Kirk Walters © 2010 North American Synidcate
October was an exciting month for precious metals. Palladium continued upwards, while gold, silver and platinum managed to stay close to their previous highs. From low to high, silver spanned $3.24/oz—an exciting month.
Gold peaked mid-month at $1,388.08/oz, then corrected about $60.00 before closing up at $1,365.20. The price of gold reflects the continuing move in uncertain times to precious metals, up $200/oz from where it was two short months ago.
Palladium, now at a nine-year high, consolidated in the $590 range for most of the month, then flashed upwards during the final week to close $60 higher at $653.25. Low for the month was $558.00.
Platinum maintained the month in a range of $70 between lows and high. Platinum tested the heights achieved last May, but closed a bit lower at $1,713. Platinum had opened at $1,670.50.
Silver’s increasing value relative to gold continued during October. The month started with a gold/silver ratio of just under 60, and finished at just above 54. For an in-depth look, please see the article below addressing the gold/silver ratio.
| Oct Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $25.07 | $1388.08 | $655.75 | $1731.00 |
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| Low | $21.83 | $1310.48 | $558.00 | $1661.50 |
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| Open | $21.86 | $1310.75 | $573.50 | $1670.50 |
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| Close | $25.02 | $1365.20 | $653.25 | $1713.00 |
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CONTENTS
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Market Summary - October 2010 |
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Ross Hansen: Crisis Hopping |
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Gold Market Outlook |
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Investigation May Push Silver Sharply Higher |
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Gold / Silver Ratio Decoded |
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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 October, 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 October 2010.
Americans have a propensity to hop from one perceived crisis to another. The two most recent have been deficit spending and its inevitable sister, quantitative easing.
In my 30+ years of trading bullion, I’ve seen over a dozen such crises. Recently these once-in-a-lifetime crises have become almost a yearly event, as predictable as the return of the swallows to Capistrano. With an ear to the ground, I want to make a prediction on the next perceived crisis. So, without further ado…
“From the same people who brought you Y2K, the next big crisis (drum roll, please)…is the end of the Mayan calendar on December 21, 2012.”
The Mayans utilized three calendars. The third calendar, known as the “long count,” is a continuous record of days that starts over every 5,125 years, ending a period of “13 B’ak’tuns.” When the “zero date” occurs, time is reset and the count begins again. As far as can be determined by scholars, the current “long count” will end December 21, 2012. Sandra Noble, Executive Director of the Foundation for the Advancement of Mesoamerican Studies, says that “for the ancient Maya, it was a huge celebration to make it to the end of a whole cycle.”
Doomsdayers, however, point to NASA information that indicates that the sun’s magnetic poles will change at that same time in response to its 11-year cycle, and that on that very date the sun will be aligned with the center of the Milky Way, and the earth will pass through the Galactic equator, both occurrences happening for the first time in about 26,000 years. They surmise that the end of the calendar will bring disaster, even apocalypse—witness the latest Hollywood offerings. Mrs. Noble, however, contends that to predetermine December 21, 2012 as doomsday is “a complete fabrication and a chance for a lot of people to cash in.”
When Y2K turned out to be the non-event of the century, the Wall Street Journal called it “the hoax of the century.” I predict that—like Y2K—the fear of this event and its uncertain outcome will drive more crisis-investing into precious metals, food storage, and tin hats.
Always remember: the people who predict these crises are the same people who are trying to sell you something. Including me.
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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Gold Market Outlook
by Philip Newman
Northwest Territorial Mint has invited GFMS, the world's foremost precious metals consultancy, to share its analysis of recent trends in the gold market following the release of its latest forecast.
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The surge in gold prices in recent months has been nothing short of dramatic. Following the July correction, gold has raced ahead to post a record high (at the time of writing) of $1,416.25, (on the basis of the London a.m. fix) on 9th November. In keeping with the trend, which became firmly established in late 2008 (following the collapse of Lehman Brothers), the rally has been driven primarily by stronger investment demand, encompassing exchange traded funds, the over-the-counter market and, more recently, through the futures exchanges.
As well as the growth in investment demand, gold prices have also been supported by AngloGold Ashanti’s elimination of its gold hedges, together with positive reports from the official sector, including recent news concerning purchasers by Bangladesh, Thailand and Russia, which has seen the official sector become net purchases of gold for the first time in twenty years. In addition, physical demand has emerged from a number of key Asian markets, particularly during bouts of price weakness. This indicates the extent to which the support threshold for gold has risen, with any price falls towards the $1,200 level now regarded as a “buy” opportunity by the jewelry trade.
Looking ahead, although expectations are for further price gains, for the immediate future there is a risk that a correction will emerge. This will in part stem from a reaction to the prospects for a significant slowdown in economic growth in several western countries towards end-2010, which is likely to lead to a return of risk aversion. In addition, despite some increase in short positions in recent weeks, investors’ Comex net long futures positions are currently near to record levels, which in itself has created a significant market overhang.
Turning to next year, the US is unlikely to tighten monetary policy, given a fragile US economy. These conditions can also be applied, to some extent, to Japan and also to the Eurozone. As a result, gold investment is likely to benefit, not only from a continuation of what will be extremely low short-term interest rates in these markets, but also persistent fears about the re-emergence of the European sovereign debt crisis. In this regard, the investment community is also watchful of these concerns spreading to the United States, which itself is characterized by historically high trade and fiscal deficits.
Looking further ahead, the investment case for gold should remain healthy, for two main reasons. Firstly, as global economic growth starts to gradually improve, there is likely to be a delay before interest rates, especially in the United States, start to respond accordingly. In large measure, this will reflect the still fragile nature of the “real” economy in the United States. Secondly, there is still the potential for the investor base to grow materially, particularly among institutional investors who are likely to focus more on portfolio diversification, rather than looking to benefit from further gains in the gold price, a strategy which suggests these holdings will be relatively “sticky,” and therefore less likely to be liquidated should prices start to eventually weaken.
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Research Director Philip Newman joined GFMS in 1994. He holds an Honours degree in economics from the University of Surrey in England and possesses a wide-ranging knowledge and unique understanding of the gold and silver markets in the United States, Europe, and the Middle East.
Copyright GFMS, 2010
Investigation May Push Silver Sharply Higher
by Northwest Territorial Mint Staff
Silver is no stranger to controversy, ever since the Commodity Futures Trading Commission (CFTC) accused Bunker Hunt of manipulating silver prices in 1979 and 1980 — charges he denied, but which left him in a tangle of lawsuits, bankruptcy and tax problems.
Over the past two years silver prices have fluctuated broadly, dropping from around $20 per ounce to $9, then back up again to where it is now at highs not seen since the Hunt era.
On Tuesday, October 25, Commissioner Bart Chilton said at a CFTC hearing in Washington that “there have been fraudulent efforts to persuade and deviously control that price,” and that “any such violation of the law in this regard should be prosecuted.” (The Washington Post,10.27.2010) The Wall Street Journal noted on October 27th that for years lawmakers have criticized the agency of weak policing action, but that “the CFTC’s investigation of silver has heated up in recent weeks,” although commissioners have not agreed on how to proceed.
Despite silver’s lofty current price, same analysts suspecting manipulation believe that silver should be trading at much higher levels, but that it is hard to know how important Chilton’s comments are with regard to the ongoing silver manipulation allegations. Any prosecution by the CFTC is likely to lead to further volatility and higher prices.
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Gold / Silver Ratio Decoded
by Northwest Territorial Mint Staff
The recent run-up in silver prices has seen the gold/silver ratio decline some 30 points from where it was just two years ago.
Is this significant? What is the gold/silver ratio? Simply stated, the ratio is expressed as the number of ounces of silver that 1 troy ounce of gold will purchase; or conversely, the number of ounces of silver required to buy 1 ounce of gold. Today, the ratio floats because gold and silver are valued daily based on market forces. A ratio of 55, for example, would mean that 1 ounce of gold could buy 55 ounces of silver. If silver should weaken relative to gold, however, the ratio would go higher, to 70, for example. The lowering of the ratio in recent months indicates that although gold has seen a spectacular rise to its highest prices ever, silver has experienced an even higher elevation relative to gold.
Knowing the history of the gold/silver ratio within the United States is helpful in understanding its relevance today. Silver is about 19 times more abundant than gold in the earth’s crust (U.S. Geological Survey, Mineral Commodity Profiles, p. 7), and when the First Coinage Act was passed in 1792, the gold/silver ratio was set at 15, a bit lower than its natural occurrence in nature. In 1834 Congress passed the Second Coinage Act, which raised the ratio to 16. (Matthew Green, Historical Gold/Silver Ratio, Seeking Alpha, 5.25.2010)
Since the beginning of the last century, the ratio has fluctuated wildly, approaching 100 in 1939 in response to government monetary policies. Since 1971, when President Nixon abandoned the gold standard, the ratio has fluctuated from well below 20—when the Hunt brothers ran up the price of silver in 1979-80—to 100 in 1991. The last large run-up in the ratio, meaning that silver was weak against gold, occurred in the last part of 2008, when it almost reached 84. Since that time, silver has generally been increasing in value relative to gold, and the ratio now is in the 50s. (Green, Historical Gold/Silver Ratio)
Aside from being just a figure to indicate the relative value of silver and gold, the silver/gold ratio can be utilized as a trading tool offering great profit potential. Aryeh Katz, gold trader, points out that this strategy is not for the faint of heart, since one must be able to successfully call the market values. His trading philosophy is this: if the ratio is at 100, take 1 ounce of gold and buy 100 ounces of silver. When the ratio decreases to 50, sell the silver and buy back two ounces of gold. Then wait for another cycle and do it over again. “The obvious difficulty with the trade is correctly identifying those ‘extreme’ relative valuations between the metals,” he says. “If the ratio hits 100 and you sell your gold for silver, then the ratio continues to expand…you’re stuck.” (Trading the Gold/Silver Ratio, Investopedia, 11.8.2010)
The gold/silver ratio is a barometer. Whereas it once was the reflection of actual gold/silver concentrations in the earth’s crust—since both gold and silver now float and are subject to the whims of the market and industry needs—the gold/silver ratio now indicates only the relative strength of the two metals. The ratio will always vary because gold and silver prices will always vary. The ratio is dependent on many factors, some of which are the available physical amounts of gold and silver, central bank policies of world economies, and the economic mindset of the populace relative to their overall security.
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Precious Metals Worldwide
News & Trends from Around the Globe
Chinese State Newspaper Guarantees Gold Rise
China should increase its gold holdings if the country aspires to ‘internationalize’ its currency, reported International Business Daily, a newspaper affiliated with China’s Ministry of Commerce, quoting Meng Qingfa, a researcher at the China International Chamber of Commerce. Meng was quoted as saying that China should significantly boost the amount of gold held in state reserves. “Doubtlessly, if the yuan is set to become an international currency like the dollar or the euro, China has to get a huge gold reserve to support it, and a reserve of 1,054 metric tons is far from being enough,” Meng said.
Noting that United States gold reserves stood at 8,133 metric tons, while China’s was only 1,054 metric tons, Meng said that China not only should, but could easily “build up a gold reserve as large as the United States’ current one by using only 10 percent of its $2.65 trillion stockpile of foreign exchange reserves.” As the dollar has fallen and the gold price has moved higher, increasing domestic pressure has been put on the government to purchase more bullion as protection against the falling dollar in relation to the stockpile of foreign exchange reserves. According the World Gold Council, China’s share of global gold demand has doubled in recent years, and China’s domestic gold mines “could be exhausted within six years.”(Beijing Reuters, reprinted in Mineweb 10.27.2010)
In July of this year, the China State Administration of Foreign Exchange noted that China would have to be prudent in adding gold to its official reserves because any such move would necessarily serve to drive gold’s price higher. (Beijing Reuters 10.27.2010) Bloomberg also reported the July statement as saying that “gold is unlikely to become a major holding in China’s foreign reserves because of the metal’s big price swings and lack of interest payments.” (Bloomberg 10.27.2010)
Gold Good, Silver Scorches on COMEX
During the spectacular rise in spot prices for gold and silver over the last year, sales volumes have kept pace with price increase ratios. Although gold traditionally has the spotlight, silver has performed considerably better. COMEX gold volumes increased from 3,216,656 troy ounces in October, 2009, to 3,858,832 ounces in October, 2010, an increase of 20% year to year. COMEX silver sales volume, however, was up 62.3% for the same time period.
Year-to-date sales figures for 2009 and 2010 were also similar: COMEX gold was up 36.8%, while COMEX silver increased 50.8%. (CMEG Exchange Volume Report, October 2010)
New Use for Palladium As Catalyst May Expand Its Value
When palladium is finely divided, it forms a versatile catalyst that speeds hydrogenation and dehydrogenation reactions, according to the 2010 winners of the Nobel Prize in Chemistry. New research by Richard F. Heck of the University of Delaware, Ei-ichi Negishi of Purdue University, and Akira Suzuki of Hokkaido University in Sapporo, Japan has greatly improved the methods for chemists to create much more complex chemicals comparable to the sophisticated carbon based molecules created by nature itself. Palladium-catalyzation has become a key factor in the creation of new pharmaceuticals, agricultural chemicals, and high-tech materials, accounting for as much as 25% of all new organic medicines according to a Science News story. Not only have these palladium-catalyzed cross-coupling reactions enhanced the effectiveness of organic synthesis, but these discoveries are also useful for increasingly precise electronics and complex technological materials.
Chinese Cars Drive Palladium
Unlike gold and silver, both of which have had a centuries-long history of being used as coinage, palladium is very much an industrial metal. Palladium is now at a nine-year high, and has risen around 60% since the start of 2010. One analyst who thinks palladium may have a lot further to go is John Stepek. He notes that palladium is mainly used in catalysts for gasoline-powered cars, and since gasoline engines “dominate the automobile market in China, now the world’s biggest car market, palladium is seeing demand soar as a result.” Stepek concludes that healthy economic growth in that industrial sector will “keep the price of palladium rising.” (MoneyWeek, 11.2.2010)
Gold Reigns Eternal
The near-immortality of gold will be ‘front and center’ when the gold coffin and mummy mask of Pharaoh Tutankhamun goes on display in Australia next April. Following his death in 1323 BC, Tutankhamun—the boy pharaoh—was buried in a gold coffin in the Valley of the Kings. His tomb was discovered thousands of years later by archaeologist Howard Carter in 1922.
The King Tut gold coffin was not the only coffin in the royal burial tomb: the gold coffin that actually encased the Pharaoh’s mummy was itself encased in two wood coffins gilded with gold, each placed inside the other, like Russian dolls. The solid gold coffin of King Tut measures 6 feet 1 inch in length, and weighs 243 pounds (king-tut.org). At today’s gold prices, the melt value would be somewhat more than $5,000,000. Of course, to Egyptologists and others, it is priceless. And anyway, it’s not for sale.
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Patrick Corrigan PoliticalCartoons.com
Contents © 2010 Northwest Territorial Mint.
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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