April showers gave way to May flowers in a big way as gold blossomed and silver soared during the month. While stockholders pushed the DJIA index upward, precious metals investors focused on the declining value of the dollar and looked to the real wealth of precious metals to store their investment capital. Gold opened at $887.75 and rose nearly all month, closing at $986.14, up 11%. The much-touted $1,000 barrier came within reach as investors flocked to gold as the dollar continued to take a beating under inflationary fears.
Silver was even more impressive in the month, opening at $12.41 and surging to close at $15.89, up a whopping 28% and closing at its highest point since August 2007. Platinum rose 10% to close at $1,219, and palladium closed up 10% as well, ending at $241.
May’s gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — signaled silver’s rapidly gaining value compared to gold. The gold/silver ratio closed at slightly higher than 62 for May, significantly down from its settle of just above 72 for the previous month.
| May Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $15.98 | $986.87 | $248.00 | $1225.50 |
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| Low | $12.09 | $882.09 | $212.50 | $1080.00 |
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| Open | $12.41 | $887.75 | $219.50 | $1111.00 |
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| Close | $15.89 | $986.14 | $241.00 | $1219.00 |
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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 May, 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 May 2009.
The Meaning of $1,000 Gold
by Ross Hansen
Gaining 10% in the month of May, gold’s recent surge has it within sniffing distance of $1,000 per ounce. Precious metals pundits often describe $1,000 as a “psychological barrier” that, when broken, allows for all manner of possibilities for gold and other precious metals.
So what does $1,000 gold mean for your precious metals investment strategy?
In a word: Nothing.
While interesting for gold bugs and analysts, $1,000 gold is irrelevant for those looking to build real, long-term wealth through gold as well as silver, platinum, and palladium. At all times, a portion of your investment capital should be set aside for precious metals.
If you’re speculating and looking to make a profit in the short term, you may consider the $1,000 milestone significant. However, remember that when you receive cash you’re receiving fiat currency. Now consider that the median lifespan of the 176 global currencies currently in circulation is 39 years.
If you truly want to create wealth for yourself, know that precious metals have no lifespan or any other kind of expiration date – they are timeless and enduring.
Let’s look at several factors that will confirm that buying and holding precious metals is the only investment strategy that will give your portfolio the protection of real wealth.
The Declining US Dollar
In his recent trip to China, the U.S. Secretary of the Treasury, Timothy Geithner, put on a show to eke out some support for the flailing dollar. Geithner has reasons to be concerned — the US Dollar Index has lost more than 30% since 2001, and in the last three months the dollar has slumped from $1.26 against the euro to $1.41, dropping 12% of its fiat value.
In his version of “Trust Me: The Dollar is Safe!”, the earnest Secretary didn’t quite provoke shouts of “Encore” for his performance. Instead, he was greeted by open laughter when he told a crowd of Chinese university students that the U.S. dollars owned by their government were “very safe.” If the biggest foreign owner of US Treasury bonds can’t greet the US dollar with a straight face, how can you?
Deficit Spending and Inflation on the Horizon
The storm clouds you see in the distance won’t be bringing rain of the traditional kind; they’ll be raining down inflationary acid, eating away at fiat currency value. The wild spending of the Federal Reserve is what’s seeding these catastrophic clouds of currency.
Regardless of the recent upward move in the equities markets, the deficit spending of the US government is the real sign of what’s to come and the sight is not pretty. Our government has already run up a $984 billion budget deficit and we’re only in June. This deficit is already three times the comparable deficit for 2008 and almost certainly sets the stage for rapid inflation to come and perhaps even hyper-inflation.
Indeed, the perils that your investments face from fiat currency have never been greater. These pictures — worthless Weimar Republic marks being used as wallpaper in 1920s Germany, and a man holding Zimbabwe bank notes equivalent to US$100 — are all you need to know about the dangers of unchecked currency creation:
Left image Source: Wikipedia. Image from Wikimedia Commons as provided by the German Federal Archive. License terms here.
Remember however, that inflation can’t eat away at gold. In fact nothing can. Gold stores and maintains its value, now and forever.
Geopolitical Situation Unstable
While financial pressures loom, the political situation in some of the most dangerous places in the world continues to unravel. North Korea has been madly sending missiles up like fireworks, trying to get everyone’s attention. In Afghanistan, the stage is set for perhaps even fiercer fighting than experienced in Iraq. This shaky circumstance has dire consequences for Afghanistan’s nuclear neighbor Pakistan.
Pakistan might not even be the most worrisome nuclear circumstance in the Middle East. Iran most likely has the means to make the bomb and its status as a serious threat grows with every inflammatory remark its unhinged president makes.
What the future holds for these trouble spots is anyone’s guess, but you don’t want to protect your investments from global turmoil after the worst happens. Be prepared and protect your wealth now.
Nothing Changes When Gold Hits $1,000
Throughout recorded history and in all manner of disasters, wars and economic meltdowns, gold and the other precious metals have always been and will always be a store of value. So as you consider your next precious metals investment don’t think How much gold will I get for $1,000? Instead try to answer this question:
How much of what I need, can I still buy?
Protect yourself with the permanence of long term value and make sure precious metals are part of your portfolio at all times.
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: What’s in Store?
by Joe Nicholson
Charts of precious metals have started to look parabolic lately. A sort of perfect storm has pushed the dollar lower as inflation, and precious metals prices, have soared. Early last month, the members of the Federal Reserve board indicated interest rates would not rise anytime soon. Instead, the Fed is buying Treasuries to help soak up the excess supply created by massive deficit spending. Even so, the results of Treasury auctions have been less than confidence-inspiring on the whole, and long-term rates have increased.
The fact that the higher long-term yields have coincided with improved economic expectations (for some) and an increased demand for credit has done nothing to dampen the action in precious metals. When the economy recovers, the Fed will have its real challenge: removing accommodations in time to prevent hyperinflation without sending the economy back into recession. Call it re-flation, but any precious metals investor understands the Fed’s strategy to combat deflation has always been to inflate the currency.
Gold has broken out of its downtrend and is quickly arcing back towards its previous high near $1000. With RSI reaching overbought levels, it’s possible this area will be initial resistance, but won’t necessarily halt a parabolic rally. First support is now just above $950.
All gold needs to move above $1000 in the short term is for the relative strength index (RSI) to enter overbought territory — which it has. Unfortunately, such parabolic spikes, also called blow-off tops, are not usually sustainable. Currently, first support — where a shallow retrace would stop and reverse higher — sits just above $950. First support levels are significant as they’re the first area traders will watch to gauge the price action. If a very shallow retrace is ultimately all that’s in store, the price will trade down to first support and reverse higher. If you’re looking at seasonal patterns, the 50-day moving average is probably a better gauge for long-term investors as it looks past the short-term action of shallow retraces and focuses on the larger trends.
The idea of a top in gold during the summer might sound counterintuitive, but it’s not all that uncommon. The strongest season for precious metals is typically the winter months, with the lows of the year coming anywhere between spring and fall. Last year, for example, gold peaked very early and didn’t bottom until late fall. The chart below shows how gold performed during the depths of the stock market crisis last year, when deflation, not inflation, was the dominant force.
Last year, gold rallied sharply through June, only to sell off even more sharply through the fall as deflation gripped the markets.
Going into June, the attention of the world is focused on a possible economic recovery as soon as the last half of this year. Optimists have had no trouble finding Bernanke’s “green shoots,” but have rushed to extrapolate everything “less bad” into a sign of actual impending recovery. Pessimists simply see unemployment continuing to rise as the Obama administration feeds the pension funds of 40,000 GM employees to the bottomless pit of the banking system — on top of billions of dollars in bailout cash. They see commodity prices rising too fast for a consumer who is still trapped under a mountain of debt and unable to get credit. They see inventories falling, but no one rushing to restock, and no one waiting to buy. In other words, they see a plateau on the bottom or another leg down.
The idea that the worst might not actually be behind us should concern precious metals investors. With news organizations issuing more and more reports about survivalists stocking up on food and water in case disaster strikes, precious metals value as a safe haven is becoming discovered by an increasingly bigger audience. At 4%, long rates are hardly signaling hyperinflation, but the widening spread is a move in that direction. On the other hand, investors understand that deflation, if it returns, can wreak havoc on nominal gold prices as it did in 2008. If the economy does not suddenly ignite and send gold to new record highs, we could instead see a cooling off period until winter returns.
If the pessimists are correct and another round of deflation hits the markets later this year, we could see a scenario where, after a blowoff top, gold retreats back towards its April lows or lower.
Silver, with its somewhat more industrial use and cyclical exposure, is underperforming gold on a relative basis, and is facing stiff resistance just overhead. The break above the 50-day moving average was confirmation of the rally, and creates strong support at $13. More importantly, if we do see a super spike in gold, silver should have no trouble trading back in the $20s.
Silver, like gold is approaching previous highs and resistance. An economic recovery could create a spike to new highs, but a new leg down in the economy could retest old lows.
...
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.
A Return to the Gold Standard?
by Northwest Territorial Mint Staff
The phrase “good as gold” is typically known as a folksy way to indicate genuine quality, but the idea had a real meaning at one time. The origin of the concept most likely came from the era of the gold standard, when a holder of a bank note could walk into a bank and exchange paper currency for an equivalent amount of physical gold — hence the currency was “as good as gold.”
This got us thinking — what would a gold standard look like today? With the ongoing global economic crisis and recent calls by countries such as China and Russia to move away from the US dollar and establish a new world currency, this seemed like a perfect time to ask a few precious metals experts and financial analysts to imagine what a return to the gold standard would mean today.
What would a return to the gold standard look like?
David Morgan, founder of Silver Investor, believes a return to the gold standard would allow people to understand the true worth of their money. “If the U.S. dollar was re-established as fully convertible to gold, the reserve currency of the world would again be ‘as good as gold,’” Morgan said. On the other hand, Michael Carr, chief market strategist at Dunn Warren Investment Advisors, thinks a return to the gold peg would severely limit government response. “Compared with the current economic environment, a gold standard seems to offer a virtual utopia. But, such a standard would make it impossible for the government to rapidly expand spending as they have in the past year.”
Puru Saxena, CEO of Puru Saxena Wealth Management, would welcome the reliability a gold standard would offer. “Throughout history, ‘paper money’ has never worked and everyone would be better off — not the bankers of course — with a monetary system whereby currencies are backed by something tangible.”
How would a gold standard change the economy?
Carr thinks the scenario would greatly restrict deficit spending, limiting government's ability to address its objectives, causing economic changes at a fundamental level. “A gold standard would make it impossible for governments to hide their spending and would limit their ability to increase spending on a whim. A gold standard would make it impossible to print more dollars to pay looming benefit deficits for Social Security and other programs.” Morgan contends that this is exactly the reason to cheer the return of currency tied to gold, and rein in the current financial establishment. “It would re-establish faith in the system once again, although those that have a monopoly on the creation of money would not want a system that is fair to everyone.” Saxena agrees, “It would reduce excessive speculation, credit growth and the wild fluctuations in the currency markets.”
What would happen to price?
Morgan advocates a clear standard tied to currency and not to credit. He acknowledges that setting the right price could be challenging. “Setting the correct dollar price of gold might be difficult to establish. Setting the price too low could cause a run on the gold market. To get full coverage, you’d have to take the amount of US dollars in circulation and divide by the amount of gold held by the US Treasury.” Carr points out that the markets would react negatively to the drastic price change the gold standard is sure to bring. “During the Great Depression, President Franklin D. Roosevelt reset the price of gold from $21 an ounce to $34 [in 1933]. This allowed him to create the dollars he needed to continue his massive spending programs. He also imposed restrictions on private ownership of gold to artificially decrease demand. If we had a gold standard now, an equivalent move today would take gold to about $1,500 an ounce and the markets would likely react negatively.”
What are the chances of a gold standard actually happening?
Saxena says pessimistically, “Personally, I doubt if we will ever see the gold standard again but something needs to be done urgently.” Carr points to the lack of current political will to get this done. Politically, he says, “the idea is a non-starter.” Morgan doesn’t give odds for a current return, but counsels not to underestimate the positive effects a return to the gold standard would have on the global financial world. “A gold standard would bring discipline to the entire monetary system on a worldwide basis,” he says.
The last time the US economy was tied to the metal of kings was in 1971, when President Richard Nixon “closed the gold window” to prevent a run on the nation’s gold reserves by foreign governments exchanging dollars for gold. Before that, the country was on a gold standard for much of the 20th century. As most gold bugs know, this period was interrupted in 1933 by Executive Order No. 6102, in which President Roosevelt ended private ownership of gold, subsequently resetting the price of gold.
David Morgan is founder of Silver Investor and editor-in-chief of the monthly precious metals research guide, “The Morgan Report.”
Michael Carr is the chief market strategist at Dunn Warren Investment Advisors, LLC. He has written extensively about the financial markets for more than ten years.
Puru Saxena is the founder of Puru Saxena Wealth Management and is a registered investment advisor and money manager with SFC of Hong Kong.
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Build Bullion Investments with Regular Purchases
by Northwest Territorial Mint Staff
As with any investment, precious metals demand a strategy that suits the investor’s financial situation. One thing to keep in mind when you’re looking for an investment plan is that, regardless of your financial outlook, you should always have physical precious metals in your portfolio. Holding physical precious metals is a great safeguard in uncertain times. Committing a percentage of your investment capital to bullion for the long term is a known strategy for success.
A proven way to do this is to purchase bullion at regular intervals, no matter what the market is doing. This approach allows you to build your portfolio incrementally, increasing your stake in physical bullion over time.
In one investor’s success story, he began buying 1-oz. gold bullion on a regular basis and soon had 16 oz. of gold before he knew it. He even proudly takes his gold to his safe deposit box in a custom attache case (right). He admits that he received some stares from security the first couple of times he walked into the bank but that the staff now knows to expect his habitual trip. As the investor says, “I am by no means wealthy. I did it one step at a time and I’ll continue to add -- I still have open slots to fill in my case.” Regardless of financial means, investors committed to preserving their wealth can easily benefit from their own interval strategy. In less time than you think, your portfolio will be safeguarded with your own cache of physical precious metals.
Whatever portion – 10%, 25% – of your investment capital you decide to commit to precious metals, a gradual investment strategy is a great way to build real wealth. Develop a plan and follow it. You will be more likely to make rational investment decisions this way and not let your emotions rule.
Precious Metals Worldwide
News & Trends from Around the Globe
Gold Purchases Up 36% in First Quarter 2009
Total tonnage demand for gold increased 36% in the first quarter of 2009 according to the World Gold Council’s Q1 ’09 Gold Demand Trends report. The 554 tons of gold coins, bars and ETFs purchased in the quarter were spurred largely by investment demand. This was a strong increase from the 472 tons purchased in the first quarter of 2008. The largest investor in gold coins and bars was Germany, where inflationary fears saw demand quadruple to 59 tons. Swiss growth was even higher at 437%, taking it into second place at 39 tons. The US came in third, more than doubling to 27 tons as investors hedged against financial and economic risk.
Rebound Seen in Palladium Demand for Autos
Norilsk Nickel, the world’s largest palladium producer, believes palladium demand from the global automotive sector will return to pre-downturn levels according to Reuters. Anton Berlin, head of Norilsk’s market analysis and development department, expects that palladium demand will rise at a faster pace than an economic turnaround after the global economy bottoms. Additionally, Berlin pointed to the rise in environmentally friendly standards in the automotive sector that will also spur demand for platinum group metals (PGMs). Palladium is used alone or in combination with other PGMs in autocatalysts to clean exhaust gases.
Following Strike, Mexico’s Top Mining Company Resumes Operations
Mexican miner Peñoles, the operator of Latin America’s largest metals refinery, said it was resuming operations after a strike shut down its Fresnillo precious metal complex, according to MineWeb. The company lifted its declaration of force majeure and agreed to terms of a wage hike with the striking workers’ union. In February 2009, 300 striking workers laid down tools at the company’s MetMex metals complex in the northern Mexican state of Coahuila. The Fresnillo precious metals unit of Peñoles processes all the gold and silver from Peñoles’ mines at the MetMex plant.
Silver Shows Potential in Prevention of Blood Clots
Scientists in India have discovered that silver may help in blood clot prevention according to Nanowerk News. During laboratory tests with mice, particles of silver – as small as 1/50,000 the diameter of a human hair – appeared to keep platelets in an inactive state. The tests showed that low levels of nanosilver sometimes reduced the ability of platelets to clump together by as much as 40%. This potential new anti-clotting treatment is significant because it could augment the use of traditional medications – such as aspirin – that often can cause dangerous bleeding when used to prevent blood clots in heart attacks, coronary artery disease, and stroke.
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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