Jeff Clark's  Instablog

You've undoubtedly read about the dramatic increase in demand for gold and silver bullion products since the big correction two weeks ago. Supply has gotten tight, premiums are rising, and inventory is hard to come by, especially for certain silver products.

But it's worse than you may know. Many of these reports come from the retail side of the business, including those from sovereign mints. This information is indicative, but more important is the activity among the wholesalers. It's possible the retail trade is just experiencing a giant bottleneck, which would come with a different set of conclusions than if behind the scenes the wholesale industry is seeing net sales.

So we decided to talk to the wholesalers directly: the bullion banks, traders, and refiners. These entities typically deal in wholesale trades only, exclusively in large amounts, and solely with major entities that include dealers and investment funds.

There was a catch, however. In speaking with these entities, we realized one thing: they won't publicly reveal themselves. So we can't tell you who they are, and in fact, they wouldn't speak by phone, only in person. This means you have to take our report on trust - or not - as you wish; we simply don't have permission to reveal names (we did ask). We can say this, though: we spoke with almost all the major ones.

Here's a summary of what they told us occurred during the week of April 15-19 (the 15th was gold's 9.3% selloff)…

• Bullion Banks. As a group, there were roughly four times as many buy orders as normal. Generally speaking, the buy/sell ratio was nine to one. Inflows (buying vs. selling) were net positive across the board.
• Bullion Traders: There were twice as many trades placed as usual - and the buy/sell ratio was a whopping 95:1. One anonymous dealer told us it had 995 buy orders that week and just five sell orders. Reports like this were consistent among the group. What's interesting is that all traders reported higher volume. That the increased buying occurred on large volume instead of small volume means the buying was not a fluke. It also confirms the bull market isn't over.
• Precious Metals Refiners: These entities deal in large trades only. None would reveal the quantity of their orders, but two stated they had no sell orders. A third told us they had one sell order out of 100 transactions.

What we learned from these big players is that no one was a net seller. There was across-the-board purchasing, and on significantly increased volumes. We heard more than once that "We've never seen anything like this." And that includes the 2008-2009 period.

While some of this may sound familiar to what we've heard on the retail side, keep in mind that these are the entities that supply your local dealer. So if your favorite shop found it difficult to access product last week, their woes are unlikely to let up.

What we conclude from this research is that the availability of bullion is likely to get worse before it gets better. If so, it also means premiums will continue to rise. Remember that in early 2009, at the peak of the last big supply deficit, premiums for silver Eagles reached as high as 90-100% before coming back down. In that light, a 25% premium for a silver Eagle today doesn't look so bad.

The disconnect between the paper price of gold and the demand for physical metal is so great that we want to bring this to your attention so that you can make an informed decision about whether or not to buy gold now. You should know that supply among wholesalers is as every bit as tight as the retail side, that dealers will probably continue having difficulty meeting demand, that premiums will likely continue to rise, and that delivery times aren't going to shorten right away. If you're a bullion buyer, purchasing now could save you some money and hassle over waiting.

The catch is, where do you go? Delays are commonplace; we're hearing five to six weeks from some dealers, and a few websites show certain products are "out of stock." Further, premiums are still climbing, in some cases daily.

Because of its extensive network, bullion is still available at the Hard Assets Alliance for a reasonable premium with minimal delays. Access to a greater number of dealers has increased the Alliance's ability to continue accessing metal (when one dealer is low it can turn to another one) as well as maintain low premiums, since there's competition for your order. You can check out premiums by opening an account, which only takes about five minutes. You'll probably be pleasantly surprised.

HAA is seeing record demand, too, but so far, it's been able to meet it. As of Friday, orders are being filled in about a week, and about two weeks on the more popular products. Premiums remain among the lowest in the industry. Note that some dealers are using the supply crunch to raise their fees, so be careful of anyone who's charging more than the rest of the industry. I can tell you that HAA's markup is from the wholesaler only. And news flash: HAA lowered the minimum to $5,000 (from $10,000) for US vaults or delivery.

The important thing to realize that if gold and silver were to see another leg down, we fully expect buying physical metals to get more difficult and expensive, not better. At this point, there is no evidence that supply is easing up. Even - or perhaps especially - at lower spot "paper gold" prices, it could become very difficult to get your hands on bullion. And you'll pay even higher premiums on items with the tightest supply. We don't care to predict how long delivery times could get.

Don't be fooled by what happened in the futures market. The retreat is a buying opportunity for physical metal. If you wish you'd bought tech stocks in 1990 or real estate in 2000, you now have a moment like that in gold.

So yes, we are buying right now, and recommend it to our readers, too.

We also recommend storing some of your gold and other assets outside of your home country. To help you get started, Casey Research has produced Internationalizing Your Assets, a timely web-based investors' summit that features Doug Casey, Peter Schiff, and other experts in international diversification. The event premiers today - April 30 - at 2 p.m. Eastern time. Registration is free. For more information, please visit this web page.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Two weeks ago we looked at the difference between gold ETF outflows vs. physical gold purchases, and showed that most sales were coming from the former while aggressive buying was coming from the latter.

This week we examined the same data for silver - and discovered a rather striking trend. Not only are silver ETFs seeing no net outflows, their holdings are increasing. Bearish investors who treat the two precious metals as being the same, interchangeable thing, and sell silver along with gold are at risk of missing the boat.

Here's how holdings in SLV, the world's largest silver ETF, compare to those of GLD…

(click to enlarge)

The divergence between gold and silver funds is clearly evident. As of March 28, SLV holdings stand at 344,128,478 ounces, up 5% so far this year and just 7% below 2011's record high.

It's not just SLV. As a group, silver exchange-traded products (ETPs) have seen their holdings rise for four consecutive months.

Why the stark divergence between the two precious-metals funds?

As most readers know, silver has a dual nature, serving as both a precious metal and an industrial metal. As a precious metal, it's a store of value like gold - but since roughly half of its use is devoted to various industrial applications, its performance has a strong correlation to economic growth. And since most mainstream analysts are bullish on the global economy, the current surge in silver ETFs is likely a result of this optimism. After all, if you see economic recovery ahead, industrial demand for the metal will grow and the price would be expected to rise.

Further, these massive inflows are occurring at a time when the silver price is mostly flat, whereas the previous peak in holdings took place when the price was soaring (spring 2011). Here's a picture of SLV holdings since January 2012, along with the silver price.

(click to enlarge)

What's interesting is that the increase in SLV holdings has not had a significant impact on silver's price - yet. Since the price usually receives a boost when industries start buying more of it, many of these "paper" buyers are likely adding silver in anticipation of economic recovery, the very reason others are selling gold.

Let's take a look at physical demand.

As with gold, buyers of physical silver tend to have a long-term investment horizon and buy mostly from a currency standpoint. With prices near the bottom of their 22-month range, many investors continue to see opportunity: January sales of American Eagle silver bullion coins spiked to an all-time record of 7.5 Moz, and February's demand was 3.4 Moz, up 126% from last February's sales of 1.5 Moz. Cumulative silver coin demand for the first two months of this year already hit 10.87 Moz, a full third of total coin sales in 2012.

You can see that silver is being sought by both paper and physical buyers.

(click to enlarge)

Whether it's mainstream investors buying in anticipation of economic recovery or physical buyers loading up due to currency concerns, investors collectively see big potential for silver.

It's a simplistic conclusion but not necessarily inaccurate: silver rises if the economy improves and industrial demand grows - or it rises if the world's major currencies continue to be debased, regardless of whether the economy is on the mend. Two different reasons, the same investment solution.

What if we get both outcomes: a robust economy and high inflation? That, of course, would be music to the ears of silver owners... the demand from industry strains supply, while bullion owners refuse to sell. Prices would go ballistic.

Does this mean silver is a no-lose proposition? Of course not. No investment comes without risk. An outright depression would be destructive to industrial demand. Roughly two-thirds of silver is used in industry and jewelry, so Doug Casey's Greater Depression could severely impact the biggest portions of current demand. The same events would increase monetary demand for silver, but the two trends may not have equal weight on the price of silver at the same time. We thus wouldn't make silver our sole investment, but we see a lot of upside in the metal under current market conditions.

At the end of the day, we're more inclined to buy silver for the same reasons we buy gold. While a case can be made for an improving economy, there's an overwhelming one already built for government money-printing to result in a massive loss of purchasing power, and that argues for seeking the safe haven of precious metals - both of them.

Don't miss this opportunity: Prices are low right now, and that makes it time to buy.

It's an even better time to buy gold and silver producers - especially select junior mining companies. Right now, the sector is so badly beaten down that even the best-of-the-best outfits are selling at discounts of 50% or more, giving you a rare opportunity to get in at the bottom of what could be the next great investment bubble.

To help you more fully appreciate the magnitude of this opportunity - and to give you concrete investment strategies - some of the world's top natural-resource speculators and economic minds will appear in a special, online video event on April 8, titled Downturn Millionaires. They include: contrarian investment legend Doug Casey; Agora Inc. publisher Bill Bonner; Sprott US Holdings Chairman Rick Rule; Mauldin Economics Chairman John Mauldin; and Casey Research Chief Metals and Mining Investment Strategist Louis James.

The event is free and is a must-see for serious investors. Get more information and register today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The best indicator of a chess player's form is his ability to sense the climax of the game.

-Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.

Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon - one of the original reasons Germany had for storing its gold outside the country - the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall - they can't see the bigger implications and frequently miss the forest for the trees.

What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad - it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)

Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.

We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.

If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?

Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country - especially if you're a US citizen - could be banned. Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller. Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

If you're moved to take action, know that you're not alone. It's critical that you take these first steps now, while you still can.

The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves.

You only have to see the next two moves to "win" this game. I suggest making those moves now before your government declares checkmate.

There's another "great game" when it comes to the precious metals market: the junior mining sector. The truth is, these stocks aren't for every investor - junior miners are more volatile than any other stock on Earth. However, for those who can stomach sudden price swings and are willing to bet against the crowd, right now junior explorers are offering the profit opportunity of a lifetime.

If you've ever wanted a realistic shot at making a fortune, you owe it to yourself to sign up for the upcoming Downturn Millionaires free online video event. It will feature famous speculators, including Doug Casey, Rick Rule, and Bill Bonner, who will detail how everyday investors can leverage junior miners to fantastic profits… just as they have done time and again over the years. Get the details and sign up now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.