December 2005 – Gold Nears $500, Silver Tops $8, Platinum Close To
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Volume 11 Issue 12 Liberty Coin Service’s Monthly Review of Precious Metals and Numismatics November 30, 2005 Gold Nears $500, Silver Tops $8, Platinum Close To $1,000! • Gold Hits 22-year High, Silver An 18-year High, and Platinum A 25-Year High—Is The Next Major Bullion Boom Underway? • Huge Central Bank Gold Purchases Looming • U.S. Government Inflation And IMF Gold Deceptions Revealed! The prices of gold, silver, and plati- ering industrial and investment demand. Year-To-Date Performance num have roughly doubled over the past The platinum and palladium markets don’t have long-term shortages. However, high-tech As of November 29, 2005 few years. Those who took our advice to build their gold and silver positions industrial demand for both metals is growing Asset Return have profited handsomely. rapidly. Palladium +42.2% This week, gold reached its highest Thus, a solid foundation has existed for gold Silver +22.6% closing price in U.S. markets since Feb- and silver prices to rise over time. Even higher Platinum +15.5% ruary 18, 1983. Silver closed at its prices for platinum and palladium make sense if Gold +14.1% highest level since August 4, 1987. you think that the continuing increases in supply S&P 500 +3.8% You have to go all the way back to cannot be sustained. NASDAQ +2.6% 1980 to find the last time that platinum This old information, by itself, would not be Dow Jones Indust Avg +1.0% traded near $1,000. sufficient for the accelerating price rises. How- ever, unexpected new and emerging develop- purchases and is preparing to disclose Questions— ments have provided the sparks needed to start them. Why have precious metals moved up the fire. Between Russia and China alone, the so much in the past month? Gold: At a conference two weeks ago, an of- size of the central bank purchases could Is this a temporary spike that will re- ficial of the Russian central bank proposed that match or exceed all central bank sales verse? the bank increase its gold holdings from 5% to over the next two years. Thus, instead of Or is this just an appetizer for soaring 10% of total reserves. That would require the being a net major gold supplier as has gold and silver prices we might see in acquisition of 500 tons (over 16 million ounces) been true for the past several years, cen- 2006 or 2007? over the next two years or so. Eight days ago, tral banks are likely to be net buyers of Answers— Russian president Putin publicly endorsed this gold. This will make shortages even lar- Several recent developments all point plan. The November 23 issue of The Moscow ger in coming years. to growing demand or to declining sup- Times on page 5 shows a photo of Putin holding One implication of this strong Russian plies of precious metals. a large gold bar as he made this announcement. and Chinese demand is that other central In my judgment, there is little poten- This was the largest spark. On top of this are banks may be prompted to stop selling tial for a significant decline of 10% or continuing revelations that other central banks and maybe even to add to their gold re- more in gold and silver prices. are buying or may be adding to their gold re- serves simply to support their own curren- There is a good possibility that we serves. cies. have already started the massive jump Argentina’s central bank has already made Another new development was the an- in precious metals prices similar to what purchases. South Korea’s central bank is now nouncement by the Board of Governors of we experienced in 1979-1980. purchasing some. South Africa’s central bank the Federal Reserve System after the close officials announced that they may add to their of markets on November 10, that it would Why Are Precious Metals gold reserves. cease reporting the M3 monetary aggre- Last week, one of the Chinese state press out- gate effective March 23, 2006.This is the Rising Now? lets ran an essay urging that the China central broadest measure of domestic money sup- The gold and silver markets have both bank add to its gold reserves on the order of 500 ply, which includes all items in the M2 experienced long-term supply short- tons. If the pattern of recent years is followed, definition plus jumbo certificates of de- ages. The silver market has been in a this means that China has already made such deficit every year since the beginning of 1990; the gold market has been in a Inside this issue: Where Are Precious Metals Headed? page 3 shortage nearly as long. Newly mined BIS Reports Interesting Numbers page 3 metal, recycled supplies, and govern- A Holiday Wish page 4 ment sales have not come close to cov- (Continued from page 1) In order for this silver ETF to begin opera- SEC, there will likely be others in the fu- posit, repos, and some forms of Euro- tions, it would initially purchase 130 million ture. dollars. ounces of physical silver. That amount is Throughout history, perhaps 40 billion M3 is a key leading indicator of both greater than all of the silver registered on the ounces of silver has been extracted. Vir- economic activity and of inflation. The New York COMEX. It is such a huge quantity tually all of it is in forms such as indus- Fed did not explain the reasons during to move off the market at one time, that all par- trial products that are not recoverable at the announcement, but its public af- ties agree that the price of silver could sky- just about any price. At most there might fairs office stated, “M3 does not ap- rocket. be one billion ounces of silver inventories pear to convey any additional informa- When Warren Buffett’s Berkshire Hathaway that could be recycled at prices under $50. tion about economic activity that is not purchased 129.7 million ounces of silver in The eventual price explosion that I have already embodied in the M2 aggregate. 1997, that led to a 30% rise in the price of silver anticipated for several years may be com- The role of M3 in the policy process in one month. This time around, the Silver Us- ing soon. has diminished greater over time. ers Association, whose membership is made up Incidentally, industrial buyers of silver Consequently, the costs of collecting of manufacturers who use significant amounts had cut back on their purchases of silver the data and publishing M3 now ap- of silver in their products, believes that the price once it climbed over $7.50. They were pear to outweigh the benefits.” increases would be much greater. hoping for a swing back to lower levels. In October, the M2 money supply re- If this ETF went into business, there could be They will not be able to suspend their pur- port was $6.6 trillion. The M3 money an immediate shortage of physical silver on the chases of physical silver much longer be- supply was $10.1 trillion. It seems market. Within days, what silver could be ob- fore they have to buy some to avoid pro- unlikely that shifts involving this $3.5 tained would certainly cost more than it has in duction shutdowns, no matter the price. If trillion in assets would be unimportant. the past 20 years. they are forced to purchase silver at cur- The discontinuation of the M3 re- For years, the Silver Users Association has rent price levels, their entrance to the mar- ports may be an attempt by the U.S. tried to maintain that there was plenty of physi- ket could help push silver prices even government to hide rising inflation. cal silver around, which would justify a rela- higher. Since this spring, the M3 figure has tively low price for the metal. Their contention Platinum and palladium: As I said grown at a much faster rate than M2. was that analyses such as appear annually in this earlier, platinum and palladium have been For most of 2005, M2 has been grow- newsletter that show tight silver supplies were supported by rising physical demand, ing at around the 4% annual rate, wrong. Now, by issuing this new analysis, the even though supplies have been increasing while M3 has been rising at about 8%. Silver Users Association is contradicting their right along with them. Increasing gold If you take the M3 money supply past position and admitting that the supplies of and silver prices lend psychological sup- figures and back out the M2 compo- physical silver are limited. port to platinum. nents, one analyst found that the result As an aside, in order to prevent someone from For palladium, the Royal Canadian Mint has a high correlation with changes in directly trying to corner the existing COMEX this month debuted a 1 ounce palladium the Consumer Price Index (CPI). silver inventories, the exchange has specific Maple Leaf coin. The 2005 issue will The same analyst also finds that us- limits on the amounts of contracts on which any have a mintage of 40,000, which is not ing the inflation-adjusted M3 figures is one buyer can take delivery in a year. By pre- low. one of the most reliable indicators of venting buyers from taking any significant However, it is the only palladium coin coming recessions and generally is one quantity of silver off of the exchange, it is possi- in current production at any major mint.