Led by palladium, all metals moved higher in April ahead of further May advances. Gold and silver hit their highs for the month on its last trading day; both made their lows for the month on the first trading day. Silver finished the month up 6.4% and 10.4% for the year, while gold was up 6.1% for April and 7.5% for the year so far. Palladium and platinum were just off their highs at month’s end. Platinum jumped 5.9% in April, and shows a 18.6% increase for 2010. Palladium is the year’s big performer so far, jumping 34.3% in the shadow of its yellow precious metals brother – and a healthy 14.3% for April.
Gold/Silver Ratio
The April gold/silver ratio — the quantity of silver (in Troy ounces) required to obtain one ounce of gold — finished about where the March gold/silver ratio had, at 63.2 (versus 63.4 at the end of March). Gold frequently spiked up in price, only to be followed shortly thereafter by silver. The ratio has definitely dropped this year, failing from 64.9 to its current level – meaning that silver is gaining strength against gold. The ratio in April 2009 was 70.8.
| Apr Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $18.78 | $1182.53 | $575.50 | $1760.00 |
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| Low | $17.52 | $1113.24 | $482.50 | $1647.50 |
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| Open | $17.56 | $1113.30 | $482.50 | $1647.50 |
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| Close | $18.69 | $1181.30 | $551.50 | $1744.50 |
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APOLOGY FOR OUR DELAY
Northwest Territorial Mint CEO Ross Hansen would like to apologize for the late delivery of this edition of Northwest Territorial Mint Precious Metals Monthly, which we held for his article while he was traveling on business. Ross believes his commentary subject is important and worth the small delay. We trust you will as well.
CONTENTS
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Market Summary - April 2010 |
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Ross Hansen: Inflate This |
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Highs and Lows |
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IMF Gold Now On Open Market |
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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 April, 2010. 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 April 2010.
As gold has reached a new all-time high this month, the talking heads and basement pundits are feverishly predicting even loftier goals for gold. While I agree that gold certainly could (or not) continue to rise, I would like to debunk one of the arguments that is often used in predicting these lofty numbers.
It’s the “let’s-adjust-for-inflation” argument.
That is, the pundits will take the highest price of gold up until recently, which was the $850 an ounce it attained for one brief day in 1980. They will then tell you that if you were to take that same $850 from 1980 and adjust for inflation, gold would have to be $2,377 an ounce to reach the same level today. This, by their logic, means that gold must go to $2,377 an ounce.
Let’s look at the facts: After attaining $850 an ounce in January of 1980, gold immediately plummeted; and two months later was worth only half of its previous high. Gold eventually drifted to a low of $252 an ounce in 1999.
Silver had a similar, but even bigger price swing. After reaching $52.50 an ounce on that same January day, within a few days the price crashed to $10.20 an ounce, and eventually drifted to $3.51 in 1991.
Because I do not agree with this type of adjust-for-inflation logic, I must ask this question of those who do: Does this mean that after gold attains $2,377 it will similarly immediately fall back to a relative low – which if you adjust for inflation would be less than $500 an ounce? And silver would fall from its current $19-plus to around 7?
You’ll notice that the gold and silver puffer-uppers never do the math in reverse. Why is it that they never mention the lows of these metals, only the highs?
Because it isn’t sexy or vogue.
Your investing shouldn’t be sexy or vogue either. Your investing should be based on real logic and common sense.
You’ll notice that the same arguments used to entice people into buying real estate three years ago are now being used to sell gold and silver. Like real estate, gold and silver have their proper place in a diversified portfolio. Just don’t be under- or over-weighted in either.
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.
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Highs and Lows
by Northwest Territorial Mint Staff
As gold captures everyone’s attention as it once again visits the neighborhood of $1,200, it might be prudent to take a look at the highs and lows of precious metals in recent times.
For nearly 30 years, the record high price most people associated with gold was $850, achieved in January of 1980. Gold bugs were ecstatic when, in January of 2008, gold traded above $850. The price continued to climb, until it breached the $1,000 mark on March 17, 2008. By late Fall of that year, however, gold was trading as much as 25% off its highs. Again, last December, a new gold high of $1,226.40 was reached.
Driving gold’s upward spiral was concern about the state of the economy. In March of 2008, the subprime mortgage crisis caused the collapse of Bear Stearns and its subsequent Fed-initiated fire sale to JP Morgan Chase. The federal bailouts of 2008 drove more investment interest in gold, as investors became concerned that assets backed by debt had no value, but were being shored up by the Federal government. And, as bailout packages were created in 2008 and 2009, more became concerned because they felt the currency of the United States – the Federal Reserve Note – would lose value through inflation when the economy was flooded with the money from the bailouts. The patchwork quilt of the various programs amounts to $12.8 trillion, with some sources doing the math and coming up with a bigger number.
Historically, silver traded much closer to gold than it currently does. Prior to the end of the gold standard, an ounce of gold traded at $20.67 and silver at approximately $0.44. After World War II, silver began to trade ever higher, and an ounce of silver first became worth more than the stated value of a silver dollar in 1961. By 1965, the US removed silver from its circulating coins. In 1980, silver hit its record high in part as a result of an attempt to corner the silver market, but that $50 high was toppled quickly – falling more than 90% to $4.88 in June 1982. Panic and inflation fears drove it to $14.74 February 1983. Silver spent most of the 1990s trading in the single-digits, though still volatile – its low for the decade was $3.51 and its high was $7.59, a range of 216%.
Palladium’s highs and lows have also been mighty. In 2001, it traded as high as $1,090 per ounce because of its value as an autocatalyst. The world’s major supplier of palladium is Norilsk Nickel, and in the year 2000, Norilsk’s deliveries of palladium became unreliable. The palladium market then was so tight that supply interruptions resulted in huge price surges. Ford Motor Company wound up taking a $1 billion loss when the palladium it stockpiled at peak prices fell to prices of around $400 just a year later. By 2008, palladium sold for as low as $164 per ounce, though it is currently the hottest performer of the four precious metals, up 34% for 2010, and 236% since its December 2008 low.
Supply problems in the form of mine strikes -- as well as rumors of an exchange traded fund (ETF)-- drove platinum up in 2008, swinging from $763 to $2,273. Like palladium, platinum fell in 2009 as automobile sales crashed, falling as far as $918.
Interest in all of these precious metals derives from their unique qualities. Silver and gold especially are viewed as money, but all have been turned to as a store of value, a preserver of wealth and a hedge against inflation. Do not fear the swings in price, because they reflect the relative sanguinity of the financial world. When things are well, they cost less. When things are not well, they cost more – but are even more valuable.
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IMF Gold Now On Open Market
by Northwest Territorial Mint Staff
Last year the International Monetary Fund (IMF), the third-largest holder of gold in the world, announced it would sell 403.3 metric tons of the precious metal. Its stated goal was to “put the financing of the IMF on a sound long-term footing, and also help to boost the Fund's capacity to provide concessional loans to low income countries.” An endowment funded with the profits from the IMF’s gold sales is a central component of the a “new income model” endorsed by the IMF Board in April 2008, aiming to provide “more diverse income sources that are better aligned with the variety of functions performed by the Fund.” Ultimately, the IMF seeks to generate more income from activities other than lending.
In October and November of 2009, the IMF sold about half of its goal, selling 212 metric tons of gold in three central bank transactions – 2 million tons to Mauritius, 10 million to Sri Lanka, and 200 million to India. These were said to be at market prices, but were off-market sales – i.e., made through direct negotiation with the purchasing entity.
The bulk of the IMF’s reserves is gold pledged by central banks at the formation of the IMF in 1944. Some have speculated whether the remaining 2,800 metric tons are, in fact, physically in the possession of the IMF, or, worse, double-counted as assets of the IMF and the member nation that was originally to have provided the gold.
The IMF is now selling the remainder of the 403.3 metric tons of gold on the open market. Those watching the price of gold will want to keep an eye on these transactions. Commentators have noted that central banks unwilling to buy last fall could be among those most willing to buy on the open market, where the transaction is unlikely to send higher the overall price of gold.
The phrase ‘open market’ may be misleading to casual investors. These purchases are made by brokers or banks as the representative of clients seeking to buy or sell gold. The London Bullion Fix is the result of a twice-daily meeting of five bullion banks in London – once in the morning and once in the afternoon (London time). Minimum traded amounts for clients are generally 1,000 ounces of gold and 50,000 ounces of silver. Clients seek these brokers for most expected reasons, plus one other – confidentiality.
Thus, approximately 200 metric tons of gold will be sold to clients of members of the London Bullion Market Association with little publicity for the entity making the purchase. Whether this will be in large gulps by central banks such as China’s, which announced recently that it had spent much of the previous five years acquiring gold off its own books, remains to be seen.
Sources for the above article include the International Monetary Fund, the London Bullion Market Association, Byron King at Contrarian Profits, and articles by Chris Ciovacco and Adrian Douglas at ResourceInvestor.com.
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Precious Metals Worldwide
News & Trends from Around the Globe
GFMS Gold Survey 2010 Says End Now In Sight for Gold Rally
Gold investment demand in 2009 exploded, surpassing jewelry fabrication for the first time since 1980, according to the Gold Survey 2010 just released by GFMS, the UK-based precious metals consultancy. GFMS Chairman Philip Klapwijk commented, “The more-than-doubling of investment in value terms to almost $60 billion was partly due to familiar forces such as the dollar falling.
"However, it was powerful new drivers – we could cite here fears over quantitative easing, perhaps even more so counter-party risk as long standing financial institutions collapsed – that got interest really moving.” According to Klapwijk, “in the first quarter you see scrap rocketing past not only jewelry demand but also mine production, [and] you can understand why the rally failed in the run-up to $1,000. Fast-forward to the fourth quarter, when the fundamentals aren’t looking so shaky, and investment has an easier job of getting prices over $1,200.”
Other areas that the report highlights as integral to gold’s move higher include the official sector, where net sales fell by over 80%. GFMS is still predicting short-term upward price movement despite reporting increases in mine production in 2009 and its expectations of more of the same in 2010.
Said Klapwijk, “We can’t see a good reason for investors to dump gold, and the fundamentals, if still pretty weak, are improving.” However, Klapwijk added, “we’re certainly in the end-game now, although that could still take a year or more to play out. But after that, it’s difficult to see how we can avoid a hefty drop in prices if we want to boost jewelry and trim scrap to bring the overall market back into equilibrium.”
The GFMS Gold Survey 2010 is available at http://www.gfms.co.uk/.
Platinum Surplus, Palladium in Balance Says GFMS
The GFMS Platinum & Palladium Survey 2010 reported a gross surplus in platinum in 2009, growing 47% to 849,000 ounces. This is the largest surplus recorded by GFMS since it began reporting data 11 years ago. GFMS attributed a 14% decline in platinum demand to a drop in autocatalyst need in a down year for automobile sales. The surplus would have been larger except for a 10% decline in platinum supply, GFMS reported, attributing the diminished supply to reduced levels of jewelry scrap and a small decline in mine production.
Investment demand still drove prices higher, the report stated, with additional platinum secured in exchanged traded funds (ETFs). The story was similar for palladium, which stayed in balance because weaker autocatalyst and jewelry demand was matched by mine production declines. Investment demand did increase in 2009.
The GFMS Platinum & Palladium Survey 2010 is available at http://www.gfms.co.uk/.
Central Bank Gold Sales Low (So Far) Under Third Agreement
Since the beginning of the third Central Bank Gold Agreement (CBGA3) in September 2009, central banks have sold just 1.6 metric tons of gold (7.2 metric tons when the International Monetary Fund’s long-planned sales are included). For the past decade, the average sales total for a six-month period has been 194.2 metric tons. The world’s central banks agreed beginning in 2009 to limit the gold they sold in order to prevent the price of gold from falling precipitously as banks sold into the market – in a year when the average price of gold was $275.60. Signatory banks limited themselves as a group to 500 metric tons per year during the first two five-year agreements; the third agreement limits participating central banks to 400 metric tons per year of sales as a group.
This lessening of official sales, combined with rising jewelry demand and falling scrap sales in the wake of seeming recovery, has led some commentators to call this a fundamental reason for continued increases in gold price.
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