Gold Coins Are in Short Supply, So Why Doesn't Their Price Rise?

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Includes: GLD, OIL, UDN, USO, UUP
by: Michael Fitzsimmons

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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