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Market Summary —
August/September 2011
You can sum recent times up quickly: August UP, September, DOWN.
It’s fitting that you can’t spell August without Au, the periodic symbol for gold, since gold was the big story throughout the month. Gold saw tremendous gains and wide swings all month long, dominating many headlines, before correcting slightly in September.
August was also a volatile month for platinum, which lost ground to gold briefly before returning to dominance as the most valuable of the precious metals. Silver and palladium also saw trading unpredictability, with silver closing the month of August up and palladium losing some ground. So far, September has seen prices dip for all four precious metals.
The US debt-ceiling deal and ensuing downgrade in the nation’s credit rating fueled most of the gains for precious metals as investors took their money out of the uncertainty of stocks and opted for the safe haven of gold and other precious metals.
Despite typically trading lower during the summer months gold soared to several record highs and finished the month up more than $200 per Troy ounce from July. Gold opened the month at $1,616.46 per ounce and only traded as low as $1,612.74. At one point the precious metal skyrocketed to $1913.06 before correcting and closing out the month at $1817.10 for a 12.4% increase. For the month of September gold has dipped slightly. It closed below $1,800 an ounce twice before rebounding to stay close to the $1,800 mark.
Silver opened out the month at $39.68 per ounce and traded as low as $37.17 per ounce. It followed the same trend as gold in moving upward following the debt-ceiling deal and reached a high of $44.35 before sharply correcting. It closed at $41.44 per ounce for a modest 4.4% increase for the month. September has so far seen silver slip below the $40 per ounce mark three times.
Platinum saw a 3.1% increase in August but also had some wild swings throughout the month. It began August trading at $1,801 per ounce, traded as low as $1,684.50 and rose as high as $1,920.50. During gold’s rapid rise platinum traded lower than the yellow metal for three days before regaining its dominance. It finished out the month at $1,857 per ounce. It’s slipped below $1,800 per ounce in September.
Palladium was the only precious metal to lose ground in August. It fell 6.1% for the month, off-setting some of its gains from July. It opened at $843 per ounce, traded as high as $851.75 and plunged to as low as $713. Palladium managed to rebound a bit but still closed the month in negative territory at $788.75 per ounce. It is also down in September, falling close to $700 per ounce.
The July gold/silver ratio – the quantity of silver (in troy ounces) that one ounce of gold will purchase – rose for the month of August. It finished the month of August at 43.85, compared to 40.75 in July and 43.34 in June. The gold/silver ratio is still nearly half what it was just two years ago when the gold/silver ratio was 83 with gold selling at $804.60 per ounce and silver selling at $9.64 per ounce.
And then came September. As we went to press, gold was down 15%, silver 27%, palladium 20%, and platinum 38%. October awaits.
| August Spot Price Summary (U.S. Dollars) | ||||
| Silver | Gold | Palladium | Platinum | |
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| High | $44.35 | $1913.06 | $851.75 | $1920.50 |
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| Low | $37.17 | $1612.74 | $713.00 | $1684.50 |
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| Open | $39.68 | $1616.46 | $843.00 | $1801.00 |
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| Close | $41.44 | $1817.10 | $788.75 | $1857.00 |
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CONTENTS
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Market Summary — August/September 2011 |
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Ross Hansen: The Quickening |
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The Closing of The Gold Window 40-Years Later |
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Silver: The Future of Solar Power? |
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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 August, 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 August 2011.
Ever since President Nixon took us off the gold standard the price of gold has gyrated wildly. The culprit in most of these fluctuations is speculators betting on a variety of recurring themes: inflation, economic uncertainty, and government instability.
Recently these gyrations have become more erratic. Is this because, as some would argue, we are living in more unstable times than we were in the past? Are the problems that we faced in the ‘70s, ‘80s, and ‘90s any less serious than they are today? Or are our problems unique because they are happening to us today? I would argue that while we face many challenges, our problems are no more severe today than they were in the past, but are instead magnified by a plethora of information that was simply unavailable three decades ago in both volume and quantity.
The difference is that while investors were concerned back in the ‘70s and ‘80s, today they’re all positively lathered-up in a frenzy. I attribute this to the influx of news sources that people have available to them. I call them boutique news sources because they cater to particular points of view. Each source has a specific political leaning that targets particular groups.
All of these 24-hour news sources are competing and they all want to be sensational. And so the proliferation of news has allowed every conceivable problem out there to be brought to your attention and sensationalized in such a way that it will affect you directly.
There are 194 countries in the world, and all of them have one crisis or another. Some of the ones constantly flogged are Iran, Israel, the rise of China, our constant threat of terrorism, the wars in Iraq and Afghanistan, the debt crisis, Obamacare, and, to top it all off… who wouldn’t feel a quickening of panic because the Mayan calendar ends in 2012?
Information overload causes panic.
Because of the technologies these days we are always plugged in. We’re getting news on our phones, our pods, our pads, and our computers. Not only are news providers competing against one another by what the content is, they are trying to give you even more of it. The result is that they sound more like auctioneers than anchormen. It gets people excited and pulls them in. It creates a sense of urgency. A lot of financial information is provided in this auctioneer-like atmosphere, and that is why you see a lot of swings. Buy! Buy! Buy! Sell! Sell! Sell!
Combine this auction atmosphere with all of the other news that we are getting, and what happens in another country – which may, but probably won’t affect individual people in the US – is presented in such a way that makes it sensational and it causes people to react. “If it bleeds, it leads.”
If you have ever been to an auction, you know that you often overpay for items. We are now in an auctioneer, panic-driven atmosphere and it’s affecting our investments.
Some say events are moving quicker and quicker. There aren’t more events out there – it’s just that we are getting more and more news; we have greater access to that news; and it’s presented in a way that makes you want to do something that costs you money.
My advice is this: if you are caught up in all of this anxiety, turn off the news, take a hot bath, and take a deep breath before you invest.
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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The Closing of The Gold Window 40-Years Later
by Northwest Territorial Mint Staff
It’s been 40 years since President Richard Nixon closed the gold window, officially making the U.S. dollar a fiat currency and ending the greenback’s precious-metal guarantee. Though the world came to accept a market price for the dollar as the new norm, with gold prices hitting several record highs this summer, the debate about returning to a gold standard is resurfacing with more fuel than ever.
In 1971, according to the World Gold Council, the average price of gold was $40.81 per Troy ounce. On August 15th of that year, as part of a package to stimulate the economy and strengthen the dollar, President Nixon officially suspended convertibility of dollars into gold at $35 per ounce. One year later the average price of gold was $58.22. In 1973 it averaged $97.80 and it’s been going up ever since.
The decision to delink the dollar from gold was not popular among many investment firms and individual investors in 1971 and is proving to still be a source of complaint today. In fact, several research firms call the decision to close the gold window the primary cause of today’s troubles. Stansberry & Associates Investment Research is among them and points to the amount of debt in the U.S., which its researchers say has soared to over 400% of GDP since 1971, as evidence. All the while, the value of the dollar has tumbled. The firm says gold would restrain credit growth and limit it to real growth and productivity. Moving away from the gold standard allows people to borrow money and pay it back in currency that’s worth less. The US has been on a borrowing frenzy the last 40 years and now those debts can’t be paid back or financed.
Some gold supporters say if the US doesn’t go back to a gold or silver standard the dollar will eventually collapse because of the Fed’s money-printing. Such views have gained traction amid the US debt crisis and the unstable dollar under the weight of America’s huge debt load.
Is returning to a gold standard even possible? There are many stumbling blocks in the way. For now, those calling for a return to gold are in the minority, so defending a metal-backed currency would be tough. Gold supporters say the world’s central banks have devalued the dollar and other major currencies into irrelevance, but governments aren’t likely to want a change. An analysis by the Cato Institute says returning to a gold standard would limit the government’s ability to manage the economy. The Fed would also no longer be able to reduce the supply of dollars by raising interest rates during inflation or increase the money supply by lowering them in times of recession.
Under a gold standard the money supply would stay fixed, dependent on gold reserves and what comes out of the ground. This is exactly the reason many supporters say the US should return to the gold standard. It would enforce fiscal discipline, a balanced budget and limit government intervention. However, others say, a fixed-money supply would limit economic growth and even with gold at nearly $1,900 per ounce the U.S. does not have enough gold to pay off the portion of its debt owed to foreign investors. According to the Fort Knox Audit Report from September 2010, there is a little more than 8,436 metric tons (more than 271 million troy ounces) in total US gold reserves. That calculates to just under $483 billion (calculated at today’s prices) total in gold reserves. With the US debt at more than $14 trillion and constantly growing, that doesn’t even come close.
The debate this summer centered on the possibility of a first ever US default if lawmakers didn’t vote to raise the debt ceiling. Critics of closing the gold window in 1971 say the US already did default, 40 years ago. They say closing the gold window was essentially the US government turning its back on the financial commitment it made to the rest of the world.
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Silver: The Future of Solar Power?
by Northwest Territorial Mint Staff
While gold hit record territory in August silver prices stayed at mostly modest levels through the month. That could change in the latter part of the year, according to several analysts who see it hitting record highs. The reason is the increasing industrial demand for silver.
Over the last ten years industrial use of silver grew by 39% from 349.7 million ounces in 2001 to 487.4 million ounces last year, according to the financial markets analysis and forecasting online publication The Market Oracle. Right now industrial use accounts for half of the global silver demand, but that’s expected to rise to 70% over the next decade because of the increasing use for the precious metal.
Silver’s properties make it critical for many applications, particularly in the electrical and electronics sector. More than any other market, though, the solar photovoltaic (PV) industry is fueling the growing demand for silver.
Silver is the ‘metal of choice’ in the PV industry because of its exceptional conductivity. It’s used on grids, placed on the front and back contacts of the silicone-coated cells. With the PV industry becoming an increasingly strong and growing segment several analysts predict it could change the supply/demand balance.
The European Photovoltaic Industry Association goes so far as to predict that solar power could satisfy the electricity needs of 14% of the world’s population by 2030.
That has silver market expert David Morgan expecting silver prices to rally to around $45 per ounce in the fourth quarter of this year. But, he doesn’t expect it to stop there. Morgan says, based on rising industrial demands, silver prices could hit $100 per ounce long-term. He’s not the only one who thinks so.
The chairman and CIO of Leeb Capital Management sees silver prices rising to above $100 per ounce. The primary reason is China’s demand for silver from its solar panel industry. Right now, China spends almost $1 trillion on alternative energy and China commands a 50% share of the fast-growing global solar market.
Some stock analysts say demand for silver is at an all-time high and could go even higher. China imported about 245 metric tons of silver in February, close to the 260.6 metric tons it imported in February 2010 when silver was far cheaper. That proves China will pay more than $30 per ounce for the white metal.
China isn’t the only country expected to have an increasing demand for silver. The US market for solar PV applications is expected to rise to 12% of the global market by 2015 according to solar market research group Solarbuzz. That would be a sharp increase from the current level of 5%.
A recent study commissioned by the Silver Institute found demand for silver is expected to reach nearly 70 million ounces this year. That would be an increase of around 40% year over year. The reason for the rise, according to the study, is solar power.
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Precious Metals Worldwide
News & Trends from Around the Globe
Sunken Treasure Brings Up Gold Bounty
International archaeologists and conservators salvaged nearly $1.4 million in gold coins from a 16th century Portuguese shipwreck off Namibia’s Atlantic Coast. The gold coins weighed about 21 kg, marking one of the world’s greatest recent finds of lost treasure. In all, the excavation recovered 2,266 Portuguese and Spanish gold and silver coins which are being held at Bank of Namibia. The ship had lain undisturbed for 500 years.
Family Loses Fight Over Rare Double Eagle Coins
A Philadelphia jury ruled that ten rare $20 gold coins that could have been worth more than $40 million are the rightful property of the U.S. Treasury, not the family that’s kept the coins in a safety deposit box for decades. The government says the Double Eagle coins, among only 445,000 made, were never issued and were stolen from the U.S. Mint by jeweler Israel Switt. In 1933 President Roosevelt ordered gold coins be turned in for cash and the Double Eagles be melted down into gold bullion. A U.S. Attorney says these gold coins held by the family were never meant to be issued and therefore stolen property. The Secret Service traced the coins back to Switt, whose daughter kept the coins in a safety deposit box after he passed away. The family is expected to appeal the ruling.
Mexico is Now World’s Top Silver Producer
Mexico passed Peru for the first time in five years to become the world’s largest producer of silver. For the first half of 2011, Mexico’s total silver output was 1.88 million metric tons (66.3 million ounces), according to the National Statistics Institute. During the same period the Mines and Energy Ministry says Peru produced 1.63 million metric tons. The opening of silver mines in Mexico over the last year by two of the world’s largest silver producers boosted the country’s precious metal production. Peru’s silver output fell 22 percent this year amid labor disputes that closed some mines.
Gold Prices Lead to More Crime
The price of gold is creating gold fever, but not like the kind during the 1849 California Gold Rush. Police nationwide are reporting an increase in robberies and burglaries related to gold prices. Los Angeles is one of the major cities where gold stores have had increased attacks this summer. Police also blame the high price for the precious metal on daylight attacks on women who’ve had their necklaces snatched and even burglars targeting gold in homes. Burglars even cleaned out the irreplaceable collection of nuggets from a New Jersey mining museum.
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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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