Bullion Shortage and Spot Prices Tell Two Different Gold Stories 44 comments
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Having blogged earlier on a physical silver shortage and the drying up of gold bullion purchases, recent events in the precious metals markets justify an update that again arrives at the conclusion that last Friday's silver and gold price plunge on COMEX has pretty little to do with the actual physical investment demand for gold and silver. Tim Iacono had a good post with the headline "Gold prices getting fishier and fishier," that does away with the myth that the US mint faces unprecedented demand. I stumbled across several more reports that show the ongoing dichotomy between official spot or futures prices and premiums actually paid by investors, if they can get their coins or bars at all.
The British Evening Standard ran a story over the weekend that said demand in Germany had grown 10-fold and dealers were not taking any more orders:
German gold dealers say demand has skyrocketed this past week to 10 times normal so no more orders can be taken for the foreseeable future.
"The demand exceeds our capacities by a great deal," said Heiko Ganss, head of precious metal company Pro Aurum.
"The requests cannot be satisfied right now," a dealer from the Düsseldorf WGZ Bank confirmed.
"Demand for gold as a conservative investment has risen dramatically," said Stephan Henkel. "right now the demand is about 10 times as high as in normal times."
Gold deliveries now take between four and six weeks.
This was confirmed by the Berlin daily Tagesspiegel, which reported in a very insightful article that German gold dealer Pro Aurum has closed its mail-order business due to demand never seen before.
One reportedly has to wait four weeks to take delivery of one kilo gold bars.
Physically backed gold ETCs (Exchange Traded Commodities) see heydays as well, according to a story at investegate:
Physically-backed gold ETCs saw $93m of net inflows, equivalent to 106,000 ounces of gold, in the six business days up to October 6, the largest weekly increase during the past 10 weeks, while silver also saw net inflows.
Despite a fall in gold prices last week, the ETCs' total assets reached $4.5bn, equivalent to 5,340,000 ounces. So far this year the products have seen $992m in inflows, equivalent to 1,530,000 ounces, an increase of 30%.
ETFS Physical Silver experienced a net inflow over the six-day period of USD7m, an increase of 4% or 1,194,729 ounces. Over the past six weeks, the product's volume of silver has increased by 25% to 12.8 million ounces, the highest level since January 30, and its total assets to $141m.
The new gold rush has also taken grip of Dubai's gold market. According to a report from ameinfo:
We have a similar rush in the souks of Dubai. Gold coins are selling at the highest premiums to spot gold price in 30 years, and stocks are running out.
In silver the premium paid for bullion bars is up to 50% above the spot price as dealers are running low and demand remains very strong.
Vietnam saw gold rising strongly last Saturday too. From Vietnam News:
Domestic gold prices increased strongly here yesterday, rising by VND50,000 to between VND17.90 million and VND18.10 million a tael yesterday as the world share situation became more chaotic.
Nguyen Huu Dang, head of the business department of the Ha Noi-based Bao Tin Minh Chau Jewellery Co, said his shop was full of sellers because of the big profits.
Bloomberg fills in the gaps on the world map, reporting excessively strong demand in more places. In Australia:
The Perth Mint, producer of 10 percent of the world's bullion, doubled output in the past six months, joining a global push to boost production as investors seek protection from the credit crisis.
Perth Mint sold so-called Kangaroo and Nugget coins weighing a total of 62,630 ounces in the three months to Sept. 30, compared with 154,501 ounces for the 12 months to June 30, senior manager Bron Suchecki said in an interview from Perth, Australia yesterday, adding there's been a surge in "moms and dads'' buying over the counter in the past three months.
"It's reflecting a real breakdown in trust in financial products,'' Suchecki said at the mint. "People aren't thinking how do I grow my wealth' but 'how do I protect it."
The shortages don't stop there, reported Bloomberg. In Austria, Muenze Osterreich, producer of gold and silver philharmonics has added a third shift.
Muenze Oesterreich, which makes the world's second highest- selling gold coin, increased output of the Philharmonic almost fourfold and doubled production of gold bars in the past year, Vienna-based Marketing Director Kerry Tattersall said yesterday. The 800-year-old mint, located in a former Habsburg palace, has also added a third work shift to press more coins.
The US Mint announced already a week ago that it would expand its production after gold coins have been suspended from sale quite many times since one year.
Now can someone tell me why gold is always falling ahead of the US trading session? Dan Norcini offers daily insights, alleging gold price manipulation for quite some time. Check out his daily commentary at jsmineset.com.
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This article has 44 comments:
It only takes the sale of what, 5 or 6 ounces, to bring the price down by $70?
It's all natural market forces. I'm sure.
Who believes this?
The only real explanation that I can think of is that everyday people that aren't really hip to other ways precious metals can be traded are going out and buying physical gold and silver. However, as The Prudent Investor (ps I dig the name) indicated, physical reserves in ETCs and ETFs have grown quite immensely, which would lead me to speculate that it's not just gold bugs that are snapping up more precious metals.
I really think that if the dollar loses its forward momentum that we'll see a flight back to gold in the paper markets. Until then, I don't understand how there could be such a difference in the spot market and physical market.
The physical shortage and the price movements do not jive with each other. They can't both be true.
Unless, traders are SELLING the futures and BUYING physical instead???
Furthermore, we just had a commodity bubble, so it's really hard to see the same bubble happening again.
It seems to me that they tried inflation over the last few years, starting especially in 2002. This is what we got as a result. A bout of inflation, and now an even more overvalued market. Even at 8000 it is overvalued, and now its over 9000 again!
So... now we are either headed to hyperinflation, or DOW @ 1600 and gold @ $90 per ounce.
IF we go the hyperinflation route, then this criminal cabal in washington will surely attempt to confiscate all gold, because we cant have any intelligent people profitting off their engineered destruction, now can we? Heavens no. And maybe that is ultimately why gold is not rising. It is just not a free market, and maybe gold is simply reflecting that fact.
I think gold is goin up and I'am looking for a good, hard, downturn to go double dog long. I think oil might lead the way. This imposter of a bail out plan is going to be dis-robed by good old oil and gold.
It is also helpful if you use "spot price" correctly. By definition it means physical for delivery, so it is not a "paper price". See goldchat.blogspot.com/...
But it's fishy that the price of gold is going down and so is the availability of anything smaller than a whole bar. Somebody above my pay grade is manipulating the market. Lucky for me I can't afford to buy it anyway :)
Gold dropping in price on Friday and Monday does have a rational explaination, however.
On Friday, the hedge funds and mutual funds were facing unprecedented withdrawals as ordinary people want out. Probably a huge majority of the larger funds have been investing in foreign stocks. Even today I read an article of why one should invest in China. In their efforts to meet the withdrawal demands, these funds have been selling their foreign stocks and bringing the funds home to meet the withdrawal demands. The mad effort to convert the funds back to dollars has driven the cost of dollars up significantly. Of course, these funds were selling their gold to raise cash as well.
My thought is that on Monday gold went down further because of the European plan to 'do whatever it takes' to solve the crisis. This means printing more money., the only tool governments have. I read that they were throwing something like two to three times as much money at the crisis as the U.S.'s $700-Billion. So, when they announce they are inflating their currencies two to three times Uncle Sam's rate, that would drive the value of their currencies down in relation to the dollar, making it appear that the dollar is rising in value. Since gold is prices in dollars and the dollar was 'rising,' gold seemed to go down when priced in dollars.
If the gold shortage moves to the institutional level however, then the price suppression scheme could fail.
that's the whole point, financial exchanges are supposed to reflect physical supply/demand and they dont.
the better question is why not?
why don't you try taking delivery of an ETF and/or a comex contact and see what happens
regards
own the juniors, they are so cheap now they are practically free!
Long PAL, SWC, NXG, CDE, buying into CEF and hold some GFI for good measure. Not a large portion of my portfolio but that 5-10% you need when the governments are running printing presses full out. Interest rates are already starting to rise. Big fall in Utilities is a precursor to interest rate rises and inflation, ALA the 70's.
If hyperinflation materializes, the present markup at regular stores won't matter. Links from gold chains can be used for purchases. There are online stores who have occasional specials. These specials sometimes remove the markup entirely.
See Mining Valuation <br>
Emotionless Investing.
[Disclosure: I have 1,000 shares/units of CEF.]
leonid breshnev
Reference was made to GLD, SPDR Gold Trust that sells paper gold. The price of the share is supposed to track the price of a 1/10 oz bullion, ~ $84 a piece today. What do you get for your money if you buy GLD?
I am reading from GLD’s 10 Q report ending June 30, 08:
Gold investment and receivables is all there is on the asset side of the GLD balance sheet.
Gold Assets/ Number of shares = $ 13.8 B/ 0.21 B Shares = $ 65.7/ Share. But you pay today ~ $82.50 /Share. Are you not shortchanged by 25 % + buying the paper instead of physical gold.
Plus this trust has negative equity due to excessive redemption share liabilities, strongly deteriorating yoy and the buyer takes on all the credit and counter party risk of this trust.
This all looks like a terrible deal to me. Looking at the price volume action of GLD today I sense there is a high volume shorting of GLD going on since Friday.
The GLD price curve looks awful since it broke in Mar 08.
I think alajac is right, when the hoi polloi believes it is common sense to buy gold, the smart money has already left the place.
So high demand is still completely swapped by supply (which could not deliver if it had to, but fortunately the rules are such that they dont have to - how convenient).
It will take something more than record demand - hyper inflation or teotwawki scenarios (obama/2012/666/mabus/... all related).
What does this mean? I'm not very savvy about these futures markets, and wonder if it's possible to buy a mini contract and take delivery. Anyone out there with experience on doing this?
Do you trust the FED, the us$, Bush....?
Well then Vote them out, sell paper,buy silver,gold and canned food.
In 1960 + there used to be a silver dollar = 1$ for 1 OZ og silver.
Even today's 22% smash, silver is STILL over 10$
So, if Americans had kept there silver dollars, petrol would be dirt cheap.
Why do Arabs call the usa for the GREAT satan.......
Well, I have Decided to SAVE General Motors, by NOT buying their cars, since they loose money - 4-8000$ on each car, this should help them break EVEN.
Sorry to be Sooo ironic, but this is the same logic they use to explain gold prices dropping.
there is NO shorting on 799 + + stocks, but shorting metals is NOT robbing Africa,mining Company's or OTHER central Banks....????
THIS is the most scary thing about all this, the fact That NOT even 1 central bank in the world dare call the us $ BLUFF.
WHY does'nt Russia dump all there paper $ and snap up all the remaining silver on the COMEX, and crush USA...???
Is that because, there is NO real differences to their plans, but only used the cold war to profit and seduce all nations ?
Do we ALREADY have a NEW world unORDER ?
MC
Visit his blog at jimrogers-investments....
pricewatcher.blogspot....
BTW - Ebay is a good indicator of "true" market value.
1.) bend over and touch your toes!
2.) watch this video....www.rgemonitor.com/
Nouriel Roubini...........econ... teacher speaks on the economy. Nouriel predicted this plunge in the world economy.
3.) Where's all the inflation? (I have too many articles written by so-called experts statomg gold will reach 1500 cause of inflation.)
4.) If China wants to buy out all our gold supplies then they'll wait until the price of Gold hits "rock bottom."
Another expert says "And if China were to match roughly half of the gold reserves held by the United States, it would have to buy another $636 billion worth. That kind of buying would send gold to well more than $2,000 an ounce. Probably to $3,000, or even higher. My view: China has already started purchasing small amounts of gold. It's one of the reasons gold is now holding support at its 1980 high in the mid-$800 level, well above important support levels on the charts from $600 up to $735 an ounce. China has a mere 0.9% of its reserves in gold (600 tons). That's the lowest of any industrialized economy! To put it into perspective ...
The U.S. has 77.3% of its foreign reserves in gold.
The European Union has 23% of its reserves in gold.
Lithuania, Mozambique, and even tiny Nepal all have more of their reserves in gold than China.
Just to up its reserves to 5% in gold, Beijing would have to purchase $93 billion worth of bullion. That could easily send the yellow metal skyrocketing to more than $2,000 an ounce."
5.) Learn to speak Mandarin Chinese (is that how to spell Chineseee?)
6.) Marry a wealthy Chinese female.
Step 7.) Cash is KING! It's time to sell everything!
Simply put, with 90% of stock markets investment being now in the hands of institutional investors, the prices are being moved either up or down between resistance/support purely so that institutions can make money on the spread. Its a fix.
There is no good reason for Friday's sell off other than technically, gold long term support was at $760 again, we just stopped at $800 on the way. We're currently trading a range of 760- 940 on a monumental consolidation pattern going back over 3 years. The good news is that once this move is over it should be clear skies to $940 possibly as early as next week.
And then possibly back town to $800 again. I don't think the fundamentals off supply /demand have anything to do with it really. You have to bare in mind that 100% of the stock of a plc is traded on a stock exchange somewhere, but in commodity terms the amounts traded on an exchange is near zero of the total commodities traded every day.
"When the mafia counterfeits money, it is called a crime.
BUT when the government prints money, it is called inflation."
That is why inflation is called the Invisible Tax.
I think people are waking up to this fact, that's why the difference in spot price and bullion shortage.
People want REAL money, where their wealth can be maintained. Gold is real money, currencies ($US, Yuan, Yen, Real, etc) are FIAT - back by your faith in that particular government. Considering what the governments have been doing lately (bailing out their Wall Street friends with your tax dollars), there shouldn't be too much faith in currencies.
It seem counter intuitive that there was a shortage when price of silver was at $17 a few months back. And there is still a shortage at $9.
Instead of thinking in terms of dollar terms, it helps thinking in value terms.
Silver presents more value today than 5 or 6 months ago. If you are a value investor, averaging into a larger position is the best way to go.
Folks, keep your powder dry. The price may go to $5 or $7, but we know that's because the paper price is doing its dirty job. Once there is a default at Comex, we'll see the price sky rocket.
A woman walks into a butcher shop and sees that pork chops are $4/lb. She goes off on a tirade. "$4/lb?, $4/lb?, $4/lb? The butcher down the street has them for $3/lb!"
The butcher, obviously miffed, responds: "Then go buy them down the street."
The lady: "He is out of $3/lb pork chops!"
The butcher: "When I am out of pork chops, they are only $2/lb."
The lesson here is that if you can not buy something, it can be any price the seller wants. You still can not buy it, and the seller still can not sell it.
So what does this really mean? It means "someone" is lying. Gold is either available, or its price is really much higher. Since some people can not apparently buy gold, it must mean that its value is much higher.
It would not surprise me in the least to see gold prices plunge by 30% as governments try to manipulate the weaker hands to sell their gold positions.
Clark Jenkins
FishGoneBad.com