Market Summary —
May 2011

May marked the dramatic end of silver’s spectacular April rise. Opening at $48.08 per ounce and reaching a high of $48.30 per ounce, the high-flying metal was brought down to Earth by the last of a series of five margin requirement increases that the CME began to put into effect in April. After reaching a low of $32.54 per ounce, silver recovered a bit to finish the month at $38.29 per ounce, down 20.4%.

Gold’s performance was less noteworthy. It started the month of May at $1,568.80 per ounce and ended at $1,533.61 per ounce, down 2.2%. It reached a high of $1578.20 per ounce and a low of $1,464.68 per ounce during the month.

Platinum began the month of May trading at $1,888.00 per ounce and ended the month at $1,830.00 per ounce, down 2.7%. It reached a high of $1,891.50 per ounce and a low of $1,745.00 per ounce.

Palladium started the month of May trading at $796.00 an ounce and ended the month at $779.25 an ounce, down 2.1%. It reached a high of $802.00 per ounce and a low of $700.00 per ounce.

The gold/silver ratio — the quantity of silver (in Troy ounces) that one ounce of gold will purchase — rose to 40.05 at the end of May from 32.57 at the end of April. Relative to gold, silver is currently worth twice as much as it was only about two and a half years ago. The ratio has come tumbling down to a level that makes gold relatively cheap next to silver. Looking back historically, these are levels that not been seen since 1983.

May Spot Price Summary (U.S. Dollars)
	Silver	Gold	Palladium	Platinum
High	$48.30	$1578.20	$802.00	$1891.50
Low	$32.54	$1464.68	$700.00	$1745.00
Open	$48.08	$1568.80	$796.00	$1880.00
Close	$38.29	$1533.61	$779.25	$1830.00

CONTENTS

	Market Summary — May 2011
	Ross Hansen: Storing Your Precious Metals
	Precious Metals Stocks Are Not Precious Metal
	Platinum and Palladium Experience Pricing Anomaly
	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 May, 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 May 2011.

Storing Your Precious Metals

by Ross Hansen

I am often asked the question, “Where should I store my precious metals?”  This is normally asked after they purchase (but sometimes before). The answer, of course, is more complex than the question, and it can vary based on the following criteria:

Once you answered the above questions your five major options are listed below, each with their pros and cons.

I once had a customer who made a half-million-dollar purchase in both gold and silver. A year and a half later, he passed away from natural causes. His family called me and asked if I knew what he had done with the metal he’d bought.

I did not.

After some detective work, his family was able to discover where he’d cached his silver (the wood pile), but $300,000 worth of gold remains missing.

So, no matter whether it’s put into a safe deposit box, home safe, or cached, be sure to let one or more trusted individuals know where you’ve secured your investment. Because at least once a month I hear a story about lost metals, and I’d rather it not be yours.

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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Precious Metals Stocks Are Not Precious Metal
by Northwest Territorial Mint Staff

Some investors consider trades in mining stocks to be a way to participate in precious metals. Stocks and bullion are two different types of investments, however, and should be viewed and obtained accordingly and for the proper reasons.

Physically owning metal carries many benefits. You control where your assets are, and when you can obtain access to them. In the event of some sort of disaster, you don’t have to wait for banks to come back on line. In the event of a real economic emergency, you may even find that your fiat currency or stock certificates are not accepted by those with whom you want to conduct business.

Yet, many prefer not to have to solve the storage problem. While stock owners avoid the difficulty of having to physically store a metal, they run into an additional set of issues beyond the price movement of the metals markets. First of all, the stocks tend not to follow the metals markets in lockstep. They generally lag the metals markets both on the upside and downside. So gold and silver might be up, but stocks for the producers may not yet have moved.

In addition to the price volatility of the underlying metal, other risks associated with holding precious metal stocks – having little or nothing to do with the price of the metals themselves – include:

• Stock market risk. All stocks may be affected by the general trend of the stock market, regardless of their market sector. It’s the “all boats rise and fall with the tides” effect and it can keep the metal stocks from tracking the metal markets as closely as you might expect.
• Management risk. A company’s performance is generally only as good as its management. If the management makes a mistake, such as pursuing a deposit that proves too expensive to mine under current conditions, that can hurt the stock price. Changes in the management team may also affect performance.
• Government risk. Many deposits and mines are located in lesser-developed countries with governments that can be less stable than those of developed countries. Governmental requirements can change, depending on the regime in power. For instance, Zimbabwe, which has significant platinum deposits, is instituting a requirement that mines in that country must eventually be 51% owned by the Zimbabwean government. Companies doing business there must make the decision whether to take the steps to comply by turning over some ownership or stop doing business in the country. Both options have associated costs that will end up being reflected in their share prices.

Some choose mutual funds rather than individual stocks, because mutual funds offer greater diversification and the added benefit of professional managers who can devote more time to monitoring the companies in which they invest. These benefits come with a cost, however, in the form of fees, including front end or back-end loads (sales charges that are either paid upfront or when the shares are redeemed) and management fees.

Tax treatment of stocks and bullion is also different.  Stocks incur long or short-term capital gains when sold. Bullion is treated as a collectible and taxed as ordinary income if held for less than a year or at a maximum rate of 28% if held for a year or longer.

Investment advisors typically recommend that 10-20% of a portfolio be invested in precious metals. Investors who want to expand their involvement in precious metals should be aware of the pitfalls and pluses of mining stocks when building their portfolios. Those who enjoy doing research and making bets on particular companies may be interested in investing in precious metal stocks. But every portfolio should start with physical metal, and those who have stock instead of metal should especially take note.

...

Northwest Territorial Mint does not advise on any personal income tax requirements or issues. Material discussed in this article is meant to provide general information only and does not represent personal tax advice, either express or implied.

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Platinum and Palladium Experience Pricing Anomaly
by Northwest Territorial Mint Staff

Platinum and palladium have taken a back seat to silver and gold on the precious metals stage over March, April and May, although their prices appeared to be on the rise again as of early June. The slowdown in world auto production caused by the Japanese earthquake and tsunami in March resulted in a substantial decrease in demand for both metals, since automotive catalytic converters account for more than half of their markets.

Platinum has been in excess supply, while there has been a relative shortage of palladium. One would logically expect that situation to result in higher palladium prices and lower platinum prices, but that hasn’t been the case. Instead, platinum prices have been stronger than palladium prices, a rather curious turn of affairs that has had some analysts scratching their heads in search of an explanation.

There are differing theories for this anomaly. One is that investors may feel palladium had such a run-up in 2010 that it will be platinum’s turn to outperform this year and their sentiment has actually been causing this to happen. Another theory is that platinum jewelry purchases pushed up prices; the price-sensitive Chinese, now the world’s largest market for platinum jewelry, swooped in to buy when platinum prices fell after the tsunami.

It may also be that since palladium is primarily an industrial metal used predominantly by one industry, a threat to its main use caused prices to be affected more by perception than reality. According to the only U.S. producer of palladium, Stillwater Mining Company, catalytic converters accounted for 63% of palladium demand in 2010; the next largest market, electronics, was only 17%.

Whatever the reason for the supply and demand puzzle, supplies of either metal are not expected to increase over the near term. Both platinum and palladium are costly to produce and high prices are needed to justify new production. The world’s third largest platinum producer, Lonmin PLC, recently said that the price of platinum would have to rise to $2,185 an ounce in order to attract new production. Since platinum’s May high was $1,891.50 and it finished the month lower at $1,830, Lonmin needs a near-20% increase before new production becomes attractive.

While palladium costs less to produce than platinum (2010 production costs were $280 to $380 an ounce in North America), new supply is scarce and Russia’s large stockpile of the metal, which provided as much as 25% of world supply, may be depleted by the end of the year.

Producers in South Africa, which leads the world in platinum group metals production, continue to be challenged by wage and energy cost increases, frequent power outages and currency issues – because the rand has been relatively strong, their expenses have been paid in a strong currency, while most of their revenues have been in weaker currencies.

If automotive demand increases during the second half of the year as expected, it will be interesting to see if palladium prices strengthen against platinum once the catalytic converter demand returns. Logic suggests that it should. But logic doesn’t always apply.

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Precious Metals Worldwide
News & Trends from Around the Globe

EU to Accept Gold as Trading Collateral?

The European Union has taken the first step toward recognizing gold as a trading security. On May 24, the European Parliament’s Committee on Economic and Monetary Affairs agreed unanimously to allow clearing houses in the EU to accept gold as collateral. The next step will occur in July, when the proposal is passed to the European Parliament and the Council of the European Union for another round of voting.  The initiative falls under the under the European Market Infrastructure Regulation (EMIR).

In late 2010, ICE Clear Europe, a European derivatives clearing house, became the first clearing house in Europe to accept gold as collateral. Earlier this year, JPMorgan Chase became the first bank to accept gold as collateral. Explaining why his institution made this decision, Paul Swann, the president of ICE Clear Europe, noted that gold is countercyclical to most other assets and holds up well under times of economic distress. According to the Gold Council, gold meets many of the key requirements of an ideal form of collateral. It is easily valued, has no credit risk and has a deep and liquid market that ensures easy trading.

U.S. Mint Increases Production of
American Silver Eagle Coins
In an attempt to meet the high demand for silver coins, the US Mint has announced that it is increasing production of its American Silver Eagle bullion coins by also producing them at the San Francisco Mint. They were previously minted only at the West Point Mint. Up to several hundred thousand coins per week will be minted in San Francisco. The American Eagles will not have a mint mark denoting which facility produced them. The San Francisco Mint will use the same manufacturing process and packaging currently used for coins minted at West Point and there will be no visible difference between the coins.

Gold Demand Strong in First Quarter 2011
Total world gold demand was up 11% during the first quarter of 2011 versus the same period in 2010, according to the World Gold Council’s First Quarter Gold Demand Trends Report. Investment demand was up 26% year-over-year, while jewelry demand increased 11% and technology demand was flat. Bullion demand, up 62% year-over-year, was the largest driver of growth in investment demand. India retained its crown as the world’s largest gold consuming market, with China again coming in second. India topped the world in jewelry demand, while China surpassed it in bullion demand. Central bank purchases of 129 metric tons during the first quarter were more than the total for 2010 as a whole, with Mexico the largest buyer. Bolivia, Russia, and Thailand also made notable additions to their reserves. Total world gold supply was down 4% year-over-year due to a 6% fall in recycled gold, said the WGC.

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