Precious Metals Investor

Sunday, September 24, 2006

Bull Market in Precious Metals

As predicted, 2005 brought a change from the mini-bull market in precious metals that began in January 2001 to a major bull market. The key indicator in this regard was an appreciation of precious metals against all currencies, not just the U.S. dollar. In fact, the precious metals outpaced a U.S. dollar that was itself surging against the euro and the Swiss franc (more on that in a moment).
In 2006, I see a continuation of appreciation as the major bull market matures. In my estimation, precious metals are appreciating because, fundamentally, they should. Let’s look at precious metals gold and silver...and what to expect from investing in them in 2006.
After hovering near the cost of production for years, the effect on supplies is being felt. With insufficient revenue, many mines were forced to close down or consolidate, and mining companies had to curtail new exploration. The funds just were not available. The pipeline slowed.
Typically, when there is a shortfall in supply, the demand is met by institutional metal from Central Banks. However, in recognition of the trend, Central Banks are now opting to increase (not decrease) their gold reserves.
Further, several important demand-side factors are putting upward pressure on the price of gold. The advent of Exchange-Traded Funds (ETFs) has pulled a large volume of gold off the market and has increased the public’s awareness of gold, an effective alternative to dollar-based investments with a proven track record dating back 6,000 years.
The opening of the Shanghai Gold Exchange in China, and the emergence of middle classes in countries with an affinity for gold (China, India) are building up pressure in the form of increased demand for gold.
Expect gold to build off its 2005 gains. The downside continues to be limited, and the upside is wide open as the furor builds. With the right convergence of factors and events in the coming year, we may well test new high ground. Whether we do or not will play out before our eyes, but I am confident that higher prices are in store.
Silver continues to be my strongest candidate for investing growth. In fact, based upon recent news, I am even more bullish on the “poor-man’s gold.”
Sixteen straight years of supply deficits have caused above-ground
silver mining supplies to dwindle to alarming levels. This idea of supply shortage has been played down over the past few years even as my firm and others have tried to raise awareness.
COMEX warehouse stocks continue to rest at uncomfortably low levels. The U.S. government continues to buy silver on the open market to meet demand of more than 8 million ounces per year for the Silver American Eagle program. Supplies of silver coming out of China have dramatically dwindled over this past year, and (whether it can be believed or not) Chinese government officials are publicly acknowledging the fact that they have exhausted their aboveground supplies. If true, China is now in the same boat as the U.S. government to meet silver needs.
Lastly, if successful, Barclays will launch an ETF for silver that would immediately require it to purchase 130 million ounces of the white metal. In a supply-strapped environment, the effect on silver prices could be astronomical.
Look for silver to continue, and even accelerate, its price appreciation in 2006. A range of $12 to $15 per ounce by year’s end is entirely possible.

Saturday, September 23, 2006

Platinum History

Discovered in South America by Ulloa in 1735 and by Wood in 1741. The metal was used by pre-Colombian Indians. Platinum occurs native, accompanied by small quantities of iridium, osmium, palladium, ruthenium, and rhodium, all belonging to the same group of metals. These are found in the alluvial deposits of the Ural mountains, of Columbia, and of certain western American states. Sperrylite, occurring with the nickel-bearing deposits of Sudbury, Ontario, is the source of a considerable amount of metal. The large production of nickel offsets there being only one part of the platinum metals in two million parts of ore. Platinum is a beautiful silvery-white metal, when pure, and is malleable and ductile. It has a coefficient of expansion almost equal to that of soda-lime-silica glass, and is therefore used to make sealed electrodes in glass systems. The metal does not oxidize in air at any temperature, but is corroded by halogens, cyanides, sulfur, and caustic alkalis. It is insoluble in hydrochloric and nitric acid, but dissolves when they are mixed as aqua regia, forming chloroplatinic acid, an important compound. The metal is extensively used in jewelry, wire, and vessels for laboratory use, and in many valuable instruments including thermocouple elements. It is also used for electrical contacts, corrosion-resistant apparatus, and in dentistry. Platinum-cobalt alloys have magnetic properties. One such alloy made of 76.7% Pt and 23.3% Co, by weight, is an extremely powerful magnet that offers a B-H (max) almost twice that of Alnico V. Platinum resistance wires are used for constructing high-temperature electric furnaces. The metal is used for coating missile nose cones, jet engine fuel nozzles, etc., which must perform reliably for long periods of time at high temperatures. The metal, like palladium, absorbs large volumes, of hydrogen, retaining it at ordinary temperatures but giving it up when heated. In the finely divided state platinum is an excellent catalyst, having long been used in the contact process for producing sulfuric acid. It is also used as a catalyst in cracking petroleum products. There is also much current interest in the use of platinum as a catalyst in fuel cells and in antipollution devices for automobiles. Platinum anodes are extensively used in cathodic protection systems for large ships and ocean-going vessels, pipelines, steel piers, etc. Fine platinum wire will glow red hot when placed in the vapor of methyl alcohol. It acts here as a catalyst, converting the alcohol to formaldehyde. The phenomenon has been used commercially to produce cigarette lighters and hand warmers. Hydrogen and oxygen explode in the presence of platinum. The price of platinum has varied widely; more than a century ago it was used to adulterate gold. It was nearly eight times as valuable as gold in 1920. The price in September 2006 is about $1145/troy oz.


Precious metals and collectible coin markets are subject to volatility, and investments may gain or lose value. Potential investors must be prepared to assume all risk associated with these holdings. Past performance of any metal or coin holding serves as a useful guide, but does not imply a guarantee of future performance.

What are Precious Metals?

Relatively scarce, highly corrosion resistant, valuable metals found in periods 5 and 6 (groups VIII and Ib) of the periodic table. They include ruthenium, rhodium, palladium, silver, asmium, iridium, platinum, and gold. Usually they are used for technological applications like electronics, medical devices, etc. The most common are used for jewelry like silver, gold and platinum. Due to their scarcity, they tend to be good long term investments.