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New High for Gold, 31-Year Silver High
As Precious Metals Monthly went to press on April 19, 2011, gold had established a new all-time record, closing at $1,495.90 on the Comex in New York on April 18. Silver reached a record it had not seen since 1980, hitting $43.380 -- its highest mark in 31 years. Analysts attributed the spiking prices to Standard and Poor's lowering its outlook on U.S. Treasuries from "stable" to "negative."
The month of March generated mixed returns for precious metals, with gold and silver finishing higher to end the month, while platinum and palladium finished slightly lower. Both gold and silver continue to benefit from flight to safety in response to the earthquake in Japan and its related problems, military action in Libya, and the threat of a government shutdown in the United States.
Gold opened the month of March at $1,414.69 per ounce, finishing at $1,435.70 per ounce, up 1.5%. For the month, Gold reached a high of $1,448.59 per ounce, and a low of $1,384.45 per ounce.
Silver prices soared in March, opening at $34.05 per ounce, and closing at $37.75 per ounce, a gain of nearly 11%. Silver hit a 31-year high of $38.15 per ounce, and a low if $33.64 per ounce. For the year, silver prices have already increased by 22.6% -- and that was before the blast that followed in early April.
Platinum began the month of March trading at $1,809.50 per ounce. It finished the month down 1.8% at $1,777.50 per ounce. Platinum reached a high of $1,868.00 in the month of March, and at a low of $1,663.50 per ounce.
Palladium began the month of March trading at $801.50 per ounce. It closed the month at $769.00 per ounce, a 4% decline. Palladium reached a high of $828.00 per ounce for the month of March, and hit a low of $689.50 per ounce.
The March gold/silver ratio — the quantity of silver (in Troy ounces) that one ounce of gold will purchase — finished at 38.03 for the month of March (versus 41.56 at the end of February and 47.39 at the end of January). The plummeting gold/silver ratio is illustrates of the increasing value of silver relative to gold. Just over two years ago, the gold/silver ratio was above 83, with gold selling at $804.60 and silver at $9.64. While gold has nearly doubled in dollar terms since October 2008, silver has essentially quadrupled.
| March Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $38.15 | $1448.59 | $828.00 | $1868.00 |
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| Low | $33.64 | $1384.45 | $689.50 | $1663.50 |
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| Open | $34.05 | $1414.69 | $801.50 | $1809.50 |
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| Close | $37.75 | $1435.70 | $769.00 | $1777.50 |
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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 March, 2011. 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 March 2011.
“Just in Time ” Debt
by Ross Hansen
In the last few years the “just in time” delivery system has been the management style of choice for most of the world’s manufacturers. They keep a limited inventory of parts on hand and have vendors replenish the supply just before they’re needed. It’s an efficient, cost-effective system – as long as all the wheels turn in unison. But if just one supplier has a problem making delivery, the wheels of that system can grind to a screeching halt.
After the earthquake and tsunami in Japan, auto production was shut down for a month; a shortage of parts threatens to continue for the next several. Automakers here have already had or announced production cuts or shutdowns due a lack of parts from Japan, and analysts expect this problem to worsen in mid-to-late April.
Similarly, the US government has been using the “just in time” system to finance its debt. It holds Treasury auctions each week to raise new funds. Most of the proceeds from these auctions are used to roll over the debt; the Treasury uses the money raised to retire debt that’s maturing and then replaces it with new debt. About 84% of the proceeds of the debt issued during the first quarter of 2011 were used to roll over existing debt.
So, the government’s just-in-time system needs buyers for the new debt in order to function. A large percentage is bought by foreign governments, which held about 47% of it as of January 2011. Our biggest trading partners, China and Japan, usually step up to the plate to buy a considerable amount of that debt. That has made China our largest foreign creditor, with $1,154.7 billion of US debt as of January 2011. Japan is second, with $885.9 billion; the United Kingdom ranks a distant third, with $278.4 billion.
Since Japan is such a large buyer of our debt, the earthquake and tsunami could also cause a disruption of our financial “just in time” system – through no fault of its own. Japan says it will need as much as 25 trillion yen (about $309 billion) to repair the destruction caused by the earthquake and tsunami. With that big of a bill to pay, the Japanese may not be able to buy large amounts of US debt anytime in the near future. And they may even look to sell off some of the debt they already own to raise more cash to rebuild.
Whether this actually happens or not, it raises the possibility that something – either some natural disaster or some manmade “kinetic action”– could easily derail our “just in time” debt financing system. If just one part of this debt system can’t be delivered – like sufficient foreign buyers for the new debt – like the auto industry, the debt financing system could grind to halt. If it breaks, the result will be far worse than the auto disruption, though. It could wreak havoc with the entire US and even world economies.
This is why investment in precious metals has grown so mightily lately. When the world’s reserve currency looks like it might not be able to support itself, investors get worried. And they turn to what seems safer to them: Gold and silver, our original currency, which have been accepted as money for thousands of years. Will the American economy collapse? Maybe, maybe not. Is Weimar Germany and Zimbabwean hyperinflation in the cards? Perhaps, perhaps not. But, if they do arrive, will gold and silver protect your wealth and hedge against inflation? Absolutely.
The Japanese earthquake and tsunami has illustrated the fragility of our "just-in-time" debt system. The underlying fear of its failure is what has driven investment in precious metals, sending people to what seems safer to them: Gold and silver, our original currency, which have been accepted as money for thousands of years, is immune to these types of supply disruption. It’s not just in time. It’s any time.
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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Buying Precious Metals: The Basics
by Northwest Territorial Mint Staff
Most financial advisors are recommending that every portfolio include 10-20% in precious metals. But there are many options, and this article will help you determine which choice is best for you.
Silver, gold, platinum, or palladium?
The first big question a buyer faces is “should I buy gold or silver?” Or perhaps even platinum or palladium? Gold and silver are traditionally considered alternatives to currencies, while platinum and palladium are used mostly in industrial applications, such as automotive catalytic converters (platinum is also used in jewelry). They are rarer than gold and silver, and are often purchased for appreciation, rather than as currency alternatives.
Gold is more efficient than silver– you can consolidate more wealth in a single unit of gold than you can in silver, since gold has a higher value per ounce. Gold will require less space to store than the same value of silver will. Gold is also traditionally less volatile than silver in terms of price – the price of gold tends to swing up and down less than the price of silver does.
For very little money, however, you can invest in silver. At about 1/40th of the price of gold per ounce, it’s easy to start there.
Government-minted or privately minted?
Government-minted coins are legal tender and are generally in higher demand, and as a result, tend to command a premium. Private-minted rounds and bars tend to have a lower premium and, therefore, are generally less expensive than government-minted coins. If you want legal tender coins and you’re willing to pay the premium – which can be 8-10% more than just the worth of the silver for the popular American Silver Eagles – perhaps government-minted coins are for you. In return for the premium, you get higher liquidity. The coins meet known standards and there are established markets for them.
Since private mints generally sell directly to buyers, there are no middlemen to charge additional fees. As a result, you pay a lower premium and get more metal for your folding money by buying privately minted bullion. However, be careful to deal only with well-known dealers you can trust in order to be sure that you receive the promised purity of the metal.
Some private mint products even have special features that governmental coins don’t offer, such as Northwest Territorial Mint’s Stagecoach Silver bullion, which offers the metal in scored quarter-ounce segments that allow the holder to break off measured pieces of it for barter, if needed. These features appeal to those seeking silver bullion as a currency replacement. Silver in general – with coin, round and bar sizes ranging from 1 gram to 1,000 ounces – is often viewed favorably by those seeking a currency replacement.
Government-minted coins generally offer more liquidity, although reputable private mints will be happy to buy back the bullion they have issued, since they are aware of the quality standards that it meets. Because of this, the most cost-effective way of buying precious metals is to purchase privately minted bullion from a mint you can trust that will stand behind their bullion. Most private dealers also accept bullion from reputable private mints.
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Does Your Bullion Need Special Care?
by Northwest Territorial Mint Staff
Readers of this publication often ask us for tips on caring for their bullion and preserving its value. The best way to preserve its value is to do as little as possible. It just doesn’t matter for bullion, anyway; gold is gold and silver is silver. Dealers will pretty much buy bullion no matter what condition it is in; the purity and weight of the metal are all that matters. So why would you want to bother cleaning it? There’s no upside.
If you’re worried about tarnish – gold doesn’t, but silver will – the best thing you can do is keep your silver away from air. If you’ve got it in a tube, tape the tube shut. If you have individual coins, keep them in a plastic sleeve or foldover.
If you have to handle your coins for any reason, wear cotton gloves and handle them only by the edge. If for some reason you want to remove something from the surface because you’ve dropped it into something unpleasant, use water and PAT, DON’T RUB until dry.
Collectible coins are a different story. It’s very easy to destroy their value as a collector’s item. Our primary advice is just don’t try to clean your coins. We repeat: Don’t do it. Resist the temptation. You will always be safer just leaving them alone. Scratching them is bad. Ruining the finish can be even worse. The price someone will pay for your coin is based on its condition, and most things you will want to do to “clean” it will only damage it. It will no longer be collectible. It will be simple bullion. Dirt is much preferable to damage.
Numismatists have a phrase – they won’t look at a coin that’s been “altered.” Altering can mean something as simple as wiping it with a facial tissue. That will leave small, but detectable scratches on the surface and drive away any resale value it would have to a collector.
Some people put their coins in ultrasonic tanks, which use sound waves to create ripples in the water in an attempt to dislodge the dirt. Done improperly, it will diminish the value of your coins and it won’t enhance the value of your bullion anyway. So why waste the money on one? Cleaning them with other methods is even riskier.
Slabbed coins that have been graded and certified should especially never be cleaned. Do not under any circumstances even try to remove those from their cases. We can promise that you will end up regretting it. Admire them in their cases in the condition they were in when they were enclosed.
If you have ever watched Antiques Roadshow, remember the sad faces of the people who had the experts tell them what their items would have been worth if they hadn’t tried to clean them. You don’t want to join their ranks and cost yourself money needlessly. Leave your bullion (especially your collectible coins) alone.
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How A Little Bullion Goes A Long Way
by Northwest Territorial Mint Staff
Making the decision to invest in precious metals often means answering other questions that are new to you. How much should one buy? How often? Can I make the commitment and keep it?
With prices increasing nearly every single day, those interested may feel pressure to buy that could potentially lead to bad decisions.
Choosing how much of your investment budget to put into precious metals doesn’t need to be too challenging. You should already have determined what percentage of your income is to be set aside as investment. What you want to do is be sure that your assets include up to 20% in physical metal – silver, gold, palladium, or platinum.
Many investment advisors recommend that you start small, and with silver. This is because, even with silver’s rapid price increase, you can still buy more silver for your currency than any other precious metal. Move your way up, by either buying larger amounts of silver or bigger sizes. Then move to the pricier gold, which holds more value per volume (an ounce of gold costing around 38 times as much as an ounce of silver means it takes up 1/38th the space).
Investment advisors also recommend regular purchases. Buy what you can, regularly. Those regular, if small, purchases add up very quickly and relatively painlessly. They become your rainy day fund.
One way to handle regular purchases – in any size – is Northwest Territorial Mint’s Monthly Accumulation Program (M.A.P). It puts you on the path to owning physical precious metals on your terms by allowing to you accumulate bullion products of your choice, in the amounts that you are comfortable with, on a pre-determined date that you select.
Sometimes starting is the most difficult step to make. Because the M.A.P. program allows investors to buy smaller amounts of bullion without incurring the additional costs associated with smaller purchases, you can steadily build a bigger portfolio faster.
Many new precious metals investors discover the difficulty in finding bullion dealers willing to sell smaller amounts near the current spot price. This is because dealers must handle a small purchase with as much effort as a larger purchase. If you bought a single silver bullion coin with a premium of 25%, then you would need to wait for silver prices to rise by 25% just to break even – not the most efficient use of your hard earned money.
With the M.A.P program, you can buy any type of bullion product or invest any amount you are comfortable with, and avoid the high premiums prices and fees that other dealers attach to smaller bullion purchases.
If you are saving your money to make a precious metal purchase, there is a good possibility that prices will go up. Instead, the M.A.P. program allows the opportunity to make more efficient investments in bullion on your terms.
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Precious Metals Worldwide
News & Trends from Around the Globe
JPMorgan Accepts Gold Bullion as Collateral
JPMorgan has become the first tri-party agent to accept gold bullion as collateral for trading. A tri-party agent is a custodian bank or international clearing organization that serves as an intermediary between the buyer and seller of some types of transactions. The bank is now accepting physical gold as collateral to satisfy securities lending and repurchase obligations. Analysts expect this will have a modestly positive effect on gold pricing going forward, noting that it signals the growing importance of gold in the world’s financial systems. The bank expects to start accepting other precious metals as collateral later this year.
U.S. Gold and Silver Coins Now Officially Legal Tender in Utah
The Utah Sound Money Act, a bill that recognizes gold and silver coins issued by the U.S. Mint as legal currency, was signed into law on March 25 by Utah governor Gary Herbert. This makes Utah the first state to accept federally issued gold and silver coins as legal tender. The coins are only worth their face value, however, so it is not expected that they will widely be used as such, especially with gold and silver at record high prices. Utah’s tax code will now consider the coins as currency rather than financial assets, which means that no capital gains or state taxes will be levied by the state when they are exchanged; federal taxes, however, will still apply.
Paul Convenes Congressional Hearing on US Mint’s Bullion Programs
Representative Ron Paul, who serves as Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy and Technology, held a hearing April 7th on improving the US Mint’s bullion coin programs. A press release issued by the House Committee on Financial Services noted that the US Mint had faced challenges in meeting investor demand for its bullion coins during the past two years. It was estimated at the hearing that the Mint loses out on one-third of potential sales because of its production challenges.
Financial Services Committee Chairman Spencer Bachus commented, “Many have expressed concerns that the Mint buys a large percentage of the blanks to make its bullion coins from a supplier overseas rather than having them made here in the United States. Our country is the third-largest gold producer in the world and a major silver producer. We have very capable refiners with excess capacity, and we have plenty of people in this country who are looking for jobs. It is my hope this hearing will help Subcommittee members understand why the Mint has not moved to bring this work back to our shores.”
No US Mint representatives were present at the hearing.
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Letters
What our readers have to say
Long-Term Gains on Precious Metals
Our article on taxes and precious metals received some additional feedback and questions. We hardly scratched the surface. For more information, check out Topic 409, Publication 550, or place a call to your financial advisor and/or tax advisor.
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Thanks! Very interesting information. Waiting for the next issue.
—DL
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Enjoyed this issue very much. Thanks.
—PH
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Thanks for sending this on a monthly basis. It has some great info and unbiased reporting. You guys are very realistic in precious metals investing and not into selling mass quantities to make a quick buck. Well done :-)
—DWP
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Thank you for your kind words. We work to make each issue of Precious Metals Monthly worth your time.
—RH
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Rhymes with Orange used with the permission of Hilary Price,King Features Syndicate and the Cartoonist Group.
All rights reserved.
Contents © 2011 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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