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(May 5, 1997) PRECIOUS METALS: The factors that influenced the gold price in April were the same that have been used to undermine the metal for the past several years. Once again, the stories of impending sales and disgorging by central banks and forward selling by mining companies worked and prices drifted lower. Like the psychological battles that raged in the late 1960s and early 1970s, the free market will determine the fair exchange ratio between a dollar and an ounce of gold.
Downward pressure on the gold price, as well as other precious metals, was further fortified by the expectation that another increase in the Fed funds rate would be instituted in May. Despite this constant adverse commentary, demand for gold (offtake) remains robust, particularly in Asia, whenever the gold price declines to below the $340 per ounce level. Consequently, we believe that the downside risk of owning gold is limited. However, as we have written in recent Bulletins, investors could see the price spike downwards to around the $320 level during any short-term manipulation by the powers-that-be.
Dollar gold prices (London PM fix) closed below the $340 per ounce support level briefly during April but quickly rebounded to trade above this psychological level. Gold prices trended consistently lower for the first two weeks of April. The monthly high was recorded on April 2 at $351.05 per ounce and the low for the month was $339.90 per ounce on the 16th. Dollar gold prices stabilized from the 16th forward and currently trades at just above the $340 level. The average monthly dollar gold price, through April 28, was $344.95 per ounce.
Readers should not underestimate the influence that speculators have had on gold prices from the futures pits on the COMEX. Speculator is not solely confined to small individual players. One of the impacts of the futures markets on commodities in general has been to increase the volatility of prices dramatically within shorter periods of time. The fact that delivery takes place by only a few (usually producers) has helped to enhance the volatility of these markets. Regarding gold, we believe a longer-term objective of retaining one's purchasing power should be the primary focus for the average investor. Gold continues to achieve this end. Silver prices (Handy & Harman) traded in much the same fashion as gold during April. The Handy & Harman silver price reached a monthly high of $5.01 per ounce on April I and traded down to a monthly low of $4.66 per ounce on the 28th of April. The average silver price was $4.77 per ounce through April 28.
Platinum prices (Mercantile Exchange) trade at nearly an unchanged level from April 1 to this writing, however, the price trend differed from that of gold and silver. A monthly low in the platinum price was recorded on April 4 at $360.80 per ounce. From that level, platinum prices traded to a monthly high of $378.70 per ounce on April 25. Much of the strength (or stability) of platinum is probably due to speculation about recent meetings between Russia and Japan on negotiating platinum supply contracts"the last contract expired in December 1996. Russia supplies approximately twenty-five percent of the world's platinum and roughly sixty percent of the world's palladium. As such, what Russia has a significant impact on prices of these metals.
The accompanying table shows precious metal prices as well as the Philadelphia Gold/Silver XAU index of gold mining shares for the date indicated and approximately one month and one year earlier.
| 4/30/96 | 3/31/97 | 4/28/97 | |
|---|---|---|---|
| Bullion | |||
| Gold | $391.30 | $348.15 | $340.20 |
| Silver | 5.30 | 5.04 | 4.66 |
| Platinum | 403.60 | 368.80 | 372.50 |
| Coins | |||
| American Eagle | $414.75 | $370.18 | $364.18 |
| Austrian 100 Corona | 395.00 | 353.07 | 347.19 |
| British Sovereign | 92.07 | 81.92 | 80.05 |
| Canadian Maple Leaf | 414.75 | 371.25 | 365.04 |
| Mexican 50 Peso | 491.50 | 439.21 | 427.76 |
| South African Krugerrand | 398.00 | 354.00 | 346.00 |
| U.S. Silver Coins (*1 bag) | 3,679 | 3,613 | 3,392 |
| XAU Index | 143.42 | 104.12 | 92.69 |
* $1,000 face value
Readers should maintain the recommended allocations to precious metals for long-term store of value purposes.
Richard F. Maloney
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