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Countdown of Manipulated Gold Price Running Out

by: Daniel Gschwend October 15, 2008 | about stocks: ABX / AU / GG / GLD / HMY / NEM    

Daniel Gschwend

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So what’s wrong with gold? Why has the price not skyrocketed? Do you remember the day when Bear Stearns failed? Do you remember what happened on that day with gold? It spiked up to $1032 per ounce and marked its highest intraday price ever (in nominal price terms – remember, the inflation adjusted high would be in the $2300 per ounce range). Now in retrospect, doesn’t the Bear Stearns event look like some kindergarten party? Yes, the financial system has been under much more stress recently. What we have experienced in the last days was the biggest effort ever made to rescue the global financial system and it is still not clear if we are out of the storm. But nevertheless gold has even retreated to the $850 range. Does it looks strange or not?

In times where the entire financial system is on the edge, you would expect gold to soar because of its safe haven attributes. Obviously something is seriously wrong. Right now, we are experiencing two forces to fight with each other: the physical market and the paper market. To understand what’s going on you have to know that the paper market is the short term market and the physical market is the long term market.

The place of most attention for the paper gold market is the COMEX. The price you see in the newspaper is the price of the gold future traded on the COMEX. Unfortunately, it is a paper market which is very vulnerable for manipulation and it does not reflect the real market which takes place in physical supply and demand.

In the past, commodity producers used futures to hedge prices and in many cases physical delivery took place. Today, futures are by the majority just markets for speculators trading paper and not asking for physical delivery. Just remember what happened with oil some months ago – oil was trading at roughly $ 150/bbl and even official sources claimed that the reasons were demand and supply based – they neglected the effect from speculators and deep pocket institutional investors. Well, the high was set in July. Do you really think that demand has fallen that sharply or supply has caught up that fast since then? Maybe you remember the intraday spike in July which was responsible for the all-time-high? This was triggered by short-covering from a Texas based energy trading firm. Do you think this has something to do with demand and supply or do you think this is just a paper market movement? Yes, this is a paper market movement and for gold the price has been depressed.

Also remember, banks are not lending money to each other and they have to do whatever is possible to stay liquid. Have you ever heard of the gold carry trades? They are real and they are most likely at least responsible for a part of the paper selling pressure on gold. Central banks have loaned a portion of their gold holdings over the past years. GFMS and Virtual Metals have estimated that gold on loan position amounts to between 4000 and 5000 tons. GoldMoney believes the gold loan position is more likely to be 8000 tons to 15,000 tons, whereas Cheuvreux’s estimates central banks have lent as much as 10,000 tons to 15,000 tons of gold, which it suggests is between a third and half of the reported total of their reserves.

Banks were desperate to get cash and therefore were selling gold futures into the market – the futures were most likely covered by gold lent from central banks. I also assume that central banks were assisting in this procedure since it was another way to support the credit system. Actually, it was a very agreeable way since it was done without any public knowledge (and particularly without any media coverage) and without any immediate consequences on the monetary aggregates (at least for the short term). I can’t prove this action but there are many indications that this happened:

  • Soaring gold lease rates as an indication that gold has been lent heavily and as an indication that central banks started at some point to tighten. The rising gold lease rates are also an indication that central banks weren’t willing to lend their gold at low interests any more.
  • Very strong selling on the COMEX gold future particularly when risk aversion was strongest and when banks were struggling for liquidity. Last Friday, gold crashed over 7% in a day of pure panic. Would you really sell gold on such a day? Interestingly, the selling pressure started very late in the day when volume was drying-out.
  • Confirmation from gold trading desks that central banks started to tighten gold lending. Obviously, they were not willing to lend their gold to a potentially insolvent counterparty at a low interest rate. Nevertheless gold lending still happened but at higher interest rates and this gold was sold into the market.

What about the long term implications of the bailout packages on gold? The possible threats are severe and will very likely lead to higher inflation. The sum of the overall bailout packages has now reached more than $4600 billion, huge isn’t it? The extremely aggressive fiscal and monetary policies now in place are ticking time bombs for inflation in the future. Right now, the world fears about deflation and inflation are not a threat. That’s true, but what happens if the official agencies now in charge are too late to tighten the monetary flood once economies are recovering? Yes, this will lead to a major inflationary backlog of potentially giant proportions.

I believe if very experienced and smart investors such as Mr Jim Rogers see inflation as a very real threat in the future, you should listen to them. You might want to watch this interview “Inflationary Holocaust” by Jim Rogers.  Another interesting interview regarding the same issue and with further implications on currencies such as the dollar, euro and sterling is “Will bailouts risk hyperinflation?”

I picked up the topic of a global currency crisis in previous articles and I’m sure this will happen in the not too distant future. Remember, the value of a currency is in the long term determined by its fundamentals (and not short covering or pure safe haven buying as it happens right now in the US dollar). I expect the old economy currencies will devaluate against the currencies of the emerging countries, particularly Asian countries. They have huge amounts of money, economies with excellent long term growth potential and no hidden financial time bombs. Do you really think the US dollar is stronger or is it more likely that other currencies got weaker against the US dollar? That’s a very important difference.

The US dollar got stronger because of a giant flood of money pouring into the US treasury market. This was safe haven buying at its best. But when the storm calms, do you really think these investors feel comfortable? I don’t think so. In the mid to long term, the US dollar and the rest of the highly inflated global currencies will devalue. It’s also interesting that according to the World Gold Council, CBGA 2 signatories sold only 357 tons gold in year 4 of the agreement, well below the 500 tons ceiling. Are they running out of ammunition or did they finally understand that they'd better hold on to their gold since this is the backbone of their paper money?

So what’s going on in the gold market? Right now, we have a huge wave of paper gold coming into the market and therefore depressing the price of gold. I’m speaking about gold futures that have been sold by large unwinding transactions mainly from hedge funds which have to reduce their exposure or which are liquidated entirely. Lots of margin calls for private and institutional investors also played their part in this game.

A pretty new invention are the so called ETNs (Exchange Traded Notes) and virtually thousands of other paper products (called certificates, baskets, structured products, etc.). Do you remember the word ‘counterparty risk’? Does this ring a bell? Yes, it should. Even if you have bought an ETN or another paper based product on gold, it is not necessarily backed by physical gold, it is actually nothing else than a debenture with a payment guaranty of the issuer – a great product if the issuer is Lehman Brothers or Bear Stearns, etc. After Lehman Brothers went bankrupt, many investors found out that even their capital protected products were worthless. I strongly believe the current sell-off in commodities and also gold is a substantial part triggered by huge selling of paper products. So here we are again, the paper market vs the physical market.

The physical market is virtually exploding! Demand is so strong that you have to wait several days or even weeks before you get your physical gold (coins or bars). So how can you explain that physical demand is so incredible strong that you can’t get your coins and bars and the price of gold (remember COMEX paper market) is still falling? I can’t and this makes me think that something is seriously wrong and will eventually lead to a huge spike in the price of gold!

It is not only the physical demand that is very strong, it is also the gold ETFs which are adding up gold and just reached new record levels, but still the price of gold is falling.

There is one thing I don’t like about some of the gold ETFs. Did you know that some allow short selling? This looks like a minor issue but could have a major effect for investors who think they own a fund which is fully backed by physical gold. Maybe this is not the case: The ETF’s administrator only knows the net long position and backs this amount with physical gold.

Imagine, we have 100 long positions (from investors who want to have a fully backed gold ETF) and we have 50 short positions. Overall this means a net long position of 50 (and I guess the fund administrator only covers the net long position with physical gold). So what happens if the investors with the 100 long positions are asking for physical gold delivery? Well, there is only enough gold for 50 long positions in the ETF’s vaults. But the fund administrator has to deliver the physical gold for 100 long positions. Maybe this triggers a short squeeze in the physical gold market? I don’t like this idea and therefore I prefer holding physical gold in a vault or in an ETF which does not allow any short selling. Unfortunately, the world’s biggest gold ETF “SPDR Gold Shares” (GLD) allows short selling. I like the instrument as a vehicle to track the price of gold but I don’t like the short selling possibility.

Overall, the bull market in gold is far from over. Even though most investors don’t really understand what is going on with the price of gold. It’s like an elastic spring, the more you depress it, the higher it jumps once released. Right now, inflation is not a problem, but it might get one in the future again and this time probably even bigger than before. Besides of course other fundamental reasons to buy gold (e.g. growing jewelery demand from emerging countries, asset hedge, currency protection, etc.).

Investors should preferably buy gold stocks such as Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), AngloGold Ashanti (AU) or Harmony Gold (HMY) to gain direct exposure and leverage to a rising gold price. But nevertheless, physical gold in fully backed gold ETFs or in gold coins/bars remains a core asset besides some gold equity holdings.

Disclosure: The author is fund manager for a mining & metals fund. The opinions expressed in this article are those solely of the author.

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This article has 71 comments:

  •  
    Oct 15 10:16 AM
    Daniel,

    Do you know if the gold producers sell their gold at paper futures price or the physical bullion price?
    Reply
  •  
    Oct 15 10:49 AM
    Gold here at $840+/- is under massive selling pressure as the only real source of funds for investors besides Treasuries. That gold has held up so well is truly remarkable. Even the mining stocks have taken terrific beatings. This looks like a normal correction in a bull market. Perhaps it goes to $650-$700, perhaps not. The risks of not owning gold far outweigh the risks of it falling another 15-20%. Besides, investors holding a diversified portfolio will be doing pretty well in their other investments if their gold drops. Right now holding gold looks pretty good compared to the performance of other investments.
    The performance of the mining stocks and futures markets reminds us that nothing substitutes for owning physical gold.
    Given the massive movement into gold, it is clear many investors are considering an integral part of their portfolio. As a bit of a curmudgeon, I wonder if we won't see a nice plunge just to test the "cojones" of new converts.
    Reply
  •  
    Oct 15 11:21 AM
    obviously we are promoting our fund here....

    the futures markets allow for delivery at the delivery price....based on the futures price. Many have taken delivery via the closing price of their COMEX futures contracts and now have gold bars in storage. Are you suggesting that this price is undervalued? Well why dont we all simply take delivery of gold futures contracts and sell them on the open market at their "true" value? Would seem like a pretty good arb op, no?

    And pls by the way show me evidence that during bull markets, mining stocks, or any commodity stocks for that matter, outperform the price of the underlying commodity? What if an eventual find turns out to be much less than what was initially estimated? What would happen to the stock price even in the underlying metal price stayed constant?

    thx

    ryan
    Reply
  •  
    Oct 15 11:35 AM
    Lease rates are up because Libor is up.
    Reply
  •  
    Oct 15 11:48 AM
    Gold has a long way down to go. Strong dollar equals weak gold
    Reply
  •  
    Oct 15 12:44 PM
    CLH is a leftist who believes in the Fed's fascist monetary policies. Check out his previous posts where he slanders true conservatives such as Ron Paul. CLH, your so-called "strong dollar" is a chimera.
    Reply
  •  
    Oct 15 12:57 PM
    So when the printing press is in overtime in 'Bailout' mode, this means the dollar is 'strong'?
    Reply
  •  
    Oct 15 01:16 PM
    Gold is an excellent hedge against inflation, but right now it appears we're in for a period of stagnation or even deflation (housing prices dropping, oil prices dropping, food prices likely to begin going down soon). As a result, gold isn't likely to do much, imho, as there's not a dramatic increase in unsupported money supply.

    While I'm pretty old school and believe that every portfolio should contain some dividend yielding gold stocks, I wouldn't go crazy and overweight in the stuff. While the current prices are attractive because of the improving dividend yields, as demand drops because of the slowing global economy, profits will suffer. Remember that a company like Barrick still spends $450/oz. to mine it and they're hedged with futures contracts to protect that margin. A lot of their sales are at prices fixed last year. That puts a cap on their potential profits and losses. Unless gold stays over $800 in the long run, profits will stay fixed or decline.
    Reply
  •  
    Oct 15 01:25 PM
    History proves fiat has never succeeded in anything other than what it was designed for and thats debasing the currency - NEVER being in the people's best interests.

    From market chosen specie worldwide, to paper money receipts FULLY redeemable in specie, to unredeemable coerced legal tender with zero intrinsic value.

    How can ANYONE not see this as the banking ripoff it has always been for millenia?

    Shylocks coerce, cheat and steal. 100% reserve banking, loans at market rates due dillengence accesses to the risk. Market set interest rates always self level, the environment being the best as individuals are accessing risk AND taking the financial responsibility for it. Unsocialisd, as is the Declaration's pure intent.

    Five generations of Americans have been deprived large portions of their lives work to the Fedl govt.

    What would that capital today be worth if it had been allowed to compound intergenerationally since the progressive era began 100 yrs ago instead? Is there even a hesitation to guess we'd all be millionaires at least?

    Study these worst Americans at mises.org and get the real picture govt hopes you dont. Insanity trusts the untrustable.

    Our Govt has now proven beyond all doubt it massive failure doing what free enterprise was supposed to do all along, UNTIL criminal politicians began using govt to enrich themselves at the people's expense. We are their mere hosts.

    Hamilton, Lincoln, Wilson, FDR.......

    The REAL truth is we have few Presidents who didn't abuse their oaths of office - every new unconstitutional precedent digging freedom a deeper grave.

    Americans must not let this most massive extortion stand. 90% of Americans were against this. And BOTH parties shafted the people.

    Ron Paul was the ONLY answer.
    Reply
  •  
    Oct 15 01:31 PM
    Yes, you can buy 1 kontrakt = 5000oz of silver and take delivery, BUT
    it is geared at 25 times, so a 2% drop is a 50% loss or a margin call.

    I have had an E-trade account, and believe me, EVERY position is wiped out, over the long term.
    BUT, I have learnt my lesson, I have bought pysical metal for my REAL money..... E-trade =CASINO.....just like the rest of wall street.

    ? Are you rich, shoe shineboy..?
    NO mr banker... I am Honest and work for my money....!!



    !
    Reply
  •  
    Oct 15 01:54 PM
    MC dk. You don' t have to use leverage. If you buy a futures contract on Comex, just keep the full cost of the contract in your account and take delivery when it comes due.
    Reply
  •  
    Oct 15 02:33 PM
    GOLD PRODUCERS LIKE BARRICK AND KINROSS COULD SELL THEIR GOLD DIRECTLY to buyers who want physical gold, not paper. If that were done, Joe Blow would be bidding against central banks and options traders for real gold, and the market for physical gold would overwhelm the paper market. THIS WOULD RESULT IN GOLD BEING TRADED AT THE REAL PRICE FOR PHYSICAL GOLD RELATED TO SUPPLY AND DEMAND.

    Rather than buying CREDIT SUISSE or ENGLEHARD bars of gold or silver, the gold producers could refine and "package" their gold, and you could then buy BARRICK 0.9999 PURE GOLD BULLION bars with a Barrick stamp on them. Kinross and Gammon and Yamana could do the same thing.

    If this were done, the profits and share prices of gold miners would skyrocket, and gold would be trading at $2500 to $5000 an ounce during this market crisis. It would also make paper option trading in precious metals obsolete, to the advantage of the entire world economy. Eventually, a similar end to paper trades influencing the value of of other commodities, like agricultural products and housing products that we all have a real need for, to everyone's benefit.

    The safe haven in precious metals would be a real safe haven, and the ultimate result would be that corporations that actually did or made somethig with intrinsic value would survive while "money-for-nothin... corporations" would be weeded out.

    The ultimate end that this market crisis must eventually wind up with is a contracted US economy and a contracted world economy that assigns value to resources and commodities that satisfy basic needs, and devalues things that people don't actually need. The US economy has, since the 1970's, been based on consumers spending money on shoddy foreign-produced products that satisfy no basic needs, at the same time that excessive regulations and ridiculous liability exposure chased most corporations trying to do or make anything with intinsic value overseas to escape the impossible challenges of operating in a country with too many trial lawyers and too many elected lawyer politicians. The direct sale of gold from gold producers to gold buyers would start the process of correcting the misguided path we've been on for 40 years.
    Reply
  •  
    Oct 15 02:39 PM
    Gold and silver will rise...and the end of time is coming someday also.
    Reply
  •  
    Oct 15 02:53 PM
    What surprises me is that the gold price is holding up even though jewelry demand (a much greater portion of gold use than investment demand) is going lower and lower - isnt that strange? I couldnt figure it out until recently when I was reading an article that rumored that China (the largest gold producer in the world) was holding on to its gold production and NOT LETTING GOLD BE EXPORTED - supposedly buying everything they could out of their local markets. If that rumor is true then this could explain why gold has been holding up so well even though jewelry demand is dropping...
    Reply
  •  
    Oct 15 03:05 PM
    Its annoying to read comments about Gold from Ignoramuses who have never left their backyards. Go into Asia my psuedo-intellectual friends and you will see why Gold will continue to climb in value over the coming years just on demand alone. It doesn't cost much to fly around. All you anti-Gold experts who have amassed personal fortunes from trading and shorting must surely be up to the cost. ?? The Asians still treat gold as currency. They buy it when they can, and sell it when they have to.
    Go on, get on a plane, spend some of your magnificent wealth, ($$$???) and see what I'm talking about from my own experience in reality.
    regards.
    Reply
  •  
    Oct 15 03:14 PM
    Strong what???

    Each million of bogus electronic bucks created by the Fed WEAKENS the dollar - I don't care what the $ index has been doing short-term. So today the fundamentals indicate that the dollar is considerably weaker than it was 2 weeks ago, despite the short-term propping-up activities.

    This is a house of cards about to collapse, and when you consider the Trillion$ in the derivatives house of cards whose foundations are currently trembling...when that goes it will take ALL fiat currencies with it, not just the US buck.

    Then the powers that be will try to usher in the Amero as replacement... their success remains to be seen...and yes, they have already printed a bunch of them.
    Reply
  •  
    Oct 15 03:21 PM
    Yes, producers could conceivably sell direct, however I personally don't know of any mining company that refines their gold or silver to anywhere near bullion standards. They ship fairly crude and semi-refined ingots to the refineries that complete the process.

    Now, whether it might be possible to buy from the refineries is another question... I would bet that they only sell to corporations and not private individuals, and I would also bet that to pay for the minimum order you would have to have deep pockets!
    Reply
  •  
    Oct 15 05:03 PM
    I think Gold is low in part because of the paper/real gold argument put forth, but also because the markets typically take some time for things to work through the proverbial digestive system. It'll take 12 to 36 months for the printing of extra fiat currencies to work their way through the systems and therefore the inflation numbers to rocket off this trillion dollar bailout pad.

    Getting gold and even silver now, imho, would be a wise thing. Using all your $$$ to do it? No, of course not.
    Reply
  •  
    Oct 15 05:51 PM
    I am holding GLD right now. What are some gold ETF's that are fully backed by physical gold and don't allow short selling?
    Reply
  •  
    Oct 15 07:18 PM
    Of course, the miners could form a joint venture to build and operate a refinery, but I suspect they would be prosecuted for conspiracy to fix prices. Perhaps, the better solution is to create a market in unrefined gold and silver.

    Ever hear of micro-breweries? How about micro-refineries? Sorry, those are anti-environmental. How about old-fashioned smuggling? Now you run afoul of anti-terrorism laws. The PM market is highly regulated on many levels to advantage the monetary authorities as opposed to the people. Looks like it will take a revolution to reveal the real prices of gold and silver.
    Reply
  •  
    Oct 15 07:41 PM
    This discussion reminds me to the peak oil discussion we had in spring. Everybody was jumping on the train with the longterm perspective that oil as a irreversibly consumable commodity goes up like crazy. Did not happen so fast. There were other issues in the foreground that caused oil to drop like a stone.

    I suspect something similar happens at this time with gold. Gold held about its value, but the GLD price curve looks exceedingly ugly and I would not bet it breaks to the upside. That does not take anything away from the longterm perspective of gold.

    So what is it? A surge of uncovered future contracts hitting the market and depressing prices?

    Yes a lot more money is being printed supporting a weaker $ , but the spending party is mostly over for the time being. Creditcards and mortgages are maxed out, house prices have not bottomed yet, consumer confidence in abysmal, lending standards and cost go up drastically. This is not about liquidity but solvency which goes to the hearth of credit worthiness of the consumer. That is deteriorating and limits spending especially for discretionaryand costly items like gold..

    I dont see why a economical contraction does not affect all asset classes. Last time we came out of a recession in 2002 gold had bottomed. I would not declare the goldprice at a bottom here.



    Reply
  •  
    Oct 15 07:53 PM
    One question I have not seen is how big the retail gold market is relative to the overall gold market. Everyone keeps talking about how coins and little bars are so hard to come by, or priced with a huge premium, but I imagine the retail market is quite small compared to the overall market which includes investors, industry (Silver), etc. Please share your thoughts or figures.

    Regards,
    Reply
  •  
    Oct 15 08:19 PM
    Have a look at www.gfms.co.uk/Market%... Fabrication demand in 2007 was 3072t, only 6% from coins.

    You can't use the high premiums on retail coins and bar as proof of a "shortage" of gold - it only proves a shortage in production capacity converting wholesale gold into retail gold: goldchat.blogspot.com/...

    Wholesale gold is available at the spot price - in this GATA dispatch (gata.org/node/6756), James Turk says "So far the London and Zurich markets continue to operate without problems, but I sense some strains are developing" and "we are giving retail investors the opportunity to buy alongside big institutional firms operating in these markets and to gain the advantages of these markets -- deep liquidity and transparent pricing".

    If GoldMoney is not having problems obtaining wholesale gold, then there isn't a shortage. You need to dig a bit deeper.
    Reply
  •  
    Oct 15 08:40 PM
    I know for a fact coin shops wouldnt sell gold or silver anywhere near spot when it went to 773. In fact, he wouldnt sell silver at all. Why should he? He knows the paper price is a joke, and he is waiting to sell much much higher.
    Reply
  •  
    Oct 15 10:24 PM
    The US Treasurys June 2008 report on Gold and PM Derivatives - June 2008

    2 US banks control 97% of the outstanding $135 billion, JP Morgan $96 billion, HSBC $34.4 and in 3rd spot Citibank - $3.5 billion.

    source: www.occ.treas.gov/ftp/...

    With all of this paper out there -- and JP Morgans high probability of assuming - being a market makers, as well, how can anyone preduct what happens here? Self-interest rules; these bullion banks set the rules.

    Regulation is conspicuous by its absence!

    Are they unwinding paper positions, and holding the prices down, even causing rather steep selloffs on minimal volume? And, does physical metal even exist for this paper? It may not, yet physical demand appears to exceed supply.

    Will volatility prevail. Its likely - if these folks have to clear out their paper trades. From what Ted Butler has said, these banks have even been known to load up on options after sharp price corrections.......for now, it appears the game is "fixed."

    If so, paper and physical prices may diverge until this situation is settled.
    Regulators do not want to step in. If you want to email the regulators at the CFTC and CME, please open Ted Butlers archives........at the bottom of the last letter, he lists the email addresses.

    Reply
  •  
    Oct 15 11:37 PM
    "Unfortunately, it is a paper market which is very vulnerable for manipulation and it does not reflect the real market which takes place in physical supply and demand."

    When it was oil, everyone said, "Futures cannot be manipulated." Now that it is obvious that was hogwash, everyone jumps on the bandwagon.
    Reply
  •  
    Oct 16 12:21 AM
    A very intelligent, reasonable article about what's really going on with the gold market. Sure beats that garbage by Alan Brochstein about how we should short gold. Your line of reasoning is pretty sound and seems to take into account all the converging factors affecting the gold market currently. Thanks!
    Reply
  •  
    Oct 16 12:55 AM
    Short selling of anything requires buyers to take the other side of the trade. Gold is still one place that there are buyers prepared to step up and there are no government restrictions on their activity so the short sellers have a market to ply their trade and they don't need any gold to sell in order to participate.

    COMEX works in cash and generally settles in cash. You can be sure that if too many longs start standing for delivery of real metal the exchange will quickly change the rules to force cash settlements only at the manipulated paper price, not the real market price, and the short sellers know that protects them regardless of what happens to real gold.
    Reply
  •  
    Oct 16 05:40 AM
    It would be fairly easy to begin taking 1000 oz gold and silver COMEX bars off the exchanges. The bars could then be smelted into 10 oz bars or single oz rounds at a local refinery. Best of all is the sort of profit one can make doing this very thing in spite of refining costs.

    Assuming a low COMEX silver price per oz of 10.50$ and add the dealer markup per oz in the physical market of 4$ average over spot. Then add the money to be made by selling at the high end of silvers current "valuation channel" of 14.70$. So here we are with about 8 dollars over COMEX spot per oz. By these numbers your initial investment of $10500 for physical delivery of a COMEX bar realizes a gross of $18700 with market timing or only $14700 if the underlining spot price has not changed. For a net profit of $4200 or $8200.

    Now that is what I call "highly profitable arbitrage".

    COMEX risks being wiped out by the fact that the dealer market can and does offer a much higher price for coins and small bars. Its only a matter of time before upper middle class investors (who are at the lower income range of being able to afford the initial costs of a 1000 oz bar) begin stripping the exchanges of their silver and gold.
    Reply
  •  
    Oct 16 09:34 AM
    Why is it that everyone who owns gold becomes a gold salesman? Kind of like a pyramid scheme.

    Gold is an inflation and interest rate hedge - that's all it is! When the price of oil and other commodities was skyrocketing, people were predicting massive inflation as a result. Then oil and other commodities tanked, along with expectations for high inflation. Turns out, demand for energy and commodities always drops during recessions!

    The recent bail out money only partially replaces the wealth destroyed in the financial panic. Higher interest rates in late '09 to 2010 are visible from here.

    That's why the price of gold changed. Quit pointing fingers. It's immature. You got caught on the wrong side of a trade - so what? Hopefully you documented your purchases so you can at least harvest losses for tax purposes.

    Conspiracy thinking and ideological attachment to investment categories will bankrupt you. The best way to invest in gold is to start a business forging and selling collector coins to goldbugs for 10-25% over the metal price. Just be sure to keep your inventory low in case prices fall. Hey, isn't that exactly what's happening?!
    Reply
  •  
    Oct 16 10:14 AM
    raptor eyes good point..... my home turf is the west aust goldfields and have been doing business with the perth mint since '86, smelting and selling them my own gold. I have an excellent smelter and a gold mining lease on which to do it,in the Marvel Loch area in WA. Also have 1830 OZ of silver , 13.5 OZ of Platinum and 40 OZ of gold , all refined by the perth mint to 995 or better. The point being that refining costs are virtually nothing to turn this into say 1 ounce bars with my smelter , purity is already established. Any one out there want to go into the precious metals Minting business?
    Reply
  •  
    Oct 16 01:04 PM
    It is a bubble like all the others, and it will go smash just like all the others. There aren't more dollars chasing the same goods. There is less wealth, and higher demand for existing currencies than ever.
    Reply
  •  
    Oct 16 01:24 PM
    It would seem that Bron is arguing that the disconnect between retail (Coins) and wholesale (COMEX) is not related to supply and demand. I imagine that premium is due to the hype of this "conspiricy" and people ready to capitalize on it. I have a few contracts and I am going to let them mature and take delivery. I dont suspect it will be a problem. I could be mistaken, but if it isnt, as Bron says, "You need to dig a bit deeper."

    PS Did anyone read his post?
    Reply
  •  
    Oct 16 01:26 PM
    Physical standards such as Gold and Silver will always be in high demand with high value, not because of the U.S. but because of poorer nations who still find it the safest, most stable means of transaction.
    Reply
  •  
    Oct 16 01:35 PM
    Friends-
    I wond