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.
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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.
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.