Palladium Futures Index (PALLADIUM)

[Pro-Life]

Gold in Three Currencies

http://www.kitco.com/ind/TimWood/dec082010.html

By Timothy Wood
Dec 8 2010 11:49AM

http://www.minefund.com



ST. LOUIS (MineFund.com) -- Investors in precious metals are entering a very interesting phase in the current bull market, which must be considered continuous over the last decade despite the rude but brief interruption of the global credit crisis.

Significant milestones:

Gold

1 - Crowdsourcing has been powerful for 2010 - the collective brain of the LBMA analysts has achieved a forecasting accuracy score of 96% for the year-to-date.
- Tom Kendall of Credit Suisse has an astonishing accuracy score of 99.3%, but he’s being chased hard by Ross Norman of Fast Markets (98%).

2 - The monthly average gold-silver ratio has dived to its lowest level since February 2007, averaging 48:1 so far this month.
- The previous lowest level of 47:1 from December 2006 looks in danger. The next stop after that is 44: 1 recorded in February 1998. Thereafter, it’s uncharted territory until 1985.

3 - Monthly average gold prices have taken out the prior bubble low. In May 1980, gold prices - adjusted for inflation - had tumbled to $1,361/oz. That was off the all-time high of $1861/oz averaged in January 1980, and before recovering to average $1,738/oz for September 1980. The latter is the next significant technical level for real gold prices.
- The real gold price averaged $1,356/oz over November 2010, and is currently averaging 1398/oz for December.

4 - Gold priced in a basket of commodity currencies is within 2% of taking out the all-time inflation adjusted high. The MineFund World Gold Price Index (January 2010 = 100) all-time high is 129 from January 1980 compared with the current value of 127 for December. Put another way, those currencies could exceed what has always been regarded as the most spectacular bull market in gold. That is despite them gaining significantly against the dollar in recent months.
- It is not as positive for the leading global currencies though. Gold priced in a basket consisting of the US dollar, euro, yen, Swiss franc, Canadian dollar, Australian dollar, and Hong Kong dollar is still 60% shy of its all-time high from January 1980. However, the decline of the euro has accelerated again and we expect the gap to tighten quickly.

5 - Gold priced in euros has put together 11 consecutive days above €1,000/oz. That’s the best performance since June of this year when the Greek crisis was most intense. There is every reason to believe the euro will continue to weaken in the absence of evidence that the contagion has been contained.
- Euro gold has offered the best return for gold bugs rising 41% for the year-to-date, a 10 point advantage over dollar gold.

6 - Gold priced in Sterling has breached £900/oz on consecutive days for the first time, and looks very capable of piercing £1,000/oz.
- Sterling gold is second to euro gold with a 35% return year-to-date.

7 - Yen gold has returned the least, though it still outshines most other assets, with a 16% y-t-d return. Australian dollar gold is the runner up with a 19% gain for 2010.

8 - Equities are softening again relative to gold.
- The S&P500 is trading close to the March 2009 low (in the current cycle) of 0.87x.
- The Dow is likewise struggling at 8.11x the gold price, which compares very favorably with the March 2009 low of 8.13x.


Silver

1 - The LBMA analyst peer group has achieved an average forecasting accuracy score of 90%.
- The best silver forecaster is Fred Panizzutti of MKS Finance, followed closely by Mike Ludwig of BNP Paribas.

2 - Monthly average silver prices are within range of topping a major inflation-adjusted technical level at $30/oz. The last time silver prices - in January 2010 dollars - averaged $30/oz for an entire month was February 1983.
- The next significant level is $52/oz which was averaged in September and October 1980.

3 - Silver priced in a basket of leading currencies looks ready to make the same challenge to the February 1983 levels, but it is grossly short of where it traded in September 1980. The MineFund World Silver Price Index traded at 320 compared with 172 for December to date.

4 - Silver priced in commodity currencies is doing far better, and could take out the October 1980 high having already surpassed the 1983 levels. The MineFund Commodity Silver Price Index hit 189 in October 1980 compared with 171 for December so far.

5 - Euro silver has nearly doubled so far this year, strongly outperforming every other currency. Sterling silver has returned 82% so far.

6 - Once again, the yen has been the least attractive currency in which to own silver, but it has still risen 59% for the year. Notably, you could have bought yen silver as late as August and achieved the same return.

Palladium



1 - Palladium prices have blindsided most of the LBMA analysts who were very cautious for 2010. Even so, they have so far managed to achieve a forecasting accuracy of 78% for palladium prices.


2 - Palladium is right back in its previous bubble range, and is close to taking out the previous high from June 2001 when the monthly average was $747/oz.
- The metal has now risen 4.5 fold since it bottomed out at $164/oz over December 2008, and remains the best performing metal since the global credit crisis abated.


3 - The all-time inflation adjusted high is a monthly average of $1,289/oz recording over January 2001.

Platinum

1 - Platinum has been a relatively poor performer and remains below its April 2010 highs. It has averaged $1,694/oz so far this December compared with a real average of $1,706/oz in April.


2 - It is within reasonable striking range of its all-time inflation-adjusted high of $2,077/oz set in March 2008.


3 - The platinum:palladium ratio continues to dive and is at levels unseen for a decade.

Timothy Wood
http://www.minefund.com