Market Summary

December 2010 / January 2011

The month of December closed out a strong year for precious metals. Ongoing currency crisis and a slower than expected economic recovery continued to fuel demand for precious metals as a safe haven asset.

Gold began the month of December at $1,391.55 per ounce, finishing the year at $1,423.25 per ounce, an all-time high. Gold closed above $1,400.00 per ounce seven different times in December. Gold prices have been over $1,370.30 so far in the month of January.

Silver prices in December began at $28.51 per ounce, and finished at $30.96 per ounce – a 30-year high. Silver has traded close to the $30.00 per ounce mark to start the year.

Platinum began the month of December trading at $1,698.20 per ounce. It finished the month strong at a price of $1,772.50 per ounce. Platinum has approached a 2-year high in the month of January, trading at $1,814.50 per ounce at the time of this writing.

Palladium, the most impressive of all precious metals lately, began the month of December trading at $737.50 per ounce. It finished the month at $804.50 per ounce. Palladium continued its strong run so far in the month of January, reaching a high of $817.50 per ounce.

The December gold/silver ratio—the quantity of silver (in Troy ounces) that one ounce of gold will purchase—finished at 45.97 (versus 49.36 at the end of November and 54.93 at the end of October).  This declining ratio reflects the rising value of silver relative to gold.

December Spot Price Summary (U.S. Dollars)
	Silver	Gold	Palladium	Platinum
High	$30.99	$1432.30	$806.00	$1779.70
Low	$28.10	$1363.80	$707.50	$1672.00
Open	$28.46	$1394.10	$709.00	$1675.50
Close	$30.96	$1423.25	$804.50	$1772.50

January 1 to 14 2011 Spot Price Summary (U.S. Dollars)
	Silver	Gold	Palladium	Platinum
High	$30.69	$1417.25	$1808.20	$817.50
Low	$28.70	$1370.30	$1731.00	$753.50
Open	$30.69	$1417.25	$1771.50	$791.25
Close	$28.70	$1376.27	$1808.20	$812.25

CONTENTS

	Market Summary - December 2010 / January 2011
	Ross Hansen: New Year - New Predictions
	How to be a Successful Investor
	How Not to Make Money in Gold? — Sell it at the Bottom
	Gold prices are driven by Fear, Greed...and Affinity
	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, 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 December 2010.

New Year - New Predictions

by Ross Hansen

At the dawn of every New Year prognosticators come out of their holes, much like the famous groundhog, Punxsutawney Phil, crawls out in February, to spew their predictions for the coming twelve months – making “guesstimates” with such conviction that you might even be tempted to believe them. The trick is that there are hundreds… maybe thousands… of well-known soothsayers, each with their own unique predictions. And just like the stopped clock that's right twice a day, a few of these predictions will be correct. The winners will laud themselves, explaining how they and they alone could see the future.

I think one needs to examine a bit of history. What did the precious metals seers say in 1980 when spot silver hit a record high near $50 an ounce?  At the time, perhaps the most famous of them all, the late Jerome Smith, who had predicted $50 silver many years before, proceeded to raise his target to $100!  With the benefit of hindsight, we know that the top point for that great metals bull market had already taken place, and prices thereafter spent the next two decades declining to a bear market low around $4.00.

 Flash forward to today, and futurists are now using those 1980 silver and gold spikes as the basis for their newest predictions for much higher “inflation adjusted” prices.

In previous letters, I have suggested that you need to study history. In January 1980, silver hit an intraday, futures basis high, of $52.50. Many people now assume that this price level is destined to be equaled or even exceeded in the future.

Using 1980 as an example, what happened afterward? It was a very bumpy ride, but over a 20 year + period, from its bull market high, silver managed to lose fully 90% of its value.

I have the perspective of “being there” because I was involved in the precious metals business way back then. The same people who said silver would reach $300 when it was $50 are now saying it will hit $300 because it’s $30 now!

Since the beginning of written history (and most likely before that), humankind has sought answers to what the future might bring. In ancient China, the shoulder blade of an ox was heated over an open fire and the cracks in the dried bone were “read” for answers as to what lay ahead. For many years, right up to the present, palmists have been consulted by the gullible, having lines in their hands analyzed to see how their lives were going to play out. And today, “technicians” spend hours poring over price charts of a given stock, commodity or precious metal - whether gold, palladium, platinum or silver to name just a few, in order to “divine” where prices may be going.

It’s been said that if you wait long enough, your old clothes will become fashionable again. It seems that this idea applies to procrastinators' rhetoric as well! As the Cat in the Hat of Dr. Seuss fame might say about those who claim to be able to predict the future for silver and gold prices, or for much of anything else…“Somebody, Somebody, Somebody, Who?”

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.

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How to Be a Successful Investor
by David H. Smith

There may be someone out there who isn’t motivated to “invest” in something and later sell it at a profit – be it a business, real estate, art work, precious metals, soybean futures...or even the Brooklyn Bridge – but this writer has yet to run across such an individual. 

It seems that buried deep in the innermost recess of the human psyche of just about all of us, lies the desire to make money on something – preferably a lot of money. A common approach is to look at what’s had a big move up recently, be it a “hot” mutual fund, wheat futures, rare earth mining shares or gold – and then go “all in” with as much money as the hapless investor can bring to bear on the investment in question.

If a trend is still in motion, the plunger looks like a hero to friends as well as to him or herself – for awhile. But sooner or later the aphorism “don’t confuse brains with a bull market” is likely to visit itself upon the person who lets the risk-reward equation to get too far out of balance.

An even bigger issue is the all-too-human trait of hoping (expecting?) that someone else – a news commentator, a high government official, an investment guru, even one's friends and neighbors – can somehow see the future and impart that information in a way that enables us to “get rich.” 

This writer routinely speaks with market analysts and has heard some rather humorous (strange?) stories about their readers.  One subscriber wrote in and demanded the newsletter writer inform him about exactly where to buy or sell a specific list of stocks – otherwise the reader was going to “fire” the analyst!  Another poor soul told a metals trader/writer that gold had to rise above $4,000 an ounce, because he expected to be able to pay for his children’s college education based upon this fact.

Studying the mechanics of buying and selling  a particular investment, looking at historic prices, judging market sentiment and yes, even studying technical charts, are all important considerations that a serious investor should seek to master. Subscribing to a few investment newsletters in order to benefit from the perspectives of others can’t hurt either.

Much more important in this writer’s considered opinion, is the need for people to learn about themselves. They should assess their own investment goals, tolerance for risk, think about how they might handle the demons of fear and greed, and reflect upon their core beliefs – before they can realistically consider themselves ready to take up the challenges that are part and parcel of just about any investing theme.  A strong case can be made that self-knowledge and the willingness to act upon it will be the key determinants of an individual’s investment success. Professional trading coach, Dr. Van K. Tharp, agrees, noting:

“The realization that you are responsible for your results is the key to successful investing. Winners know they are responsible for their results; losers think they are not.”

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How Not to Make Money in Gold:
by Northwest Territorial Mint Staff

Back in 1999, the United Kingdom’s Chancellor of the Exchequer, Gordon Brown (later England’s Prime Minister) sold most of his country's precious patrimony on the world market, in order to diversify into Euros and other foreign currency deposits. Announcing the sale ahead of time caused gold prices to drop over 10%, to a bear market low of around $252 the ounce. The British were able to sell theirs at the slightly better price of $275 per ounce.

This action, taking place virtually at the end of a 20 year precious metals bear market, has come to be known by traders as The Brown Bottom or “Brown’s Bottom.” At the start of 2011, given that gold prices are within shouting distance of $1,400 per ounce, the opportunity cost to the British taxpayer of Brown’s short-sighted behavior is currently running in the neighborhood of £5 billion.

Now it turns out that Mr. Brown may have had some competition in the Financial Darwin Awards category. About two years earlier, in July of 1997, Australia’s Reserve Bank sold, via a single broker, two-thirds (176 metric tons) of its gold reserves.  The Australian reports:

 “The (board) paper justified the decision to dramatically reduce the bank’s holdings by arguing that gold had been a poor investment, and that Australia need not worry about access to financial markets during another economic crisis.”

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Gold Prices Are Driven by Fear, Greed... and Affinity
by Northwest Territorial Mint Staff

People acquire or “invest” in gold for all sorts of reasons.  It may be the perception that governmental policies in the U.S. or in European nations will lead to higher inflation rates. Or it could be concern that a central authority will devalue a nation’s currency, as has happened in Argentina, Vietnam, Venezuela and Zimbabwe (among others) in recent years. People following this rationale might be concerned about the future, and view gold ownership as an “insurance policy.”

Others read articles on the Internet and in the popular press about how the price of gold has risen every year for the past decade, and decide (especially if they still have not purchased any!) that gold is going to keep on going up, and that they had better take a position ahead of the “last train out.”  They hope to profit, and down the line, sell to someone else at a higher – hopefully much higher – price.  These market participants may be responding from both fear and greed. Fear that they won’t get on the bull run in time, and greed, in that they expect to “make a killing” if/as gold prices keep on moving up.

There is also a third type of gold purchaser. This person acquires gold in order to give it as a gift to others – for a wedding or birthday present, or as a generic gift to friends and family. He/she may also make a purchase to celebrate the beginning of a New Year – as China will do in February, with the arrival of the Year of the Rat. Frank Holmes of U.S. Global Investors calls this the “Love Trade.”  He says “The love trade is significant and unique to gold. People buy gold out of love and those in emerging markets are especially amorous of the metal.”

This aspect of gold buying is quite pronounced in what has come to be known as the developing “E -7” nations, among which are India, Brazil, Pakistan, Russia and Mexico. Commenting on the epic social, economic and political changes underway in these countries, Holmes concludes:

What is important to remember when looking at the history of gold is that in the 1970s, China, India and Russia were isolationists with no significant global economic footprint. The world’s population was 3 billion (then), and today we have witnessed an awakening of epic proportions.

These countries are growing with free market policies and massive infrastructure spending. In the 1970s, gold rose on the fear trade and the Cold War. Today the world is significantly different and the love trade drives gold.

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Precious Metals Worldwide
News & Trends from Around the Globe

Palladium, Last Year's
"Come from Behind Kid"...same for 2011?
In early 2010, few analysts predicted that palladium would outperform the other “white metals” (silver and platinum). But that’s exactly what happened, as it spiked 97% from $402 to $791 the ounce. Its more expensive cousin, platinum, rose only 18%, closing the year at $1,731.

Vivien Diniz, writing in Palladium Investing News observes, “Clearly, palladium has been making waves in the precious metals pool.”

This platinum group metal (PGM), best known for its industrial uses, serves as a platinum substitute for automobile catalytic converters. But now, palladium is finding wide acceptance in fashion jewelry, and also with investors who are buying it in bars and one ounce rounds. Recently it has been added as a component in several newly-created exchange traded funds (ETFs).

China's First Gold ETF
Lion Fund Management Company, which invests in overseas exchange traded funds (ETFs) tracking the international gold price, has closed its initial subscription to China’s first gold-backed ETF, raising more than 3.2 billion yuan (almost $500 million) in just one month. Institutional investors (rather than individuals) made up the majority of those choosing to participate.

Song Qing, head of the Lion Fund’s international business department, told China Daily, “This fund is backed by physical gold, and there is no leverage or derivative in our investment portfolios, so it is a creative and simple financial tool for normal investors.”

Chinese gold investors can now add an ETF to their current options of trading gold contracts or buying physical gold on the Shanghai Gold Exchange and the Shanghai Futures Exchange.

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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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