Physical gold market "on fire"

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I have long advocated that owning physical gold is the cornerstone of a prudent portfolio. How much is up to you, but in my estimation it should be somewhere north of 10% of your total holdings.

I have recently had difficulty trying to help a few individuals obtain the gold and/or silver they desired. In my 6 years of being a very active gold/silver investor, I have never seen anything like this. Product is hard to find, and getting harder.

The "official price," as set by the paper traders in the NY Comex pits, is miles away from the actual price you'd have to pay to actually get real physical gold, and growing wider by the week.

This "spread" between the "official" spot price and the real price you'd have to pay has doubled for gold in the past month and is now a whopping 40% for quality silver product.

And that's if you can find any.

Today the US mint announced that "due to high demand" they are ceasing production of a wide range of gold products.

[quote]US Mint halts some American Eagle coin production
NEW YORK, Oct 7 (Reuters) - Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year and to supply other bullion coins on an allocation basis.[/quote]

The 'explanation' given is that with demand so high the mint has decided to cease production so that it can "catch up". I am no production expert, but halting production seems like an odd way to go about "catching up".

What makes more sense to me is that the US Mint is running out of stock material with which to work. That fits the decision like a t-shirt that's three sizes too small.

At Colorado Gold, a very reliable gold dealing website, these messages now grace the front page:

[quote]Gold: No Credit Suisse, Buffalos, Maple Leafs, or tenth ounce or half ounce Gold Eagles till you see it here

Silver: SORRY. NO SILVER ORDERS ACCEPTED TILL ALL EXISTING ORDERS ARE FILLED. THE MINTS WILL NEVER CATCH UP, IF ORDERS KEEP PILING UP. IT COULD BE SEVERAL WEEKS BEFORE SILVER ORDERS ARE ONCE AGAIN TAKEN.[/quote]

These speak to a broad shortage, because the proprietor of this site has access to all sorts of mints, both official and private. They are all cleaned out.

What happens in a free market when supply is short? Prices rise.

Only this has not been happening, at least not when the US paper markets are open. Between yesterday and today, when it was announced that the Fed was going to buy Corporate Paper in unlimited amounts, possibly drop the interest rate, and double the size of its TAF auctions, gold *should* have gone up a LOT.

But here's the mysterious behavior of gold, with green arrows marking its price behavior when the US markets are closed, and red arrows denoting the times when the US gold markets are open.

The pattern seems pretty clear to me. Gold rises, unless the US markets are open, and then it is subject to very strange 'capping' behavior.

Remarking on this very odd behavior, Jurg Kiener, CEO of Swiss Asia Capital, told CNBC that there's a huge disconnect between the physical market for gold, which he described as being "on fire," and the official "price", and that if (when?) the paper market collapses, gold prices may double very quickly.

Watch the stunned CNBC hosts as he tells them this in this video.

Last week we heard about unprecedented demand for gold overseas in this Financial Times article:

[quote]Investors in gold are demanding "unprecedented" physical levels of bullion bars and coins and moving them into their own vaults as fears deepen about the health of the global financial system.[/quote]

Here's my bottom line. The enormous and growing disconnect between the physical gold market and the US dominated "paper gold" markets will resolve in the same way that these battles always do. Reality will win.

I am expecting a very rapid doubling or even tripling of gold's price at some point over the next couple of months. When this happens, it will be remarkably sudden, and your position will be easy to characterize. Either you already had physical gold in your possession, or you didn't. If you think physical gold is tricky to find now, you haven't seen anything yet.

The only wild card for me here will be the extent to which the US government will seek to modify or change the rules, if/when it turns out that the entity(ies) responsible for capping the gold price with aggressive shorting strategies turn out to be "favored" banks that are integral to the bailout implementation. JPM comes to mind.

This is a very real possibility, and it would not surprise me at all to hear that the government allows the JPM short positions to be simply nullified in their favor, stiffing all the people who thought they had invested in gold, when they had actually invested in a paper contract.

Fortunately, you can avoid all this unpleasantness by taking delivery.

This is a companion discussion topic for the original entry at https://peakprosperity.com/physical-gold-market-on-fire-2/

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I can sense the fear growing… I’m not convinced it’s justified yet and all this talk of protecting your familes with guns and learning to live off the fat of the land sounds very disconcerting but for those interested, I am about to do an interesting experiment. I will be buying paper gold… yes, gold certificates from a major Canadian bank. I will then put them in my name, and right away send them in for conversion. They charge $10 for the physical exchange. I’ll let you know what happens. One more appropriate, maybe more plausible explanation is that the reason why there are such large premiums is because of the daily volatility in the gold markets. If I was a market maker, I’d be charging the same kinds of premiums because you don’t literally hedge your book for every yahoo that comes into buy 1 bar… I know, many people won’t like that explanation and would prefer to spend time at the local gun store but maybe all this ‘premium’ is due to an increase in volatility and not an actual shortage of gold… there I said it… don’t shoot me.

3

Huzzah! Hard data obtained from direct experimentation. This is exactly what we need. I too have heard all the clamor about how physical is very difficult to obtain, etc, but I’m glad that we’ll soon have some real information. Be sure to keep us posted!

4

I’m someone who doesn’t have a lot of money to spare in the first place, and I don’t think I can get in on the gold or silver market while it’s running up and running out.

I heard that in post-crash Russia the black-market currency of choice was vodka. Do you think stocking up on something like that might be a good alternative?

5

I like the 90% Silver Coins, aka junk silver, they are the pre 1965 US coins, they sell them in bags of dimes, quarters, and half dollars in $1000 face value. Look it up at Monex Precious Metals.

6

Does a person really sign up for an account just so they can tell people to shop at Monex?

I have not done any business one way or the other with Monex, but I thought it would be worth mentioning that there are people that don’t trust them. google for "monex fraud" and take the above recomendation with a grain (or three) of salt.

I guess the moral of the story is make sure you do your homework before trusting a company with a bunch of money.

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Xflies,

 

Are you Canadian? If so, can an American do this?

 

SG

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I bought from Monex about 2 weeks ago. I bought a pretty substantial amount too. I wired my money and my account rep was very friendly and knowledgable and willing to help every step of the way.

Then the problems arised. I sent them payment on September 30th and they said they would ship in 2 business days but every day was a nightmare as I called daily for a status check.My account rep would continue to tell me that they will probably ship either on Friday or Monday - then it didn’t and I got a call from him today that it is taken from the vault and will be shipped. Reading the latest blog Chris posted up, its really true what my rep told me about precious metal sales skyrocketing and thats why my package was delayed so if you order from Monex, expect the same.

Let’s say I had quite a bit of anxiety, especially when I went to sites like MonexFraud.com

Then I kept telling myself that these guys are alright and that everything will be OK. My account rep (Jay Arthur x 2128) was very cool and he made me feel great about the transaction but I did get worried up until today when he called to tell me it is shipping today and he will have a registration number for me in the next few days. He also told me that they ship from two banks in NYC and one in CA so if it comes from NYC, I will have it tomorrow and if thats the case, I will come online and report back here. (I live in NYC - I know!! I should get the heck out of here… lol)

 

PS: They have the 90% junk bags for $1000 face value if you can’t find any silver.

PPS: They will have .999 silver philharmonics tomorrow. He said he will call me. They sell them in packs of 100. Going rate as of right now is about 14 per unit.

9

 

"Does a person really sign up for an account just so they can tell people to shop at Monex? "

I have no connection with Monex and have heard that they are suspect but the site has good info on 90% silver coins. I buy from local stores that sell precious metals.The only reason I posted this is I only recently found out that they sell junk silver and I like it because of the small denominations. I thought some people here would be interested.

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"Today the US mint announced that ‘due to high demand’ they are ceasing production of a wide range of gold products."

Let’s try to imagine the private sector using this business model:

  1. "Due to high demand for Harry Potter books, we are stopping the presses and ending the print run."

  2. "Due to high demand for tickets to the hit movie ‘Dark Knight,’ we are pulling it from theater distribution and letting the screens go dark."

  3. "Due to high demand for gasoline during the summer driving season, we are shutting down our refineries and closing our gas stations."

In the case of #3, oil company executives would be hauled before Congress, and probably sent to jail.

Where is the Congressional investigation of the US Mint?

  • sound of crickets chirping *

 

 

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I can tell you–it is definitely more difficult getting any precious metals today than it was even six months ago. One ounce of gold, sure, no problem…but try to buy anything substantial and you will quickly find that you cannot. Also the prices are becoming ridiculous as mentioned in the CNBC video and in Chris’ posts. Anything you can find will be way over spot and don’t even ask about platinum! Anybody who has platinum right now is not selling. I could find 1/10 oz. coins for $120! If you can find anything I would consider buying…

12

Ok. Well, welcome to the forum.

13

citizens and post what happens

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Like a truck driver :wink:

15

Read my reply which is one of the newest ones. I’ve dealt with Monex, you don’t need an account, they will create one for you if you want one.

16

He was fairly confident he knew why the US Mint wasn’t selling any more gold. He said the gold they sell is required by law to come from gold mines in the U.S. They can’t use old coins, buy gold from another country, or raid what’s left (if anything) of Fort Knox.

The heavy demand this year really has wiped them out. I’m not sure about other countries mints, so I’m very intrigued by our Canuck neighbor’s experiment.

 

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A very interesting post, Chris. I’ve been spread betting Gold and can confirm that the behaviour in the afternoons (I’m in England) has been a bit strange. There seems to be nice ‘clean’ moves in the mornings and then, when the US markets open, the price feels as though it’s being suppressed in some way, it’s really quite odd.

DavidC

18

This past summer, Northwest Territory Mint didn’t ship the gold I ordered till I called them. They said it’d take 6 weeks to delivery and I called them after 2 months. They explained it was some kind of unusual flake-out, and promptly sent it to me.

 

 

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It seems beyond a doubt that the demand for cold and silver COINS is way up. I’m curious if anyone knows where industrial users or even jewelers get their gold and if the demand is as high?

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My coin guy in Las Vegas always has siver and gold. "AMERICAN COIN EXPRESS"

He’s running low, but I picked up 2k in silver today and he had 1-2k in junk silver left.

Silver coin was about 17.00 an ounce and junk may have been just over 10.00 an ounce.

HE SEEMS TO ALWAYS HAVE TURN OVER, THEN AGAIN IT’S VEGAS.