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Gold and Silver Recap: Prices Mixed, $500 Silver Campaign

November 19, 2010 by Leave a Comment

The excitement seems to generally be wearing off.  It could be the end of the bull market in precious metals.  I don’t think so, but if I call it now and it does happen I will look like a prophet as every one else (including me) thinks that gold is going up.  Words are cheap.  Silver certainly isn’t.

In fact the market has been a bit up and down.  Down for two days on Tuesday and Wednesday, back up on Thursday and then gradually back on Friday.  In fact the gold price for once seems to have been helped by the world not going to pot, as the Euro zone seemed to be edging towards a deal to put Ireland into run off.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,342.50 -46.00 (-3.31%)
Silver $27.07 +0.28 (+1.05%)
Platinum $1,650.00 -62.00 (-3.62%)
Palladium $695.00 -8.00 (-1.14%)

It seems to have affected silver as well.  It only went up 1% this week.  On silver’s past form this is a fall.  So have they stopped competitive devaluation?  You bet they haven’t.  It’s just that fewer people are noticing it.

One stealth seller of gold from the official sector – which has been very quiet – has been the IMF.  While the World Bank goes around telling everyone that the gold standard is something worth considering, the IMF has been ever so quietly selling gold.  This has accelerated when the gold price has been relatively high as the IMF is not making an ideological statement in the same way that Gordon Brown did in the UK when he sold off a chunk of the gold reserves.  This has been counteracted by equally quiet gold buying from some Central Banks, particularly Russia.

Another source of demand is the Asian consumer, and that was quite evident on the week’s trading as much of the dip was attributed to the Chinese resolve in fighting inflation.  If China is successful against inflation then demand for gold will lessen.  One fact on the demand, China is now approaching India as the biggest gold consumer in the world, how long before the Chinese Central Bank shares its peoples growing love of gold?

Silver is still going up, even when all the other precious metals have a bad week.  There’s been relatively little action on the price fixing case, although there is now a rather bizarre campaign to bankrupt JP Morgan (one of the alleged fixers) by having everyone buying an ounce of silver which JP Morgan would have to sell back.  Their target?  Silver at $500 an ounce.  Currently it’s $27.

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Will the US Mint Resume Silver Eagle Rationing?

November 18, 2010 by Leave a Comment

During the course of the past several years, the United States Mint has implemented a rationing program for their popular American Silver Eagle bullion coins at times when demand has exceeded the available supply. Will a recent surge in demand for silver bullion cause them to reinstate the program?

The euphemistically titled “allocation program” was last implemented for Silver Eagles in December 2009. This followed a brief sales suspension during the last few days of November. At the time, the price of silver had been moving steadily higher, supporting increasing interest in precious metals investment. The US Mint experienced a slow month of silver bullion sales in September, followed by increasing demand in October and November leading up to the suspension and ensuing allocation program, which remained in place until this September.

During the past few months, the situation is shaping up to be eerily similar. In September 2010, the US Mint sold 1,880,000 ounces of silver bullion, which represented the lowest monthly sales of the year. In October, sales rebounded strongly to 3,150,000 ounces. For the current month date, sales have already exceeded this amount, measuring 3,175,000.

With the month a little more than half over, the total seems poised to set a new monthly sales record. The current record is 3,636,500 ounces achieved earlier this year in May. Annual sales are already in record territory.

Bullion sales have been rising against a backdrop of steadily rising silver prices. Since the end of September, the silver price has increased from $22.07 to $26.57, representing a gain of more than 20% in less than two months. Reports of tightening supplies or shortages for other silver bullion have also been reported. This may explain the recent move towards the higher premium bullion coins.

The American Silver Eagle is currently the only silver bullion product offered by the United States Mint. A second program known as the America the Beautiful Silver bullion coins has been scheduled to launch this year, but a release date has not yet been specified.

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Platinum Price Underperforms Gold, Silver, and Palladium

November 18, 2010 by Leave a Comment

In what has been a strong year for precious metals, platinum is showing only a modest gain of 13.35% for the year to date. This is below the gains experienced for gold and silver, and far below the nearly 75% gain for palladium.

After peaking at $2,273 per ounce in March 2008, platinum dropped precipitously to a low of $763 per ounce by October of the same year. While other precious metals have reattained their 2008 high water marks and then some, platinum has lagged behind.

Gold, Silver, Platinum, and Palladium Performance (London Fix Prices)

Dec 31, 2009 Nov 18, 2010 Change Percent
Gold 1,087.50 1,350.25 262.75 24.16%
Silver 16.99 26.57 9.58 56.39%
Platinum 1,461.00 1,656.00 195.00 13.35%
Palladium 393.00 684.00 291.00 74.05%

The relative under performance of platinum compared to palladium can be explained by the supply and demand situation. While platinum is forecast to be in a surplus of 290,000 ounces for the year, palladium will be in a deficit of around 200,000 ounces. There has been more demand for palladium, which is used in catalytic converters for gas powered automobiles, than platinum, which is used in diesel devices. Palladium recently hit a nine year high above $700 per ounce.

The ratio between the price of platinum and palladium is 2.42, which is the lowest ratio is more than seven years.

Gold, Silver, Platinum, Palladium Chart (COMEX Prices)

Gold and silver prices have benefited from strong demand from investors. Global fiscal imbalances and currency tensions have brought attention to these metals’ historic status as stores of value and inflation hedges. Due to platinum’s predominantly industrial uses and the supply surplus noted, it has not been as significant a beneficiary.

The price difference between platinum and gold is currently $305.75. When platinum reached its peak price in March 2008, the difference had expanded to $1,289. The metals traded close to parity in mid-December 2008.

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Paper Money Collapses in Value as Gold and Silver Soar

November 16, 2010 by 2 Comments

Most people under the age of 50 have probably never seen government currency backed by a tangible asset such as silver.  The $1 dollar Silver Certificates, last produced in 1963, were backed by silver on deposit in the US Treasury and payable in silver to “the bearer on demand”.

The promise to redeem  Silver Certificate dollars for silver was withdrawn by the US Government and holders of such dollars had to be satisfied that the value of their dollar was now backed by the “full faith and credit” of the US Government.  Redemption of Silver Certificates for silver coin ended in 1964 and redemption of Silver Certificates for silver bullion was ended in 1968.

The era of currency backed by real money such as gold or silver ended and the dawn of a fiat currency system began.  The result for holders of currency backed by nothing more than promises has been disastrous as the value of paper dollars has seen its purchasing power virtually disappear.

Chart: dollardaze.org

As the quantity of dollars has grown exponentially, their value has correspondingly diminished, leading to a large increase in general price levels.

Chart pbs.org

Despite the obvious increase in prices and the collapse of the value of the dollar, the Federal Reserve tells us they now need to engage in money printing quantitative easing in order to create inflation to help the economy.  Fed Chairman Bernanke ensures us that the Fed is committed to keeping inflation low.

“Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation. Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable.”

The Fed has not succeeded at keeping inflation low in the past and now seems obsessed with inflating asset values to prop up a weak economy.  It’s all about trust with fiat money, and the Fed Chairman seems to be losing credibility.

The price movements in gold and silver are strong indicators that no one is being fooled by the Fed Chairman’s words.  Investors are watching “what they do – not what they say”.   Expect gold and silver prices to be dramatically higher over time, with an initial objective of $5,000/oz for gold.

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Gold and Silver Recap: G20 Aftermath and Silver Price

November 12, 2010 by Leave a Comment

Well it looks like the G20 worked.  Talk of ending competitive devaluation seems to have put a bit of zip into the dollar, and other currencies.  This has hurt gold, particularly towards the end of the week.

Oddly it didn’t touch silver, the purer inflation play.  So the view is that the end of the world is much less nigh than it was last week, but inflation is still on the way up.  Or perhaps the investors are confused as I am.  It’s usually the second answer when the market is spinning around in the short term.  In the long term the market may be the most rational engine for progress, but in the short term it is irrational and emotional.  Of course it is in the medium term that rational speculators make their money.

Precious Metals London Fix Prices
Gold $1,388.50 -7.00 (-0.50%)
Silver $26.79 +0.65 (+2.49%)
Platinum $1,712.00 -52.00 (-2.95%)
Palladium $703.00 +16.00 (+2.33%)

Talking about the long run, there’s even talk of gold being reintroduced to the international monetary system, from the President of the World Bank, Robert Zoellick.  “The [new monetary] system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”  Wow.  Sounds like the London Gold Pool of the 1950s and 1960s, although the United States tried throughout that time to stop private individuals buying gold.  He then says to the fiat money stalwarts “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”  Too true.  And silver.

But in the actual precious metals market the real movers were still private individuals rather than governments, with many metals traders warning that there is a big wall of consumer money coming in to the precious metals markets in the shape of planned commodity funds.  Could this be the start of the last leg when the main street investors buy into the death of fiat currency argument?

The silver market still went up, which on the face of it is a puzzle.  If the reason why gold went down was that the market believed that governments weren’t racing to finish off the purchasing power of their currencies, why is silver still going up?  Surely it should be going down.  More.

My theory is that this could be an unwind from the silver price fixing allegations as the action was at the start of the week.  There is also a potentially large overhang of short future positions, which essentially means that there are a lot of people who are selling silver without having bought it.  If they all have to close their positions at once, or buy the silver, then the price could shoot up.

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Which is Better to Own – Gold Bullion or Gold Stocks?

November 10, 2010 by 1 Comment

Gold investors have two basic choices – buying gold bullion or buying shares in companies that produce or own gold. As we examine the two basic investment vehicles available to gold investors, it becomes apparent that choosing the best investment option can be a complex decision. Some of the questions that a gold investor should consider include the following.

What has produced better investment results – owning gold bullion or a gold mutual fund?

To gain insight into investment returns, let’s compare how an investment in gold bullion compared to investing in the Tocqueville Gold Fund (TGLDX).  I selected TGLDX since it is one of the best performing, actively managed gold funds with a long term track record.  An investment of $10,000 in the Tocqueville Gold Fund in 2000 would now be worth approximately $86,000 for a stunning return of 860%.   A $10,000 investment in gold bullion in 2000 would currently be worth approximately $46,400 or a 467% return.

Since gold mining companies are leveraged to the price movement of gold, it is not entirely surprising that the gold stocks would outperform the metal. Leverage, however, works both ways and in 2008, when gold experienced a price correction, TGLDX dropped from 65 to 19, a horrendous decline of 71%, whereas gold bullion experienced a normal bull market correction of only approximately 25%.   For those investors unwilling to tolerate huge price fluctuations, bullion seems a better way to go. When gold is moving up, expect the gold funds to outperform the metal.  In 2010, TGLDX has increased 42.7% compared to an increase in gold of 27%.

TGLDX Chart : Yahoo Finance

Gold 2000-Present: Kitco

If I decide to invest in gold stocks instead of the bullion, how many different stocks should I buy?

One of the primary tenets of sound investing is to always diversify.   Although selected gold stocks have vastly outperformed the price movement in bullion, many have not and some have dramatically underperformed.   Evaluating the prospects of an individual gold mining company is difficult, even for the experts.  An investor choosing to allocate a large percent of assets into gold stocks is probably better off (from a risk standpoint) investing in a well managed gold fund with a solid long term track record.  For an investor that does not want to hold physical gold nor own individual gold stocks, investment in a gold ETF such as GLD, that tracks the price movement of the bullion, would be an option.

I don’t trust paper assets and want to hold only gold bullion – what are my options?

For a conservative, risk averse investor looking to protect the value of his money,  investing only in gold bullion is a sound strategy.  Holding actual bullion, however raises security questions on how and where to store the physical gold.  Investors who wish to have their gold stored on their behalf can chose from a variety of firms that securely store gold in protected and insured vaults.  For an investor storing gold on his own in a safe deposit box, it would perhaps be wise to diversify storage geographically by using more than one bank.

Is the tax treatment different for gold bullion versus gold stocks?

The IRS considers gold to be a collectible.  Gains on gold bullion or coins and ETF’s backed by physical gold and held for more than a year have a maximum tax rate of 28%, while positions sold in less than a year are taxed at ordinary income rates.   Gold stocks are considered capital assets by the IRS and standard capital gain tax rates apply to profits.

As nations compete with each other to devalue their currencies and the Federal Reserve engages in outright money printing, gold investors should be expecting substantial profits regardless of what investment vehicle is chosen.

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Palladium Price at Nine Year High

November 9, 2010 by Leave a Comment

While gold and silver have dominated the media spotlight this year, the price of palladium has outperformed both. For the year to date, palladium is up $337 per ounce or more than 85%.

By comparison, gold has risen $333.50 per ounce or 30.67% from the start of the year. Meanwhile, silver has risen by $11.56 per ounce for the year to date, or around 68%. Much of silver’s rise has come over the course of the past three months.

November 19, 2010 London PM Fix Prices
Gold $ 1,421.00
Silver $ 28.55
Platinum $ 1,786.00
Palladium $ 730.00

Palladium’s strong performance began following the sharp decline across all precious metals prices that took place at the end of 2008. Measured from palladium’s low of $164 reached in December 2008, the price is up an astonishing 345%.

From gold’s low price of $712.50 reached in October 2008, the price increase measures about 100%. For silver, from the low price of $8.88 reached in October 2008, the has returned 221.5%. Once again, palladium outshines the performance of both.

The current price of palladium represents a nine year high for the metal. The continued rise has been attributed to dwindling stockpiles in Russia amidst increased use within China for catalytic converters in gasoline powered automobiles.

Earlier this year the first palladium ETF for U.S. investors was launched by ETFS Securities, trading until the symbol PLL. More recently, a bill was introduced in the U.S. House of Representatives seeking to authorize American Palladium Eagle bullion coins.

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Gold and Silver Recap: The Fed Gives a Helping Hand

November 6, 2010 by 1 Comment

So the Fed decides that quantitative easing was going to boost the economy, as if the way to prove that you’re really clever is to do the thing that wasn’t working before, just all over again.  This is naturally going to give precious metals a boost as investors realize that whether or not QE2 works for the economy, it’s definitely going to work for inflation.

Silver has always been a purer inflation hedge than gold, apart from in the days of the bi-metallic agitation, but no one’s really sure what that was about.  Those were the days, when to be a money crank was the minimum standard of a self-educated mind.  Of course the biggest money cranks of all, the fiat currency crowd, won.

But while gold is an inflation hedge as well, it’s also an “OMG the whole world’s going to end and I’m going to be living my life in a bunker” hedge.

The smart money is starting to notice silver, which could make things interesting.  The argument for gold to go up is that not every one’s really bought it yet.  How much more true is that of silver?

Anyway the crucial thing here is the gold to silver ratio.  Currently 52 ounces of silver will buy one ounce of gold (or pounds if you want to think big).  Historically it has been around 30 ounces of silver for every ounce of gold.  But recently there’s been manipulation that’s kept the price down through deliberate manipulation of silver short positions.  Well that’s what some investors are claiming and have named HSBC and JP Morgan in a lawsuit.

Well silver’s been the tearaway kid this week but there’s still some action in gold.  Diwali is over and the Republicans have been elected, which means both Indian jewelery buying and US government spending are going to take a short breather.  Although the dollar went up against a basket of currencies it really looks like these events have suppressed demand for gold.

Central banks are starting to notice gold with countries as diverse as the Philippines and South Africa slowly increasing their reserves.  How long will it be before the foreign currency giants such as China, Japan, Taiwan and the oil states start looking at the only currencies that are still standing five thousand years later?

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American Silver Eagle Bullion Sales Break Record

November 5, 2010 by 1 Comment

Sales of the United States Mint’s American Silver Eagle have just moved into record territory. The most recent available sales figures show a total of 28,885,500 of the one ounce coins sold for the year to date. This edges out the annual record sales achieved in the previous year when 28,766,500 coins were sold.

With nearly two months left in the year, the final total for 2010 seems likely to beat out the old record by a comfortable margin. During the first ten months, average monthly sales have been 2,863,050, suggesting full year sales of around 34 million.

2010 American Silver Eagle Sales (through 11/5/2010)

January 3,592,500
February 2,050,000
March 3,381,000
April 2,507,500
May 3,636,500
June 3,001,000
July 2,981,000
August 2,451,000
September 1,880,000
October 3,150,000
November 255,000
December –
Total 28,885,500

On an historical basis, sales levels for the American Silver Eagle have been immense during the past three years. This has frequently resulted in the US Mint suspending or rationing the available supply of coins. It has also resulted in the cancellation of certain collector versions of the coin.

As an interesting point of reference, the lowest annual sales total for the bullion offering was 3,466,000, achieved in 1996. This year monthly sales exceeded this amount on two separate occasions.

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Gold and Silver Recap: Making Up Lost Ground

October 30, 2010 by Leave a Comment

Another Precious Week in the Market

So the world’s returning to normal, and that’s a mild and slowly accelerating form of panic.  And all the precious metals are going up, at least against the dollar.

But there’s some bad news.  A load of tea partying gold bugs are heading to congress, and according to HSBC that’s bad for the price of gold.  Not really much evidence from their actual policies, but there’s a “loose correlation” between the gold price and democratic control of congress.

Precious Metals London Fix Prices
Gold $1,346.75 +24.25 (+1.83%)
Silver $23.96 +0.91 (+3.95%)
Platinum $1,700.00 +27.00 (+1.61%)
Palladium $640.00 +54.00 (+9.22%)

There’s also the Indian festival season which accounts for a stunning quarter of annual gold sales in India (a massive gold market).  This is good news, but Diwali is when it ends – and this year that’s Friday the 5th.  As the gold that is purchased is physical gold, then this is done for the year.  That’s a bit of a tighter correlation.

But there’s another piece of “news”, the London based Financial Times – a business paper that is essentially of the left (and the British left at that – so quite far left in American terms) has said that gold is a buy because the Chinese want it.  Well, actually when you look at it it’s an opinion piece written by David Hale of David Hale Global Economics, and although he sounds certain about the Chinese wish to project financial power and the Chinese consumer’s wish to protect him or herself from inflation, it’s based on conjecture.  They are useful signposts – and we should watch for them, but it’s not a sure fire prediction.

Palladium is the metal to watch at the moment (which probably will mean to watch … going down).  It was the only metal that held up last week, and it’s gone up considerably this week.  Palladium is driven by the demand for automobiles as well as having a Russian supply issue.  That is the Russians aren’t that keen on supplying it.

From undoubted manipulation, to probably imagined manipulation, the silver prices is not the star of the show this week.  There is some fevered speculation that there is another Bunker Hunt style cornering of the silver market.   Yes, it can happen, but look at what happened to those who tried it.

Platinum has been the most subdued of the precious metals this week, although there seems to be some radical restructuring of that particular industry with the world’s largest producer, South Africa’s Anglo Platinum going into “negotiations”, although it’s not clear what that is.  As they’ve recently been increasing output then it’s hardly likely to be closing the joint.

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