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Market Summary —
July/Early August 2011
Since the end of June, precious metals prices have advanced in huge measure, especially gold. Silver, gold, and platinum are all trading higher from June's close; only palladium lags. However, as we went to press, the rapid increase in prices so far in the month of August appears to be heading for a correction.
The US debt-ceiling crisis fueled gains for precious metals, while the subsequent agreement to increase the debt ceiling sent them even higher as the nations credit rating was downgraded from AAA status. Gold traditionally trades lower during the summer months, but finished July up more than $100 per Troy ounce over June. So far in the month of August, gold has proven why it is considered the ultimate safe haven in times of economic crisis and uncertainty, increasing in value by nearly $300 per ounce, going over the $1900 per ounce mark.
Gold opened the month of July at $1,500.64 per ounce and rallied to several record highs, trading as high as $1,632.96 per ounce and a low of $1,480.48 per ounce. It finished the month of July at $1,616.20 per ounce, and then took off in August, reaching a high of $1,910.67 per ounce.
Silver moved big in July for a nice rebound after tumbling from 31-year highs in late April and Early May. It opened July at $34.61 per ounce and climbed 14.5% during the month to close at $39.66 per ounce. It traded as low as $33.64 per ounce and as high as $41.54 per ounce. For the month of August, the price of silver is trending upwards, reaching a high of $44.00 per ounce at the time of this writing.
Platinum began the month trading at $1,715.50 per ounce. It finished out the month up 4.9% at $1,801. It traded as low as $1,705.50 and as high as $1,823.50 per ounce. Platinum trading for the beginning of August was both up and down, however in recent weeks the price of Platinum has been on the rise, reaching a high of $1,915.50 per ounce.
Palladium was the second-biggest mover among precious metals with an 11% increase for the month of July. It began the month of July at $756.75 per ounce and reached a high of $848.75 per ounce and a low of $751.50 per ounce before closing the month of July at $843.00 per ounce. Surprisingly, Palladium is the only precious metal of the four to not to reach its July closing price in the month of August. So far, at the time of this writing, Palladium had traded under $800.00 per ounce in all but two days this month.
The July gold/silver ratio – the quantity of silver (in troy ounces) that once ounce of gold will purchase – moved lower again. It finished the month of July at 40.75, compared to 43.34 in June. Silver is still holding on to a dramatic increase in value relative to gold. Just two years ago, when the gold/silver ration was 83, gold was selling at $804.60 per ounce, while silver was selling at $9.64 per ounce.
| Jul Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $41.54 | $1632.96 | $848.75 | $1823.50 |
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| Low | $33.64 | $1480.48 | $751.50 | $1705.50 |
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| Open | $34.61 | $1500.64 | $756.75 | $1715.50 |
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| Close | $39.66 | $1616.20 | $843.00 | $1801.00 |
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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 July, 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 July 2011.
Diverging Fundamentals
by Ross Hansen
Not a day or hour goes by without somebody asking me to predict the price of gold. To answer this question we have to understand the two fundamentals that drive the price of gold. The first fundamental is gold’s industrial use in items such as jewelry, electronics, dentistry, and even medicine. Unfortunately for the gold bugs, the use of gold as an industrial metal has been declining. According to the GFMS Gold Survey 2011 gold’s use and fabrication is down 21% from 2001, and as its price rises this trend’s downward curve will continue to steepen.
Another important factor that contributes to the industrial equation is the amount of scrap gold being recycled. As you drive down any boulevard in America, you will see a proliferation of “We Buy Gold” signs, and according to the precious metals consultancy GFMS, that influx of scrap gold has more than doubled over the past decade – from 749 metric tons in 2001 to 1,645 metric tons in 2010.
The other fundamental that powers gold’s value derives from its use as a reserve currency. However, what economists have called a reserve currency, I would argue is the core currency. Throughout history and from the earliest days of trade, gold was the common denominator. Gold was accepted in every country or territory from the most primitive tribe to the most sophisticated society; gold was the currency of choice.
In the 20th century, world governments decided to create a more sophisticated money supply. One that could be managed. A money supply that would be able to respond to the needs of a modern industrial economy. In the US we call it the Federal Reserve System and in Europe they call it the European Central Bank.
Unfortunately, a managed money supply system is like communism. In theory it is a great concept; in practice it doesn’t work. Just as communism falls prey to human nature, a managed money supply falls prey to the corruption of government. Today we are seeing the fruits of a corrupt government’s fiat currency.
According to the Bureau of Labor Statistics, the dollar is worth just 4.3% of its 1913 value. In other words, in order to buy what the Federal Reserve’s dollar could in 1913, you would have to spend $22.80 today.
As world government corruption manifests itself as ballooning deficits and eroding fiat currencies, consumers become desperate to hold on to a tangible commodity that has stood the test of time. That is why gold’s value in US dollars has increased every year for the last eleven years. As our economic woes have worsened, gold has strengthened.
That brings us back to the title of this article and the value of gold. As one fundamental weakens, the other is naturally strengthened. As the old saying goes, “If you can tell me where the dollar is going to be, then I can tell you where the price of gold is going to be.”
If you want to know where gold is going, its future as a reserve – core – currency looks pretty bright amid the debt, budget, and structural problems the government is not addressing. The dollar may not be able to buy what it used to – but gold can.
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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Don't Store, Use
Fort Knox Gold
by Dave Harper
Our friend Dave Harper at Numismatic News had this thought with gold at record high prices:
With Fort Knox gold and the U.S. national debt ceiling in the headlines, it makes me wonder what Alexander Hamilton would do in tumultuous times like these.
As every coin collector knows, he was the first secretary of the Treasury for the federal government set up by the Constitution.
Whatever Hamilton would do, it would be bold. It probably would also at first mystify.
When the early Congress of the United States wrestled with its debt problem, Hamilton urged that the federal government also take on the debts of the 13 states incurred in securing their independence from England.
In other words, he made the debt larger, something that seemed awfully strange when the Congress didn’t know how it was going to pay off a smaller sum.
But Hamilton offered a plan that worked.
How about today? There is a federal debt of $14.3 trillion. There are 261 million troy ounces of gold at Fort Knox and three other secure sites.
Why not issue bonds that use the gold as interest?
Issue a 20-year bond. Each year the interest would be paid with a freshly minted one-ounce American Eagle gold coin.
Twenty years of interest would break down as 13 million troy ounces each year turned into 13 million American Eagles. There would be exactly one million ounces left in the reserve at the end of the 20-year period.
How much money could be raised today? That’s what the politicians would want to know.
Buyers in the financial markets who know that the interest on these federal bonds is a guaranteed one ounce of gold would likely pay generously for it.
At an interest rate of a half a percent a year using a gold price of $1,500 an ounce, it works out to $300,000 per bond.
13 million bonds in the amount of $300,000 each works out to $3.9 trillion.
That would anchor a significant portion of U.S. debt with gold. The interest cost would no longer be in the budget for 20 years because it would be coming from the gold reserve.
What happened during the Civil War and its immediate aftermath was that once the federal government began linking the national debt to gold, even the portions that were not gold backed became more desirable to own.
Should that financial phenomenon occur again, the trading prices of the rest of the issued national debt would be bid higher by investors and interest rates would fall, allowing the federal government to turn over more debt for less money.
Who would buy the bonds?
Anybody who thinks gold is going up in price would have a guaranteed 20 gold coins plus get the $300,000 in cash back in 20 years.
After 20 years of gold payments, an awful lot of people would be used to the idea. It might continue. It might even turn into a gold standard.
But that’s an issue for another time. Today’s politicians would simply see 3.9 trillion reasons to act now.
That’s what I think Hamilton would do.
...
Dave Harper is a contributor for Numismatic News.
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Gold Prices Stay Strong Following Debt Ceiling Vote
by Northwest Territorial Mint Staff
When the Senate voted to raise the debt ceiling, gold prices rose along with it to yet another record high. Gold prices have hit more than a dozen record highs in 2011. That’s a strong signal from investors that they don’t see a bright future ahead for the economy.
The goal for the debt plan is to cut spending by $2.5 trillion over the next decade. By reaching the deal U.S. lawmakers averted a default on the country’s debt. The S&P downgraded the United States’ AAA credit rating to AA-plus. This could boost gold further along with the Swiss franc and German government bonds.
Many analysts expected gold to drop after a US debt-ceiling deal. Instead, it’s zoomed, an indication that investors still don’t trust the dollar and want their money in a safe-haven amid all the economic uncertainty.
Investors are certainly buying into the fear of what the future holds for the US economy and whether economic growth will falter.
Even central banks in other countries are taking more stock in the precious yellow metal. Bank of Korea announced it bought 25 tons of gold over the past two months, valued at $1.24 billion. That’s roughly $1,550 an ounce, and South Korea’s first gold purchase since 1998. Central banks are known for buying gold as a long-term investment. This latest purchase brings Korea’s total gold holdings to almost 40 tons -- just a fraction of the bank’s total reserves (compared to the U.S. which holds nearly three-quarters of its reserves in gold), but nevertheless a significant move.
This is a good reminder to investors that central banks are adding to the huge floor already in place beneath the gold market by buying large quantities of gold. Official sector buying in the first quarter was 129 tons, mostly from Mexico which bought 93 tons. The World Gold Council calls this a fundamental shift in the behavior of central banks, which it notes were net sellers of gold for the past two decades. That’s slowly changed since the second quarter of 2009 as central banks from emerging market countries shifted into net buyers. China is one of the biggest buyers. Over the last five years the country increased its gold holdings to 1,054 tons from 600 tons.
Gold’s initial reaction to the debt deal is just the beginning. Spot prices could still falter, as some had expected. Some analysts say investors might have more of a risk appetite now that the deal is done, but they contend it’s likely to be a short term dip for gold, if at all. The fundamental view will likely stay the same among investors, asset managers and even central banks – that gold is the ideal currency hedge, an asset stabilizer, and safe haven during shaky economic times. The fragile global economic recovery coupled with high inflation and debt in many countries could keep gold on its upward trend for a while to come.
...
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Buy Gold at its All-Time High?
by Northwest Territorial Mint Staff
The price of gold isn’t just hitting record highs, it’s shattering records, soaring to heights investors have never seen before in what’s turning out to be one of the wildest summers ever for the precious metal. For investors looking to add to their precious metals portfolio comes the difficult decision of buying now when prices are at historic highs -- or waiting and hoping to buy on a dip.
It’s understandably a difficult choice. Everyone knows the principles of investing: buy low and sell high. No one wants to invest in stocks or commodities only to see the price plummet. But is this gold’s high? With the United States barely averting a default and losing its pristine credit rating, the price of gold could skyrocket.
Here’s what analysts have to say: The US dollar is hitting historic lows against currencies like the Swiss franc, Australian dollar, and Singapore dollar. Many experts say the US government has been insolvent for years. In Europe, policymakers are openly talking about a default in Greece and major financial institutions are preparing for a restructuring. Italy isn’t far behind, with its public debt more than 120% of GDP.
As more people lose confidence in the dollar and euro, the more they look for alternatives such as smaller currencies. The Swiss franc, for example, looks very safe when compared to the dollar and euro. Money managers say they are much more confident that their Swiss bonds will be repaid.
The more capital that flows into these smaller currencies, the more they’ll appreciate against the dollar and euro. Increased demand for the Swiss franc added onto the excess supply of US dollars means a stronger franc in US dollar terms. But, the franc can only climb so high. At some point the Swiss National Bank will impose capital controls to keep its currency from inflating too much. That leaves investors with precious metals like gold, which are not politically sensitive.
As investors lose confidence in bankrupt governments more money could flow into gold, pushing prices higher. If gold prices hit highs of $2,000 or even $3,000, lawmakers could try to regulate prices -- but that won’t stop the gold trade in the rest of the world.
Now that the US government debt deal is done experts say to expect a correction in gold prices and fluctuations down. But, is this as high as gold will go? Just keep in mind while the US debt has a ceiling, gold prices do not.
...
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Gold is Mightier Than the (Tourist) Dollar
by Northwest Territorial Mint Staff
Tourism has been a profitable commodity for America’s most well-known mine. An even more profitable commodity for the mine at the center of the 1849 California Gold Rush is the gold that’s still in it.
Record high gold prices are spurring Sutter Gold Mining to reopen the Northern California gold mine. It’s already lined up $20 million in financing and plans to restart operations next summer.
The hard-rock mine in the Sierra foothills, about 120 miles east of San Francisco re-opened in 1989 but has exclusively hosted tour groups since the 1990s, allowing visitors to travel 400 feet deep into the Mother Lode. The owners say with gold prices topping $1,500 an ounce, the promise of profits is too good to pass up.
Reverting back to a functional mine means those tours will come to an end. The mine draws roughly 50,000 visitors a year who pay more than $17 a ticket each to tour the mine, bringing in $875,000 annually. The gold is worth far more. Engineers believe there’s about 700,000 ounces (worth over $1.1 billion) of gold still in the ground, maybe even more.
Construction of what will be known as the Lincoln Mine will start this fall and be built out from the existing tunnel that is used for tours. When it’s completed in the spring of 2012, it will be the only full-fledged, below-ground operating gold mine in California. The owners promise it will be a gold mine of the future, environmentally safe, a major asset to tourism as well as industries and aesthetically pleasing. It will be built with turn-of-the-century-style architecture so it blends in with the history that surrounds it.
The type of mining is different from the historical mining that gave California its nickname of the “Golden State.” There will be no miners with pickaxes, ore carts and burros to chase the riches. Nor will it use the old-style stamp mill which pounds, grinds and crushes material and uses toxic chemicals to separate the ore. The mine will have a rod mill that uses flotation and gravity extraction.
While hardly hoping for a gold rush on par with the Gold Rush of 1849, Sutter Gold is one of several companies hoping to reignite the industry which has grown stagnant in California. The Gold Rush peaked in 1852 when nearly four million ounces were discovered. By 1971 when the US “closed the gold window,” California produced less than 2,000 ounces and mining towns were shifting their economy toward things like tourism (and eventually, software).
But gold is coming back. Last year was the first year in the last decade that saw an increase in domestic gold production. The US Geological Survey says Nevada is by far the largest gold-producing state. It puts out about four times that of all other states combined. Today’s gold prices and an increase in production could put California back in competition with Nevada.
Even individual prospectors are coming back. Membership in prospecting clubs in California have shot up 85 percent in the last two years and just as they did more than 160 years ago, fortune seekers are packing up their shovels to head to California. Whether they find gold in “them thar hills” remains to be seen, but amateurs and the professionals are counting on it.
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Precious Metals Worldwide
News & Trends from Around the Globe
Silver Prices Weigh Down Kodak Earnings
Rising silver prices and falling industrial demand for the precious metal is weighing on Eastman Kodak. The company posted a wider loss and burned through over $300 million in cash in the second quarter because of expenses related partly to the high cost of silver. Kodak’s CEO said higher silver (and aluminum) costs affected the company’s gross profit by $56 million. Silver is used in photography in a solution that develops film and also used in components of Kodak products.
Chinese Demand for Silver Soars
China is importing more silver than ever before. The website Commodity Online says the demand for silver comes from not only industrial and jewelry demand, but also from the increased investments in silver as a hedge. In 2010, the net import of silver quadrupled, hitting a record 3,500 tons. The pace of Chinese imports since the start of 2011 is still strong. Demand for Chinese silver 'Panda' coins is also increasing so the Peoples Bank of China doubled the maximum issuance of coins for the year to three million.
Hidden Treasure Discovered –
Worth Billions in Gold
Everyone dreams of finding buried treasure, and that’s just what searchers discovered in a 500-year old Hindu temple. They unearthed a stash of gold and precious stones worth approximately $20 billion. The treasure was in vaults hidden beneath a temple in India that served as a shrine since the 10th century. Only five of the six vaults have been opened. The sixth vault is sealed with special locks, but it’s believed to contain even more riches. Experts say this discovery points again to the security of gold. The stash was worth a fortune 500 years ago and is still worth a fortune today. Compare that to the billions of dollars that are made or lost in a matter of days in the modern financial world.
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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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