Market Summary March 2009
After gains in January and February, March was uncertain for gold and silver as both metals declined slightly overall for the month. Precious metals investors were relatively cautious as they tried to gauge the impact of more inflationary government spending with the DJIA’s best month in over six years.
The Federal Reserve’s late-month announcement that it was going to monetize debt was a temporary bright spot for prices. It helped spur gold to its monthly high on March 20, up over 8% from its low. Silver’s high came on March 23, up over 14% from its low. Despite the late jump, gold closed down 2% and silver down 1% for the month. Palladium and platinum outshone both gold and silver as they were up 12% and over 5% respectively for the month.
Also of note – after falling to a virtual standstill with gold late in 2008, platinum continued to move away from the yellow metal. Since the beginning of the year, platinum’s spot price has increased more than 22% over gold’s spot.
Gold/Silver Ratio
Silver gained incrementally against gold in the gold/silver ratio – the quantity of silver (in Troy ounces) required to obtain one ounce of gold. Silver decreased the ratio slightly from its February close of just below 72, settling below 71 to end March.
| March Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $13.94 | $967.84 | $229.50 | $1168.00 |
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| Low | $11.96 | $886.06 | $192.00 | $1031.00 |
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| Open | $13.15 | $941.38 | $198.50 | $1074.50 |
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| Close | $13.00 | $920.55 | $222.00 | $1133.00 |
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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 March, 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 March 2009.
Shelter From the Storm
by Ross Hansen
As the financial storm roars outside, everyone’s looking for a little shelter. Precious metals ownership has become a popular option for a lot of folks, though some are confused about the two most popular ways to invest in them – buying physical gold or silver or buying a precious metals exchange traded fund (ETF).
Physical gold or silver ownership is exactly what it sounds like – you buy a set amount of bullion and physically receive that precious metal. Carry it in your wallet, bury it in the backyard or put it in a safe deposit box, it’s yours to do whatever you want with. On the other hand, a precious metals ETF is paper that represents gold or silver and is near the net value of that metal.
If, like me, your ears prick up when you read the words “near the net value” then you’re already ahead in the game. As you know, “near,” just like its buddy “almost,” is only good in horseshoes and hand grenades. That’s because ETFs aren’t truly an investment in precious metals.
When you invest in ETFs, you sacrifice the most significant advantage that owning physical precious metals gives you and that is liquidity. If you have metals in hand, they’re yours to use and you can be confident that life’s emergencies won’t catch you sleeping. If you own an ETF you may be successful at waving a piece of paper at a building but that won’t mean you’ll see any physical bullion coming your way. As an example, if you have an ETF share in the SPDR Gold Trust, you’re required to own at least 100,000 shares to be able to take physical possession of gold bullion. Some ETFs are offshore; good luck getting to them in times of turmoil.
If you’re a “what you see is what you get” kind of person, physical ownership in gold or silver bullion offers the best peace of mind you’ll find. When you’re holding that metal in your hand, you’re holding something that can be used as money anywhere in the world. In the language of currency, precious metals have always been and will always be the one universal language understood by everyone.
Some common misconceptions exist about the expenses involved in owning the real thing. The biggest complaint is that the shipping and storage fees make tangible receipt and ownership of gold or silver difficult. This message often goes hand-in-hand with a suggestion that owning an ETF is preferable to physical bullion because it’s easier to set up.
Be careful of this honey-tongued line of thought. To own and trade ETFs, you must pay a fee to open an account as well as deal with brokerage and management charges. If you look at the actual cost of doing this, compared to the reasonable costs of shipping and storing physical precious metals, then the numbers become negligible.
Concerns about authenticity is another issue said to cause hesitation in would-be bullion owners. As with any investment, due diligence is the phrase to live by here. Make sure your bullion dealer is a recognized retailer of government-backed coins like those from the U.S. Mint, Royal Canadian Mint and Australian Mint and receive a well-deserved sigh of relief when making a bullion purchase, secure in the knowledge that you’ll be receiving the real deal.
Gold and silver mining stocks are sometimes mentioned as another investment option in precious metals, suggested for the rich returns they can bring. This may be true sometimes, but you’d better have an iron stomach because that rollercoaster ride will tie up your insides like a birthday clown making balloon animals. Even if you do leap off the diving board and take the stock plunge, you might find an empty pool yawning before you, because mining companies are subject to a lot of uncertain economic related variables that can topple the mine.
As the saying goes, “You can plan a pretty picnic but you can’t predict the weather.” Well the weather is cold and wet outside with more rain on the horizon. Do you want to face it with a sturdy umbrella or a soggy piece of paper? Consider that the next time you think about adding physical gold or silver to your portfolio.
Ross B. Hansen
CEO, Northwest Territorial Mint
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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: Biding Time until Buying Time
by Joe Nicholson
Over the past five years of the precious metals bull market, the best prices have always come during the summer months. Seasonal patterns alone don’t make a very compelling case for a trade, but, with winter now receding, those looking to be long gold and silver have every reason to wonder if an excellent buying opportunity will materialize in the weeks and months ahead.
Going into March, support at $900 was described here as crucial for determining the extent of the pullback from the February highs. This level seemed even more significant because it corresponded with support from a six-month trendline and the 50-day moving average. As the chart below reveals, gold declined exactly into that nexus of support.
After testing $1,000, gold futures declined into strong support formed by the correspondence of previous highs, the 50-day moving average, and a multi-month trendline.
After bouncing vigorously off that support at $900, gold continued to track the trendline before finally dropping below it. At the start of April, gold is back to $900, and if it holds there again, would be a spectacularly bullish indicator. But losing the trendline and the 50-day moving average point to less optimism that it will. Of course, on the bright side, this plays perfectly into the idea of a new buying opportunity in the coming months.
The situation is a bit clearer on a weekly chart. Having traded decisively below the trendline from the October lows, after $900, the next obvious support level is in the vicinity of $870 to 875, where both the 200-day and 50-week moving averages have flattened out. Short-term traders could very well expect to see support materialize at this level. Those acquiring physical metal, however, might elect to keep some capital in reserve in case gold falls further. A symmetrical third wave to the correction could be complete as soon as about $850, where a=c, so the two downward legs of the corrective wave are of equal length. A decline to $800 would produce a 61.8% retrace of the move from the October lows, a common Fibonacci ratio for pullbacks.
If gold breaks below $900, support near the 50-week moving average will represent the first buying opportunity, but a decline to the 61.8% retrace of the rally from October, near $800, will represent a more convincing corrective wave.
Silver has outperformed gold this year and still remains well above its trendline from last year’s low. After $12.50, a strong support band waits between $11.50 and $12.
Silver, in the near term, is struggling to get back over $13. Those looking to acquire physical metal should watch the reaction at the 200-day moving average, and, below that, at $12.50. Falling below these levels would signal a decline into the expected support between $11.50 and $12.
The best month for stocks in more than five years has not surprisingly deferred the precious metals rally. Note that precious metals finished March flat, not really lower, suggesting that, at least going into April, fear and uncertainty were still present in abundance. The return of optimism at the start of spring is fitting. But pronouncements that the depression is over, especially by those who’ve made similar calls before, should be taken lightly. If nothing else, the specter of massive inflation still looms and that alone could be the catalyst that sparks the next bull rally in precious metals.
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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 Undergoing Long-Term Restoration as Financial Asset
by Jeffrey M. Christian, Managing Director, CPM Group
The gold price rose to a new record in March 2008, at $1,033.90 (basis the Comex nearby active future contract’s intraday high), and has remained high since. The impetus for this increase has been demand for extremely large volumes of gold, and other precious metals, as a safe haven against a wide array of financial market and economic woes.
Investors actually have been buying historically enormous amounts of gold for the past nine years. Between 2001 and 2008, investors added around 320 million ounces to their gold holdings, taking the total amount of gold owned by investors to nearly 1.2 billion ounces, more than all of the central banks put together.
CPM Group’s analysis of what is happening is that investors are rehabilitating gold as an important financial asset. Gold was one of the key financial assets, forms of savings, forms of money, for most of the past 5,000 years. Starting in the late 1960s, when currency values were disconnected from gold prices, gold entered an extended period in which gold was underappreciated as an asset by investors. Gold fell from an estimated 4.5% - 5.0% of world private sector wealth in the late 1960s to roughly 0.2% of world financial assets by the early 1990s, and stayed low until the past few years.
Interestingly, neither the amount of gold held by investors nor the value of their collective gold holdings fell during this 40-year hiatus. It was just that the value of all other financial assets – money in circulation and bank accounts, stocks, government bonds, and corporate debt securities – skyrocketed due to a combination of severing the tie between money and government gold reserves, and deregulation and liberalization of money and financial markets worldwide.
That is changing now, and investors are rebuilding their gold holdings. Investors have increased their gold holdings along the lines mentioned above. Additionally, the value of these holdings has risen along with gold prices. By the end of 2008, gold’s share of global financial assets may have increased to around 0.6%. The fact that gold still represents such a low proportion of world wealth suggests to CPM Group that the process of investors rebuilding significant portfolios of gold has much further to go. We do not anticipate that gold will be restored as the numerator for any future international currency regime. The gold market is too small for that, and frankly, a gold-based currency system does not make sense for the present nor the future. Nor do we expect that investors’ gold holdings will rise back to 5.0% or more of their total financial assets.
However, we can envision a world financial system in the future in which investors wish to have 1.0% - 2.0% of their assets in gold bullion, even if the global economy returns to an extended period of strong real economic growth. Investors, we believe, have learned their lessons well over the past eight years, and will continue to see gold as an important and integral part of their portfolio of assets.
Other important indications suggest that the process of restoring gold as a significant component of private sector financial assets worldwide is only in its earliest stages. Many segments of the investing public, including sovereign wealth funds, private equity companies, many other institutional investment managers, and many private investors in Europe and North America, either have not yet shifted a significant portion of their wealth into gold, or they have not even begun re-balancing their portfolios. That said, many of them say they want to build significant positions in gold and other precious metals, and are studying how best to do this.
Thus, after 40 years, gold appears to be being rehabilitated as a financial asset. CPM Group estimates, in its Gold Yearbook 2009, that the amount of gold that investors will buy in 2009 will be a record annual volume of 52.3 million ounces. That report discusses the economic and market fundamentals behind this shift in great detail.
Additionally, our longer-term projections for gold supply, demand, and price trends are that investors will continue to buy historically large volumes of gold in most years over the coming decade.
Superficially, the developing world appears to be moving away from gold and silver just as the industrialized world investors are moving toward them. In fact, both sides are moving in the same direction: Toward more-diversified portfolios. Investors in developing countries are diversifying away from being entirely gold- and silver-oriented by adding other assets such as bank CDs and equities to their portfolios while investors in industrialized nations are moving away from having virtually no gold and silver in their investment portfolios to having some. Extreme examples appear in both areas, but most investors are taking moderate, balanced approaches.
Comparing the recent period of high gold investment demand to past periods readily illustrates the extent to which current demand is already something entirely different. In the history of modern gold markets, with prices freed from fixed rates of conversion to national currencies, five previous periods had strong investment demand. Strong investment demand is defined – up to now – as years in which investors bought more than 20 million ounces of gold in a year on a net global basis. This has happened five times since 1967. Each past bull market for gold coincided with severe economic, political, and financial market crises. Each one saw investors pour into gold for a year or two, driving the price sharply higher. After one or two years, economic and political conditions improved, and investors reduced their volumes of gold buying. Prices fell back.
The current period is now in its ninth year. It clearly is not ‘just another’ gold bull market like the previous five bull markets from 1967 through 1993. In fact, this time is quite distinct in several ways.
For one thing, more people around the world today live in countries where they can buy gold as an investment, thanks to the process of gold market liberalization that began in the 1960s in Europe, rolled through the United States in 1974, Japan in the late 1970s, and moved through China, India, Russia, and other countries over the ensuing decades. Also, more people have more money to put into gold than ever before, thanks to both the large increase in paper wealth created over the past four decades and the tremendous increase in real wealth and economic activity during this time.
Equally important, the current period of high levels of investment demand for gold has not coincided with a nine-year economic, financial, and/or political crisis. Instead, it has occurred during a nine-year period that has seen a steady and continuing wave of problem after problem emerging. Periods of seemingly strong real economic growth have occurred during the past nine years, and periods of large upward moves in stock prices. These have occurred in the broader context of ongoing problems, starting with the stock market crash in 2000–2001 and the tech-stock bubble that was associated with, but only partly responsible for, that equity market crash. That was followed by a recession, the terrorist attacks of September 11, 2001, the U.S. invasion of Iraq, various financial market scandals and problems, and now the collapse of housing values and final demand for goods and services around the world. This ongoing series of problems, seeming to many people to be one after another, has created an atmosphere that most likely will keep investors interested in holding some significant portion of their wealth in gold long after the economic pain and devastation has dissipated.
...
Jeffrey Christian is the Managing Director of the CPM Group, a leading commodities research and consulting firm. The CPM Gold Yearbook 2009 is available for purchase online at the CPM Group Store.
Precious Metals Worldwide
News & Trends from Around the Globe
IMF to Sell 400 Tons of Gold
Leaders at the G20 summit in London endorsed the IMF’s plan to sell 403 tons of gold to raise funds for the world’s poorest countries, according to an article in MarketWatch. An 85% majority among IMF members is needed for the issue to pass and that is likely now that the U.S., which holds veto power in any IMF vote, looks to bring the issue before the U.S. Congress. The gold sale will proceed over the next few years and is not expected to have a strong negative impact on gold prices as “it will be ‘orderly’ and maybe even off market,” according to Morgan Stanley analyst Hussein Allidina. After the U.S. and Germany, the IMF is the world’s third-largest holder of gold, possessing 3,200 tons of the precious metal.
Six States Propose “Sound Money” Bill Legislation in 2009
Heightened distrust in the stability of paper currency, driven by the nation’s financial crisis, has seen six states – Colorado, Indiana, Georgia, Maryland, Missouri and Montana – introduce “sound” or “honest” money legislation since the beginning of 2009. Sound money is currency supported by non-fiat wealth, like precious metals. The six bills propose, in some form, new laws that would allow citizens to pay and settle debts with gold and silver coin as well as with electronic gold currency. The bills refer to Article I, Section 10 of the U.S. Constitution which states “No state shall…coin money; emit bills of credit; [or] make anything but gold and silver coin a tender in payment of debts.” Montana’s sound money bill was introduced on March 12, 2009 and is the latest bill looking to provide U.S. citizens with an alternative currency to the Federal Reserve note.
Gold Leads the Way in World Mining Stocks Surge
Gold continues to be the world’s best-performing commodity, comprising the bulk of the world’s top-performing mining stock according to an article in MineWeb. The investible value of gold companies in the top 100 miners stands at $226 billion, compared to the investible value of silver companies at $13 billion. When measured by absolute, instead of composite, stock price performance gold stocks still dominate. AngloGold Ashanti, Osisko, Aurizon, Randgold Resources and Eldorado are just some of the names trading within 10% of 12-months highs. Over the past 12 months mining stocks have performed well — prices of the top 100 have surged by 342% versus their lows. With BHP Billiton leading the way, the world’s top 100 mining stocks currently offer an aggregate value of $939 billion.
Silver to Outperform Gold Says the Hennessee Group
Based on current supply/demand dynamics, hedge fund advisor The Hennessee Group says silver prices will outpace gold in the near future, according to a report in Hedgeweek.com. Due to increased industrial demand caused by emerging markets, Charles Gradante, co-founder of the well-respected Hennessee Group, believes silver is under-priced relative to gold. “While we expect gold to continue experiencing gains, we anticipate silver to outperform on a relative basis and lead to a reversion in the gold to silver ratio.” The Hennessee Group also expects an increase in the popularity of silver exchange traded funds (ETFs) due to accelerating global demand for silver.
Russia Backs Partial Return to Gold Standard
Russia favors the addition of gold bullion in a new world currency, according to an article in the UK’s The Daily Telegraph. Arkady Dvorkevich, the Kremlin's chief economic adviser, backs a partial restoration of the gold standard to strengthen the world financial system. At the G20 summit in London, Russian leaders proposed the use of gold in the basket-weighting of a new world currency based on Special Drawing Rights (SDRs) given by the International Monetary Fund. As the global financial crisis deepens, consensus for a new world reserve currency, to replace the US Dollar, has found several backers, also including China. The G20, however, took no action. The gold standard, an economic system in which paper notes are convertible into fixed quantities of gold, is not in use by any current major economy. The U.S. went off the gold standard in 1933 when President Franklin D. Roosevelt outlawed private gold ownership. The country reinstated the gold standard in 1946 only to eventually end it in 1971.
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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