On Gold and Silver Coin Shortages 22 comments
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What is price? Sure it is the ‘amount of money expected, required, or given in payment for something.’ But even that definition is too broad as it begs the question of expected or required by whom? Value, utility and price are all subject to individual human action and therefore the price of something is primordially chaotic.
Yet an underlying assumption pervades Western financial thinking: the Efficient Market Hypothesis. For example, often the price of gold is quoted or found in various places and this single price, usually called the spot price of gold, is supposed to represent the value billions of humans have for the ancient metal of kings. But really this pricing mechanism is only an illusion of solidarity.
FALL 2008 BULLION SHORTAGES
Shortly before the significant declines during the fall of 2008 those interested in how to buy silver were met with bullion shortages.
click to enlarge
On 19 October 2008 in The Gold Price I wrote,
This past week gold has reached all-time highs when priced in A$, £, C$, Indian Rupee, and the South African Rand. Gold, being a monetary commodity, has counter-intuitive supply-demand functions. When prices rise oddly demand rises. … Ultimately, the ‘price of gold’ is what a willing buyer and a willing seller agree to by voluntary mutual consent.
I continued to explain the differences in types of gold and their prices when considering how to buy gold.
UNITED STATES MINT ANNOUNCES BULLION COIN SHORTAGES
On 22 June 2009 the United States Mint announced:
Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins. Currently, all available 22-karat gold blanks are being allocated to the American Eagle Gold Bullion Coin Program, as the United States Mint is required by Public Law 99-185 to produce these coins “in quantities sufficient to meet public demand . . . .”
The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products.
A similar announcement was made to this one, “temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins”.
These programs providing for the minting and circulation of American Gold Eagle coins and American Silver Eagle coins are required under Federal Law and are vital in helping to determine what a dollar is and implementing its use in providing the foundation for a safe, sustainable, prosperous and moral economy.
ERRONEOUS REPORT OF U.S. GOLD SALES
While The Onion is usually ‘America’s Finest News Source’ this report of the United States selling their gold hoard is easily dismissed. This is because the central banks and United States hold gold in the vault and gold out on loan as the same line item. In effect, they report cash and accounts receivables as the same thing. This sham accounting has greatly affected the price of gold.
I recommend avoiding Cash4Gold and others but their savviness to be satisfied with only the physical metal is commendable. But the truth of the matter is that the United States has already sold almost their entire gold hoard.
Some irrational individuals drift in a derivative illusion, believing the United States still has some wealth stored in Fort Knox for a rainy day, despite its trillions of debt. But as Harvard trained attorney Robert Landis asserts, “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit”.
RETAIL COIN SHORTAGE
After a brief review of some reputable gold and silver coin dealers I have found plenty of inventory. But some shortages have begun to develop. Hopefully this will not repeat what happened last fall.
There is a difference between retail bullion like gold and silver coins and wholesale bullion such as COMEX or LBMA bars.
This difference is like gasoline and crude oil. A shortage of gasoline does not mean there is a shortage of crude oil. There could even be a glut of crude oil and a shortage of gasoline. On the other hand, if there is a prolonged shortage of crude oil then a shortage of gasoline will most likely develop.
NO LBMA BAR SHORTAGE
The London Bullion Market Association is the center of the world’s gold and silver bullion trade with billions of dollars settling and clearing every single day. In an archaic tradition twice daily bullion banks agree on price. In between these times the COMEX is viewed as the gold price determinant for the world.
I am unaware of any gold or silver LBMA bar shortages with either GoldMoney or anyone else like the problematic GLD ETF which, under its prospectus, is not required to hold gold.
CONCLUSION
What is considered the price is really just a price. If there is a black swan event, like a COMEX gold failure to deliver, then the price determinant will shift and likely be much higher. While shortages are developing in retail gold and silver coins there appears to be no shortage of LBMA good delivery bars.
Consequently, if you consider how to buy gold or silver then follow Cash4Gold’s example and settle only for the physical metal, either delivered or available for delivery at any time. When the time comes to sell gold or silver because it gets expensive then avoid firms of ill repute like Cash4Gold which has 269 complaints nationwide with the Better Business Bureau.
If the retail shortage intensifies then premiums will likely rise. But if you sell your precious gold or silver bullion, the ultimate insurance, then what will you buy? The venerable John Rubino , author of Clean Money and The Collapse Of The Dollar, reports about gold and silver shortages in addition to sparse ammunition supplies.
Disclosure: Long physical gold and silver with no interest in the GLD or SLV ETFs.
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This article has 22 comments:
Please tell me where in the GLD prospectus it says they are not required to hold gold.
I've read the whole thing and must have missed it.
Thanks.
> Please tell me where in the GLD prospectus it says they are not required
> to hold gold.
>
> I've read the whole thing and must have missed it.
But (a) do you trust them and (b) can you actually go to their vault, see, and count the gold? I -- for one -- simply do not trust the SPDR Gold Trust to have all the gold it says it does. I have no reason for distrusting it other than the fact that I have a general distrust of Wall Street at this time. Moreover, I do not think that shareholders are allowed to go to its vault, see, and count its gold. Given these two factors, I'm willing to pay a premium to take physical delivery. I do not think I'm unique in this respect.
But to answer your question, yes I do trust them, which is just my opinion. No one else has to trust them or buy into GLD. But I also own futures and physical metal stored at third party facilities.
And clearly they don't allow Mr and Mrs Retail to walk into their vault and count their gold. That's obviously not practical. But they do allow the trustee access to audit it, and their outside auditor gets access to count and verify also.
On Jun 23 03:13 PM Carlos Lam wrote:
> On Jun 23 01:43 PM kohalakid wrote:
On Jun 23 03:22 PM kohalakid wrote:
> Well, that wasn't my question. My question was whether the prospectus
> allowed them to not have physical gold backing up their issued shares.
>
> But to answer your question, yes I do trust them, which is just my
> opinion. No one else has to trust them or buy into GLD. But I also
> own futures and physical metal stored at third party facilities.
>
> And clearly they don't allow Mr and Mrs Retail to walk into their
> vault and count their gold. That's obviously not practical. But they
> do allow the trustee access to audit it, and their outside auditor
> gets access to count and verify also.
And how about a nice conversation based on facts rather than calling people names.......
On Jun 23 03:28 PM User 357705 wrote:
> A true believer! A Deacon of the Daddy Says Everything is Fine Church
> of the Perpetually Deluded.
When you ring up the bankster that is 'storing' your gold and tell him to ship it to you you fully expect that will happen? After the crash?
On Jun 23 03:40 PM kohalakid wrote:
> Do you believe that it is practical to allow every holder of even
> one share of GLD access to the London vault where this metal is stored?
> I've owned and leased out 200,000 oz of London silver stored at JPMorgan
> London. You think they let me walk around the vault and roll around
> in "my" silver? Get real.
>
> And how about a nice conversation based on facts rather than calling
> people names.......
I didn't ask you to trust the GLD folks or invest in the fund. If you don't trust them, that's just peachy with me.
Have a nice day.
On Jun 23 03:46 PM User 357705 wrote:
> Call you a name? What Deacon? You object to Deacon? Deluded? Deluded
> is a verb. Verbs describe action not things.
>
> When you ring up the bankster that is 'storing' your gold and tell
> him to ship it to you you fully expect that will happen? After the
> crash?
I understand enough about banksters to know not to trust them as far as I can throw them. My grandfather and father taught me not to trust a bankster ever. As such, while most of my friends 401(k)s have become 201(k)s or less I am ahead. I own gold. All of it in bullion and all of it in my safe.
Have a nice day!
On Jun 23 03:53 PM kohalakid wrote:
> You clearly have a better understanding of the structure of the English
> language than you do the structure of the precious metals market.
>
>
> I didn't ask you to trust the GLD folks or invest in the fund. If
> you don't trust them, that's just peachy with me.
>
> Have a nice day.
On Jun 23 06:22 PM Bob Mc wrote:
> I have not invested in SLV or GLD for the concerns mentioned above.
> I do have a question. Has an outside audit been performed by a reputable
> 3rd party and published on the physical metal holdings of either
> SLV or GLD as compared to their "current" commitments at the time
> of the audit? If yes, that would provide some confidence. If no,
> why would anyone invest in these vehicles?
I couldn't agree more.I don't care for the Fort Knox approach either.It's supposed to be there because someone says so.
On Jun 23 06:46 PM Long Silver John wrote:
> I can't imagine any legitimate reason why a gold/silver repository
> would not eagerly want an independent audit and publish the findings.
> It's pretty fundamental to their mission of safeguarding other's
> property.
Please get over taking anything the Onion says seriously. Or find a sense of humor.
A paper certificate that says you own precious metal - is exactly that - PAPER. Do not let anyone stand your way of owning your gold or silver.
A fool and his money are soon parted.
Trace's use of the Onion spoof piece either shows Trace can't separate reality from fiction, in which case he needs professional help, or he's having a bit of fun with us, his readers.
Since I don't believe Trace is an idiot, I can only conclude he was having some fun with us.
On Jun 23 07:14 PM silversurfer09 wrote:
> When will people realize that the Onion is SATIRE...it's a joke,
> folks. The Chinese Government has fallen for their stories, and you
> have, too, it seems.
>
> Please get over taking anything the Onion says seriously. Or find
> a sense of humor.
You should own physical gold and silver, yes, but you should also hold them in as many places and forms as you can practically remember and secure. This is diversification writ small. Wherever your safe is, it can be stolen or destroyed or rendered inaccessible. However trusted your mint or refiner is today, they may be undone by scandal tomorrow. You don't own gold to get rich; it can't do that. You own it to remain alive when others cannot, and to retain value for the long haul. Neither of these outcomes is aided by homogeneity of holdings.
On Jun 23 04:01 PM User 357705 wrote:
> Thanks I will!
>
> I understand enough about banksters to know not to trust them as
> far as I can throw them. My grandfather and father taught me not
> to trust a bankster ever. As such, while most of my friends 401(k)s
> have become 201(k)s or less I am ahead. I own gold. All of it in
> bullion and all of it in my safe.
>
> Have a nice day!
If I wanted to hold precious metals, why would I hold anything but gold bullion? It has the best value density with the lowest premium is my understanding??
If I was concerned about a crash of the USD, war, rioting in the streets or demise of law and order, and was holding for those reasons, I sure as hell wouldn't be satisfied with anything but the real thing.