Market Summary —
December 2009
After a record-setting October and November to remember for gold and silver, both metals cooled considerably in December. Palladium and platinum continued to show their strength, both finishing the month strongly.
After peaking to start December, gold and silver moved southward all month long as the US Dollar regained some strength and precious metals speculators left the market. Silver finished the month down 9% and gold ended down 7.5%. Palladium continued its strong run and finished the month up 10%, and platinum ended up less than 1%.
Despite ending the year on a down note, 2009 was a banner year for silver and gold and all the precious metals. Gold finished up 25% and silver surged even more, up 48% for the year. Renewed industrial demand for palladium saw it end 2009 as the strongest gainer, up 122%. Platinum finished up 62%.
From a longer view, it was a golden decade as gold outperformed virtually every other asset class including stocks, oil, and US Treasuries. A $1,000 investment in gold when the market opened on January 2, 2000 would have been worth about $3,800 at market close on December 31, 2009.
Gold/Silver Ratio
The gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — finished just below 65, remaining relatively unchanged from its November close of 64. The gold/silver ratio averaged 66 in 2009 as silver continued to be priced relatively cheaply compared to gold.
| December Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $19.48 | $1227.77 | $410.50 | $1514.00 |
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| Low | $16.78 | $1076.38 | $350.50 | $1383.00 |
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| Open | $18.61 | $1187.27 | $372.50 | $1465.50 |
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| Close | $16.93 | $1098.80 | $410.50 | $1470.50 |
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| 2009 Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $19.48 | $1227.77 | $410.50 | $1514.00 |
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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 | $16.93 | $1098.80 | $410.50 | $1470.50 |
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CONTENTS
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Market Summary - December 2009 |
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Ross Hansen: 2009: The Year of Flight and Fight |
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Silver Long-Term Outlook Summary |
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History and Outlook of the Silver:Gold Relationship |
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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 December, 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 December 2009.
2009: The Year of Flight and Fight
by Ross Hansen
Biologists coined the term “Flight or Fight” to describe the response animals and humans have to severe stress. When challenged with something we fear, our instinct is to either flee the scene or stand our ground.
In 2009, precious metals illustrated this concept – with a twist. Instead of Flight or Fight, it became Flight and Fight. Investors fled chaotic equities and fought the destruction of their paper wealth with the reliability of gold and silver. This phenomenon drove gold to all-time highs in December and saw silver gain 48% at year’s end. Indeed, over the last several years we’ve witnessed a sea change in attitudes towards precious metal. The general public is beginning to openly question what real wealth is. And more and more, the answer at which it arrives includes gold, silver, palladium, and platinum. This dawning of a new day was accelerated by many factors during this past year:
Elected on the campaign promise of “Change we can believe in,” President Obama has indeed delivered change. Too bad it’s not the kind anyone, except for banks and the government sector, is happy with.
Bailouts. Record levels of unemployment. Massive government debt. This is the change Obamanomics has brought. Like someone you don’t want to meet in a dark alley, the numbers are Big and Bad. The federal deficit for the fiscal year 2009 (ending September 30), was a record $1.42 trillion, more than triple that of 2008. At some point in the near future, when these debts come due, a financial reckoning will be at our doorstep.
Unfortunately for a lot of citizen-investors, this out-of-control spending benefited Goldman Sachs, Fanny Mae and Freddy Mac, AIG, and countless others who, rather than being punished for running their business into the ground, were rewarded with new life. Meanwhile, jobs and consumer spending ground to a halt. As the auto industry crashed and manufacturing centers sat idle with stockpile of goods no one wanted or could afford, unemployment skyrocketed -- hitting 10 % by the end of the year. Some jobs, especially in the real estate and financial sectors, are likely never coming back.
This past year also saw a rapid inflation in the stock market, due to huge amounts of equity pouring in. Hedge funds and institutional-level speculators led this profit-taking charge. For true wealth-building, investors turned to precious metals in 2009. Countries, long sellers of gold, began buying again -- highlighted by India’s purchase of 200 tons of gold in November. Gold purchases for investment outstripped gold demand for jewelry. The U.S. Mint sold the most American Silver Eagle coins in its history. Even major media outlets began “discovering” the time-tested value of gold and silver.
As for those long-time investors who “discovered” precious metals long ago? They continued to buy and hold -- secure in the protection their portfolios already had.
Will precious metals continue to accelerate in 2010? If anyone tells you that they can guarantee the answer to that, my advice would be to keep your hand on your wallet. What I do know is that fear is a powerful motivator. More and more investors, with the fear of losing their paper wealth fresh in their mind, will continue to look at other options that can protect their investments. As such, the value of precious metals will cause public and institutional perception to switch. Gold will no longer be considered a “wacky” investment for obsessive collectors and gold bugs. It will be regarded as it should – a real investment that brings you real wealth.
Now that’s change I can believe in.
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.
Silver Long-Term Outlook Summary
by Jeffrey M. Christian
We asked CPM Group Managing Director Jeffrey M. Christian to share the results of its Silver Long-Term Outlook 2009 with our readers, and he graciously provided this excerpt. Information on ordering the report is available by contacting Adam Crown at CPM Group, acrown@cpmgroup.com, 1-212-785-8320.
CPM Group’s recently published Silver Long-Term Outlook 2009 report concludes that silver prices are projected to stay high by historical standards during the next ten years. Prices are forecast to be supported by a variety of factors related to both the silver market’s supply and demand fundamentals, and the underlying economic and political environment.
The key to understanding the evolution of silver prices always has been primarily related to investment demand trends. Mine production, scrap supply, fabrication demand, and inventory levels are all important, but by far the key drivers for silver prices are investor attitudes toward silver and how those attitudes are reflected in investor buying and selling of this metal.
Investment demand tends to have a more dynamic effect on silver prices. This is due to the larger volumes of money that can be involved with investment demand, the speed and intensity with which investment demand trends can rise, fall and reverse course, and the ultimately total discretion that investors have over whether they wish to be involved in silver at all. In other words, investors can and do swamp the silver market at times. Then they leave, sometimes for many years, or, worse, they sell the silver inventories they had built up during the previous bull market.
The silver market at present is several years into a period of strong investor demand. This has helped push silver prices to their highest levels since 1980-1982. Today’s period of bullishness may be slightly less intense than it was in 1980, when investors were net buyers of 222.2 million ounces of silver in bullion and coin form in a single year. That said, the bullishness may be extended for many years compared to the early 1980s. During the 1980s investors as a group continued to be net buyers of silver (through 1990), even as the level of demand waned sharply after 1985.
The significance of the shift from net investor selling to net investor buying over the past few years cannot be over-emphasized. Twice before in recent history have investors emerged as persistent net buyers. Each time there was a sharp increase in silver prices as a consequence of this shift.
The first time was in the 1960s. At that time the U.S. Treasury had effectively controlled the silver market worldwide for roughly eight decades through a series of silver purchase acts extending back to the 1880s. The Treasury stood ready to buy U.S. domestically produced silver and to sell silver to qualified users and others at prices below the value of the silver used in circulating coinage. It also issued silver-backed certificates: one-, five-, and ten-dollar bills that could be turned in for silver bullion at national banks. Electrification, air conditioning, commercial photography, and other silver-using applications became increasingly popular after World War II and through the 1960s, creating massive demand for silver held by the Treasury. By the early 1960s this was applying strong upward pressure on silver prices. Investors who saw this happening began buying silver. This added to the upward pressures on prices. The Treasury had to switch out of silver-bearing coinage and stop issuing silver certificates. The price of silver rose from less than $1.00 per ounce in the late 1950s to around $2.44 in 1968. Silver was freed from its managed price and removed from the U.S. monetary system as a result of the strong increase in investor demand.
After prices rose to around $5.00 per ounce in the early 1970s, investors began selling their silver. They were net sellers until 1979.
The second time investors emerged as net buyers was in 1980. At that time, silver prices rose from around $5.00 to $50.00. Investors continued to add silver to their collective holdings from then until 1990, by which time prices had dropped to around $4.00.
The third emergence of investors as net buyers began in 2006. Investors have been net buyers of silver since 2006, for all the obvious reasons related to seeking financial hedges, safe havens, portfolio diversifiers, and alternative assets. The price has been rising strongly since then.
Over the coming decade the silver market is expected to see investors continue to be interested in adding silver to their portfolios. This is expected to keep silver prices high on a historical basis – more than 60% higher than the average price from 1950 through 2008 on an inflation-adjusted basis and nearly four times higher than the average price over the past 58 years on a nominal price basis.
History and Outlook of the Silver:Gold Relationship
by David Bond
There are several ways to look at silver's price performance relative to gold. The silver-to-gold ratio is one of them. Back in the 1979-1980 run-up of both precious metals, (rounding up here a bit) the prices peaked at $48 and nearly $900, respectively. That meant it took some 18 ounces of silver to buy an ounce of gold. Currently, that ratio is up to about 61:1, i.e. it takes 61 ounces of silver to buy an ounce of gold. This is more typical of the silver:gold ratio that we've seen for the past three decades, although it swings from a low about of 45:1 to a high of 70:1.
The Silver:Gold Ratio and the Lesson of 1980
Historically, gold and silver traded monetarily at a 16:1 ratio up through the end of the 19th Century. In the 1890s it began to rise to a 20:1 ratio, i.e., twenty silver dollars bought you a $20 gold piece. When Franklin Roosevelt took us off the gold standard and made illegal individual gold possession, and set the price of gold at $35 per ounce, the ratio obviously rose to 35:1. The intervening decades have seen the ratio as high as 97:1 and as low as 14:1.
In nature, according to research by many, including Franklin Sanders, the physical relationship between gold and silver in the Earth's crust is about 17.5:1. In Biblical times the metals traded at a rate of 8:1. Only in the 20th century has the ratio grown so large.
Obviously calculating a standard deviation in this ratio spread would be a meaningless effort. But a historical view does tell us that the current ratio is on the high side and is due for a correction, both near-term and long-term, and either by a lower gold price or a higher silver price.
What kicked off the 1979-80 run-up was unprecedented peacetime inflation here in the U.S.; from a historical rate of 2.6 percent per year to an astonishing 10.75 percent in the first nine months of 1979, driven by rising oil prices and the “Vietnam hangover” of deficit spending. (What supercharged the silver run-up was a rush by gold traders caught short in 1979 scrambling to recoup their losses by diving into the relatively diminutive silver markets.) Current Fed, White House and Congressional policies seem bent on returning us to such inflationary numbers, and possibly much worse ones.
When Gold Moves, Silver Sprints
Ergo, I am bullish on both gold and silver, which trade in their rag-tag ways roughly parallel if you look at the long trends. Silver moves much more rapidly in both directions compared with gold. Given that the U.S. dollar is worth about half what it was in 1980, we have an inflation-adjusted situation that puts gold and silver nowhere near their peaks of the late 1970s -- yet. A sustained upward move in the gold price, as we saw in the first days of 2010, will trigger a much more explosive upside response by silver, especially as the ratio gets stretched.
Two things brought down the price of silver in the early years of the 1980s decade. First, at the prodding of the Fed and the Treasury, the Comex instituted a liquidation-only trading rule under Emergency Rule 701 “limiting trading to liquidation only, in whole or in part, or limiting trading to liquidation only except for new transactions in futures or options contracts by parties who have the commodity to deliver pursuant to such sales,” which forced holders of long contracts to sell. Longs were also faced with higher margin calls on their contracts. Those froze out the major silver longs, principally the Hunt Brothers, who had to pony up cash to keep their contracts in force or bail out. The Hunts themselves were cash-strapped, having had to bail out, with cash, the brokerage firm of Bache, which had booked their contracts and then bet against them. With no buyers allowed in the market, the price had to crash, which it did. Second, the two-billion-ounce-plus overhang of silver held by U.S. and foreign governments slid into the physical market, along with Great-Aunt Gertrude's silver flatware, attracted by the high spot price.
(Silver Bulls, a superb account of the actions in the silver pits, was written a couple of years later by long-time Paine-Webber trader Paul Sarnoff – Paul wrote some 30 books on commodity and futures trading and was a confidant of this writer. I recommend Silver Bulls to anyone venturing into precious metals.)
Those two factors no longer threaten the silver market. First, delivery-grade silver is no longer exclusively under the control of the Commodities Futures Trading Commission, or the exchanges in Chicago and London. No single governmental edict can collapse the market. The big players in the silver market these days are offshore and beyond reach of the long arm of U.S. law and regulation. Second, the overhang of “surplus silver” (and “surplus gold,” for that matter) have been liquidated, along with Auntie Gertrude's sterling.
Cheap at Twice the Price
Ultimately we the people, not central bankers or conspirators at the exchanges, will determine the fair price of silver and gold and what their ratio one to another should be. That's still in the cards. But based on the wind-up of 2008 and 2009, and deficit and inflationary scenarios such as we've never seen before, this should be a very good year for silver. It's cheap at twice the price. My prediction for 2010? Both metals will be off their inflation-adjusted charts.
David Bond covers precious metals equities for a variety of national and international publications, including Platts Metals Week, a McGraw-Hill company. He resides in Wallace, Idaho at the heart of the Idaho silver fields. During his 30-year career as a newspaper reporter, columnist and editor he received two National Headliner Awards and numerous first place awards from the Society of Professional Journalists and the Associated Press for investigative reporting, science writing, and commentary. He is editor of Silverminers.com.
Precious Metals Worldwide
News & Trends from Around the Globe
Gold is the decade’s best performer
Gold climbed almost 280% in 2000-2009, making it the decade’s best performer according to Bloomberg.
A $1,000 investment in gold when the market opened on January 3, 2000, was worth about $3,800 on December 31, 2009, for a total return of 280 percent and an annualized return of 14.3 percent. That outperforms the commodities index, oil prices, U.S. high-grade corporate bonds, U.S. Treasuries, and U.S. stocks for the decade.
American Silver Eagle Coins set record in 2009
The U.S. Mint sold a record 28,766,500 1-oz. American Silver Eagle Coins in 2009. The total was the most the U. S. Mint has ever sold since it started its American Eagle Bullion program in 1986. This marked the second consecutive year that Silver Eagles hit record sales numbers – 19, 583,500 1-oz. American Silver Eagle Coins were sold in 2008. American Gold Eagle Coins had a banner year as well, selling 1,805,500 1-oz. coins, the fifth-highest total in the program’s history. This was achieved despite a temporary suspension of sales in late November due to high investor demand.
Nanosilver Powers Solar Cells
Researchers have shown that silver boosts solar cell productivity according to the Silver Institute.
Adding small pieces of silver to semiconductors in solar cells boosts the material’s electric current generation, says a research team at Ohio State University.
The researchers noted that introducing nanosilver particles to the solar cells created a 12 percent increase in the electrical output of the cell.
The technique holds promise for producing more efficient solar cells at lower cost.
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