwest Territorial Mint. Furthermore, information obtained from all quoted sources is believed to be reliable and is offered in good faith. Northwest Territorial Mint does not accept responsibility for any trading losses incurred from reliance upon this information. Readers are encouraged to consult with a financial advisor before making major investment decisions.
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