Market Summary —
September 2009
Gold and silver shone brightly in September, as strong investment demand and fears about the U.S. dollar’s declining strength drove investor interest in the two precious metals. Gold hit the $1,000 barrier and peaked to $1,025 at mid-month — an 18-month high. The yellow metal ultimately finished the month up almost 6%. Silver was the month’s biggest mover, closing up 11%. Palladium finished the month up nearly 1 % and platinum closed up 3%.
Silver’s performance decreased the gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold. The September ratio fluctuated between 58 and 65, before settling below 61 for the month, below its August 2009 close of just under 64. It still remains above the 2008 average gold/silver ratio of 58.
| September Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $17.69 | $1025.40 | $308.50 | $1355.00 |
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| Low | $14.68 | $948.14 | $283.50 | $1208.00 |
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| Open | $14.97 | $955.29 | $295.50 | $1258.50 |
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| Close | $16.63 | $1009.02 | $298.00 | $1295.00 |
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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 September, 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 September 2009.
Gold and Silver as Religion
by Ross Hansen
I’m here to speak some heresy.
Lately, every place I turn I seem to see precious metals producers and pundits offering up hosannas and kneeling before the great temples of gold and silver. Indeed, gold has passed all-time highs and silver is up 44% for the year. As a result, many gold and silver bugs are positively frothing with excitement. Among the more fanatical believers, the kind that see the Virgin Mary in their morning toast or in last night’s potato chips, you’d think that they were being reborn every time gold’s spot price climbs a dollar higher.
At the recent Silver Summit in Spokane, WA, someone said to me, “I’m encouraged by all the positive information I’ve heard. Precious metals seem to be set to take off.” What he observed was indeed true. I heard nary a discouraging word about the outlook for silver or gold during my time there. In fact, if someone had uttered a contrary opinion, he or she might’ve been tied to the front of the next bus out of town.
Why?
Because it’s to nobody’s advantage to talk about reality — not for the miners, not for the trade groups, not for the pundits, and especially not for the brokers like me. As long as everyone continues to preach the gospel of investment demand for precious metals, everyone profits. Yes, me too. However, perhaps it’s time to put the Kool-Aid down for a second and have a real discussion.
I bought my first bar of silver in 1972. Most of the same conditions and predictions that I saw and heard then are evident today. The economy was terrible and the nation was at war. Armageddon, or something like it, was certainly around the corner. The predictions were dire and silver and gold were going to shoot to the moon. Silver and gold did spike…eight years later, only to quickly fall back down to earth. Yet, none of the apocalyptic predictions came true, and we entered the prosperous 1980s.
Understand, I believe that precious metals should be a cornerstone investment in any portfolio. It’s been money and a source of real wealth for thousands of years and will continue to be so. I’m just here to tell you to be wary of the irrational exuberance that’s too often found in our industry. The happy talk comes from people who, in their own self-interest, seem to forget the fundamentals.
The fundamentals are simple: precious metals are commodities. And, like any commodity, they are subject to price corrections, both up and down. Yes, over time, prices generally go up due to inflation and monetary policy. However, market forces drive the price of gold and silver, and any number of factors could just as easily drive the price down as well as up.
Can the price of silver and gold fall now? Let’s take a look:
- Dishoarding of jewelry in India. Due to high prices, recession, and cultural changes India, the world’s largest gold consumer, isn’t consuming. According to a Reuters report, gold imports for the first half of 2009 were down 55% and India imported no gold in one month — February — for the first time in its history. If you remove your biggest consumer, prices will have to fall to attract other buyers. The dishoarding trend has been seen in other countries as well.
- The recent creation of precious metals ETFs drove prices up as metal was pulled out of the market to stock the various funds. That intake has leveled off and the ETF metals represent a big overhang on the market. As fast as it can flow in, it can flow out just as quickly.
- Global high unemployment continues and people have changed the way they spend because of this. Just in the U.S., unemployment stands at 9.8% through September, but is probably closer to double that if you add in those who’ve given up looking for work or are underemployed. A new age of thrift has resulted in major retail contraction. The jewelry market — which accounts for 75% of gold demand according to the World Gold Council — has been hit hard, with demand down 22% in Q2 2009. Investment demand matters — particularly for gold, which is used significantly less in the industrial sector than is silver.
- Global interest rates are near zero, thanks to easing by central banks. But they will go up; it’s a matter of when, not if. A lot of large institutional investors have parked their capital in commodities, which are non-performing assets. When rates do rise again, the big players may begin looking for a higher-percentage return on their investment and move out of precious metals.
Does this mean that you should dump any gold and silver you have at the next opportunity?
Of course not.
I’m simply advising that you take a closer look at the fundamentals before making your next precious metals investment decision. Putting gold and silver, and any investment, under the cold, hard glare of careful analysis will only benefit you and your financial portfolio.
Talk to your broker and bullion dealer. Ask their opinion before you commit your funds. Do your own due diligence and research precious metals news and trends. Don’t just pull data from one source. Find three or four, and inform your opinion before you invest. In this venture, a skeptical mindset will be your greatest ally.
It is a strategy that’s guided me well and one that I believe can be a blueprint for successful, long-term precious metals ownership for you.
And if that’s heresy, then I’ll gladly be a heretic.
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: Trends in Gold and Silver
by Joe Nicholson
As gold holds the $1,000 level and surpasses with new highs, the question on most traders’ minds seems to be: is the economy recovering or isn’t it? Either way, precious metals are arguably the place to be. If the economy is recovering and will avoid a serious double dip, then inflation will be an increasingly immediate concern. But if another crisis is around the corner, then safe haven and flight-to-quality plays will be essential.
Winter is traditionally the strongest season for precious metals. The only conceivable reason why this year might be any different is because gold and silver have already rallied impressively. The inability to break through resistance (the level that price struggles against as it goes up) can sometimes become a self-fulfilling prophecy. If this pattern shows in the coming months, it may postpone the potential superspike (where price breaks past a resistance level and moves up almost vertically) to $1,500 gold (or higher) that some forecasters expect. Looking ahead to where gold and silver might be a quarter from now, knowing where the critical support and resistance levels lie is essential.
Gold is pinned up against record high price levels and looks ready to break out. But first, another test of the rising multi-year trend line between now and spring is possible.
From the multi-year chart of gold above, it’s clear that the 2008 correction was just that, and the uptrend has resumed. Gold has so far held the $1,000 level, and is likely to continue to do so. A pullback that closes below last year’s highs would probably mean a retest of the trendline is forthcoming. Assuming the trendline holds, this means the move to $1,100 and beyond could occur anytime between now and April or May of next year. Looking at the more short-term chart below, we can see gold recovering from a recent near-term overbought condition in the Relative Strength Index RSI – the measure of overbought and oversold conditions of an asset. But it will soon reach levels that could signal another pause in the trend. At the same time, the Moving Average Convergence Divergence (MACD) – an indicator showing the relationship between two moving averages of prices – could serve as potential technical resistance as well.
Another test of the 2008 high looks likely in the near-term for gold, but the looming overbought condition in the RSI calls into question whether sufficient buying interest will exist to create the impulsive thrust some expect. At the same time, the MACD is poised to confirm either a breakout or resistance.
Any investor seeing silver sufficiently lagging gold could reasonably expect the white metal to stage a catch-up move. The underperformance of silver in relationship to the 2008 highs seems to reflect investor preference for the industrial applications of silver than its use as a dollar or inflation hedge. But in comparison to the lows, silver has outperformed gold. We can see in the chart below that silver is responding to a sharply rising trendline and previous resistance in the $17 - $18 level. The wide support-and-resistance band suggests silver can continue to be volatile in either direction. Strong support now exists at $13, just above which the 50- and 200-week moving averages are attempting a bullish crossover.
Silver has moved quickly into a strong resistance level, which suggests some time to consolidate could be in order. Strong support at $15 and $13 means silver is unlikely to move much lower as it prepares for a new bullish thrust.
Remembering that the purchase of physical metals is an intermediate-to-long-term investment, it’s always appropriate to look at a multi-year chart. Many investors who do exactly that and see gold teetering at new highs might be anxious about jumping in now if they haven’t already. Ultimately, to get more new money into the metals markets, economic or monetary conditions will have to overcome that investor anxiety. However, with the excitement about economic recovery starting to wane, and new threats to the dollar emerging, such impetus is likely.
...
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.
Fundamental Shift: Net Official Purchases Support the Price
by Philip Klapwijk
We’ve asked Philip Klapwijk, Executive Chairman of precious metals research firm GFMS — one of the world’s foremost precious metals consultancies — for his forecast for gold for the second half of 2009. Here is his summary from the GFMS’ Gold Survey 2009 — Update 1, a comprehensive analysis of the gold market.
In its just-released Gold Survey 2009 - Update 1, GFMS suggested that the official gold sector in aggregate became a net buyer in the second quarter of 2009 and forecast that the second half of the year would see further net gold purchases. This represents a remarkable change of direction for a market that has been used to absorbing the substantial volumes of gold sold by central banks over the last decade.
The shift to the buy-side in the second quarter owed much to a sharp fall in sales from the Central Bank Gold Agreement (CBGA) signatories. Combined sales from the group over this period amounted to a mere 14 metric tons, well under the quarterly average of around 100 metric tons sold until then under the soon-to-expire second Agreement. Modest purchases by others were therefore sufficient to swing the official sector overall onto the buy-side.
Looking ahead, as indicated above, GFMS expects central banks in aggregate will continue buying gold on a net basis in the second half. There are two main reasons for this. First, sales from CBGA members are expected to remain at extremely low levels. The cut in the annual limit in the third Agreement from 500 to 400 metric tons reflects the fact that there is a lack of appetite to sell among major bullion holders within the group. Indeed, as the new Agreement approaches, none of the signatories have made official statements specifying their future sales plans — apart from Switzerland, which confirmed it has no intention to sell any gold over the medium term. Although we believe further sales from Europe under the third CBGA are probable, these could be rather more occasional than the regular sales pattern seen under the previous two Agreements.
Second, we believe there is some scope for more buy-side interest to emerge. Already in the past two years we have seen the world outside the CBGA become net purchasers of bullion, with most of the metal sourced quietly in local gold markets. There is recent evidence that a growing number of official institutions are showing a greater interest in gold — mainly for portfolio diversification purposes, but also as an outright currency hedge. No doubt gold’s strong performance over the past few years in contrast to (in many cases) losses on central banks’ US dollar holdings have contributed in some degree to rethinking about gold. Such developments have been given an additional stimulus by the financial turmoil experienced over the past year and increased concerns over the long-run stability of the US dollar given America’s huge fiscal deficits and the willingness of the Federal Reserve to monetize a significant proportion of these.
We forecast, therefore, that the official sector will generate net demand of more than 20 metric tons in the second half, resulting in net sales for the full year of just 16 metric tons. This would be the lowest annual total in over two decades. Moreover, this could represent the beginning of an important change in trend from the one prevailing between 1989 and 2008. During these years central banks were major net suppliers of gold to the market. Our data show an average annual sale rate of just under 400 metric tons, equivalent to a hefty 11% of total supply over the twenty-year period.
Over the next year or two this new trend may be obscured somewhat by the planned sales of 403 metric tons of IMF gold. This assumes that there is no off-market transfer of some or all of this bullion to an official sector buyer — something we think improbable, but by no means impossible. Once the IMF sales program is completed, however, we would expect the official sector as a whole to have a broadly neutral impact on the market. This would represent a return to the situation prevailing in the 1970s and 1980s when the official sector was a net buyer in some years and a net seller in others. Besides the obvious supply/demand implications for gold, such a change from net sales to something close to ‘neutrality’ would be highly positive for gold prices, as it ought to provide a major boost to sentiment and confidence in the yellow metal.
Precious Metals Worldwide
News & Trends from Around the Globe
Gold Hits Record High on ‘Plan’ to Ditch Dollar
The price of gold recently surged to an all-time high at $1,038.65 per ounce when the dollar fell on a reported ‘plan’ by Gulf states to stop using the greenback for oil trading according to British daily The Independent.
The dollar’s future as the world’s top currency was thrown into doubt on a report alleging that Arab states had secretly moved with China, Russia, Japan, and France to stop using the greenback for oil trading. The report was denied by Kuwait and Qatar and reportedly by other nations.
China Considers IMF Gold Purchase
China is considering buying gold being offered for sale by the International Monetary Fund, according to Reuters.
"China will consider buying if the price is right and the return is relatively high," said an anonymous government source, according to the Reuters report.
China, the world's biggest producer and buyer of gold, revealed earlier this year that it had lifted its own stocks of gold to 1,054 metric tons from 400 metric tons when it last reported its holdings in 2003.
The IMF formally endorsed a plan to sell 403.3 metric tons of gold, one-eighth of its holdings, to central banks or in the gold market.
If there are no takers among central banks, it could sell to the market, which saw world gold demand of 3,880 metric tons last year, according to World Gold Council figures.
World’s Second Biggest Holder of Gold Won’t Sell
Germany's Bundesbank will refrain from big gold sales in the first year of a new central bank gold sales agreement according to Reuters.
The Bundesbank will sell only 6.5 metric tons of the precious metal to the German Finance Ministry, as earlier agreed, and not make further use of its sales options this year.
"The remaining selling rights will be offered to the other central banks participating in the Gold Agreement in exchange for future selling rights, or to the IMF (International Monetary Fund)," the Bundesbank said, citing a board decision on Tuesday.
The Bundesbank is the world's second-biggest holder of gold.
Silver Nanoparticles Boosts Solar Cells
Researchers at Ohio State University have discovered that adding silver nanoparticles to polymers used in solar cells can boost electrical current generation according to Nanowerk News.
Professor Paul Berger led a research team that measured the amount of light absorbed and the current density generated by an experimental solar cell polymer, both with and without silver nanoparticles. When tested with silver, the polymer generated almost 12 percent more power compared to the non-silver polymer.
Berger said the technology could go a long way toward making polymer solar cells commercially viable.
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