Gold Coins Are in Short Supply, So Why Doesn't Their Price Rise? 25 comments
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There are those who argue some percentage of an investor's net worth be placed in gold coins as a safe harbor. I agree with such advice even though gold has certainly not responded as expected throughout the current economic crisis. I mean, a prospective meltdown of the world financial system was one reason gold bugs hold gold. Yet gold has retreated from $1000/oz this spring to $730/oz as of Monday morning. Yeah yeah, it's all the unwinding of the hedge fund, asset managers, etc. etc. "Cash is king". Hmmm....
I read once an old sage said, "The markets always do whatever they must do in order to insure the fewest number of people possible make money." So, it is interesting that the current "cash is king" mantra is so popular at the same time when perhaps, just perhaps, it isn't actually true. Oil at $65/barrel is a steal. Holding US dollars at a time when the Federal Reserve is expanding its balance sheet quicker than Democrats can get to the polls to vote early may not be a good strategy. At least one should always consider alternative outcomes.
As the US dollar printing presses run overtime to create money for the US government to take over the mortgage, financial, insurance, and automobile industries (and the pundits on CNBC are worried about Obama being a socialist?), one has to wonder what the chances of the government obtaining a ROI on these "investments" when the country is still addicted to foreign oil, has no comprehensive energy policy, and we are in an era where oil supply will not keep up with oil demand (assuming the world's economy is halfway functional, present condition not withstanding). At least I wonder about it. I mean, what would happen if the US government invests in all these industries but they remain economically challenged in the future? One can paint a scenario where just as the US economy begins to recover, oil rises once against to nip it off in the bud.
So, although we are living through a deflationary scenario at the moment, what is the long term prospect for strength in the US dollar given the systemic background of the current administration's policy of "socialism for the rich"? Long term, my opinion is the Asian governments that own our debt (and thereby have us by the economic short-hairs) are not impressed with this new American economic strategy. I believe they will slow their heretofore generous funding of American debt which has, I remind you, doubled in the 8 short (long?) years of George Bush. This can only mean the US dollar will weaken down the road, oil will once again prove to be the world's true reserve currency of choice, and inflation will come roaring back with a vengeance - at least in the US.
With these thoughts in mind, I visited Kitco.com and Apmex.com to see what gold coins are fetching today. Low and behold, despite the big sell off in gold, you can't even buy the old run-of-the-mill American gold eagles as they are not available. In any size. Well, maybe I'll buy some Canadian maples...whoops! They are not available either. Hmm.... it looks like many other investors must be having similar thoughts as me. Go to those websites and check them out yourselves...the cupboard is bare.
So, why isn't the price of gold responding in kind? Supply/demand is the first law of economics right? Methinks the invisible hand is at work again, leaving the investor nowhere to go. Stocks? Bonds? Gold? Where does one turn for a return on investment these days? Oil. If only I could buy 10,000 barrels and bury that in the backyard. I can only imagine what that would be worth in 2015.
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This article has 25 comments:
Why don't you ask yourself how it is that the dollar can be going up when the supply is - you believe - also going up.
The supply isnt going up, it's going down.
And in a deflation, people quickly find that their gold coins buy them nothing without first buying currency and that other than the special panic trade in gold, holding a commodity during a deflation is idiotic.
The Banksters ARE gaming the system.
The money supply has been inflated 341% in just the past six weeks as well. (Source Fed Res Bank of St. Louis)
I've gotten to the point where I know that very soon all these silly little Banksters are going to be walking in front of buses and subway cars when their ponzi scheme collapses under the prodigious weight of their Bravo Sierra.
President Obama will likely do what FDR did with gold in 1933. That's why myself and my gold are in a part of the world where gold is universally traded and has been for a thousand years.
GET OUT WHILE YOU STILL CAN!!
chistletoe: money supply goes to zero? did you perhaps mean the value of the money go to zero like the weimar republic? the latter is well documented - the populace burned the currency to stay warm in the winter and the rich exited the country with their gold for switzerland.
bosun.j: thank you. yes, just as the saudi's can control the price of oil (at least on the downside, they won't be able to control the price on the upside in the future) because they have the majority of it, so too can the central bankers control the price of gold because they control the majority of it. however, in this case we have an interesting scenario where they are articificially keeping the price down (in concert). but you watch, when they come back out with the gold coins from the mint...i betcha the price will go back up some. btw, where are you? gold is used as a currency where you live? i'm not aware of such a place...please tell me. yeah, i'd like to move to new zealand...big trout there.
I think better investment opportunities exist with the base metals with real practical applications like copper, nickel and aluminum. All have taken a beating recently and have a greater potential for large gains when the economy recovers. Gold has limited practical uses (except in electronics) and is used primarily for jewelry and coins.
Gold has generally tracked oil. One ounce of gold normally buys 8 to 12 barrels of oil. Even when the US was on the gold standard (Bretton Woods era) gold was at $35/ ounce and oil at $3 / barrel.
In the long term, I would prefer oil over gold as better investment. Gold will be recycled in perpetuity. Once oil is gone, its gone.
READ!!
Pay no attention to the over-educated Keynesian central banker wanna-bees who equate "credit" with "money". When they say "money supply" they include various measures of credit in the equation. Credit is most emphatically NOT money. "Having Credit" and "Having Money" are not the same thing, as Wall Street is learning right now. Wall Street is up tjo their eyeballs in "credit", and that's what go them into trouble. The tried to play "Fun with Fractional Reserve Banking" and they lost; now they wish they had money and NOT credit.
These Keynesians are the same ones who want us to borrow our way out of debt. Yes, deficit spending, that's the ticket! What we need is more credit! The credit god is angry, we must appease him by pledging the lifeblood of our children forever! The fact that they can't see the lunacy in the suggestion is all the reason you need to treat them as the stupid fools they are and completely ignore them.
On Nov 04 04:58 AM dlaw wrote:
> Why do people opine about the government printing dollars and not
> look at the real money supply?
>
> Why don't you ask yourself how it is that the dollar can be going
> up when the supply is - you believe - also going up.
>
> The supply isnt going up, it's going down.
>
> And in a deflation, people quickly find that their gold coins buy
> them nothing without first buying currency and that other than the
> special panic trade in gold, holding a commodity during a deflation
> is idiotic.
>
Either way I'm protected. One way to make certain is to remove it from their jurisdiction. Good luck!
Second, credit isn't money, but it is part of the money supply and it relates to the velocity of money and demand for money. You don't have to take my word for it, just look at Japan's money creation for the past 18 years and then look at their inflation rate. If the monetary system uses the banking system to filter inflation, you can have a situation, like the one we are in, where banks refuse to lend. Their reserve ratios will climb higher and higher as the Fed pumps money.
One can argue how long this deflation will last, and whether hyperinflation is around the corner. But right now, there is full on deflation, and my expectation is that we won't even have a chance of inflation until the economy recovers, several quarters from now. If there is a cultural shift away from debt, however, we could see deflation or very low inflation for several years. There's always a reason for market moves, either technical or fundamental. If you can't understand or explain why something is happening (conspiracy theories don't count), you are gambling, not investing.
bosun.j: oh, ok, thailand. yes, it is interesting that many asian countries, who have lived through many financial ups-and-downs have so many efficient gold trading options. plus thought thai-sticks.... ;)
kelly: zow-eee, what a comparison.
SWRichmond: i agree. isn't it interesting that bush, a so-called "conservative republican" (i think he is a radical fascist) presided over the biggest fiscal deficits and debts in american history as well as the government takeover of the national mortgage, banking, insurance, and automobile industry. wait, that is the definition of fascism isn't it?
MikeLovesGold: is that true? i did not know that. thanks.
wrt confiscation of gold, i think they will have as much trouble prying gold out of peoples' hands as they will confiscating their guns. there would be a huge black market, and those moves would cause much social unrest. not sure the military is ready to handle 250 million pissed off and armed americans...they can't even deal with iraq....
huanglin: sure, i understand gold coins are a unique product, and i understand that hedge funds and other institutions need to delever and are selling gold "paper" investments and that can cause gold to go down. no problem there. but where did i say "credit isn't money" or were you referring to someone else's comment? i certainly never said that, and in fact have opined exactly the opposite. i also agree, as the article says, that we are in full-on deflation at the current time. however, whenever anyone says cash is king, i immediately think for how long? as far as understanding what is happening, hey, conspiracy theories are as valid as anything else as nothing is making sense anymore and when a government such as the US makes such a strong move toward fascism (see my above comments), anything is possible. as far as gambling and not investing...i would agree totally. when fascism takes over, there is no such thing as investing....it is ALL gambling. so, sure, i am out there gambling with everyone else ... trying to figure out what the future will hold...and wondering why in the world oil producers are trading with PE's close to their dividend yields. yup, it's all gambling.
The only part of my comment directed towards your argument was the first, about gold coins having unique demand. To that end, this article by George Seglin is relevant.
mises.org/story/3168
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The more I read Antal Fekete, the more I like his work. Here is one relevant to the Mises article on minting and coinage. While some Austrians might want the government out of the minting business, Fekete's points include the fact that the stage was set for our present monetary crisis when gold and silver were "forced out of the mint".
www.professorfekete.co...
If you cannot buy gold, consider buying commodities that are tradeable in hard times. Or forward buy the things you would buy with gold in hard times - dehydrated meals, tp, firewood, canned foods, canned meats, ammo, guns, farmland etc.
You needn't remove your gold to a place where it is 'outside their jurisdiction'... keep it with you. Nobody has to wait for the dollar to collapse utterly before they bust out their gold and silver. I live in a sparsely populated county in upstate NY (there are good trout here, too!) and many of us have chosen to go ahead and start using metals as trade material... it can work in conjunction with FRN's or anything else. The metals are easy to liquidate if you need to pay bills or your mortgage... there is always someone local who will trade with you (or there is ebay if you have to use it) Even on a small scale, it is a great way to soften the blow of the econo-monster. We all need to start now -on any scale- to put the necessary structures in place, so that when the dollar goes, we can at least continue to work and earn locally.
The problem with physical gold and precious metals is they don't pay you interest nor dividends and their value will drop (sometimes drastically) when economic conditions improve.
I prefer energy based Canroys and MLPs. The good ones continuously pay out dividends. Some like COSWF and ERF have reduced their payment level recently with the drop in oil prices, but conversely they have increased payments in the past when oil prices have risen. The added advantage of Canroys is their month dividends increases automatically when the value of US dollar drops, since they are denominated in Canadian dollars.
*Gold Bar 400 oz (Please place order by phone) $304,000.00
In other words, the little guy is pretty much out of the market at Kitco. No coins, no 1 oz gold bars, nothing. Invisible hand is at work bigtime here.
comments on comments:
Sean: but if governments are selling gold to raise cash, wouldn't they want the highest price for the gold and, wouldn't their be canadian maples and american eagles aplenty? it's all private interbank manipulation i believe. they want to uphold the illusion that the paper dollars they are printing as quickly as possible are worth something...
jimmy46: yeah, you're right. i just like buying in quantity from a known commercial source a bit better than ebay.
jensen: actually, gold was $730/oz and you could buy it in the Kitco pool at that price. that said, i prefer to hold my gold in my grubby little hands and i prefer small gold coins if the barter system makes a comeback.
swaps: i like your theme. unfortunately, i bought a house in a regular subdivision and i cannot own what i really want: a few cows, goats, chickens, and a pond with fish. i should have bought a small farm for all the money i lost in the market! so, now i want to protect myself by having some gold coins that i could trade to the farmer for a chicken...or a cow...or.. you get the picture.
capt bomblast: upstate new york huh? every hear of alleghany? interesting that your local economy is trading metals...i dont suppose you'd like to tell me where you are?
longoil: oh yeah, i like dividends too and own some oil and nat gas trusts. i dont put everything in any one asset... i just feel the need to own some gold coins as an insurance policy against a complete financial meltdown. also, even if things dont meltdown, how can inflation not pick up again when all the cheap money primes the pump, and then we see oil skyrocket again? when that happens, i want enough gold to keep some, and sell some for a profit.
I have yet to see a good writer explore what will happen when the money supply goes down to zero. Would you care to give it a try?