Robert Mish: Front-Line Evidence That We Are Nowhere Near a Gold Bubble

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Robert Mish has been a precious metals dealer for nearly 50 years and knows what gold bubble mania looks like. We are nowhere near that stage, in his opinion.

Instead, he sees a U.S. populace largely unappreciative of holding precious metal as a store of wealth, and engaged in a slow process of dis-hoarding their gold and silver to eager foreign buyers, who are more than happy to take the bullion back to their shores.

In terms of where we are on the gold mania spectrum, he sees us at a "2" out of 10.

But he foresees a very rude awakening ahead, as the populace eventually wakes up to the increasing damage that our over-debted global economy is doing to the purchasing power of world currencies. Because when the general investor finally realizes the protection the precious metals offer against currency debasement, much of the retail supply will already be out of the system, in very tight hands and largely overseas.

Moreover, when supply gets tight, there will be more challenges to obtaining physical bullion during a buying mania than there were during the last mania in 1980. There are many fewer local sources to exchange bullion these days, as much of that business is now transacted by online vendors dependent on mail delivery to ship product, and they are more vulnerable to supply chain disruptions.

Be sure you're aware of how the form in which you hold your bullion will affect the price you get during a buying frenzy, when refining capacity is overwhelmed. You may find that your gold or silver sells at a hefty discount because it's not in a preferred format for trade.

On What a True Gold Mania Looks Like

The phone calls were ringing so much we could not answer them. We had to just put all our lines on hold so we could service the customers, and we wanted to service our own customers first.

We would come in to open at nine in the morning and there would already be a line out the door and down the block. Sometimes the line was mostly buyers; sometimes there were sellers. We would run out of metal. We would run out of anything. And we would have to divide the line into two lines. We would take the sellers in first, get some product, and sort it before the buyers were let in.

And people were not very discriminating then; they were panicking. By the time it peaked in January 1980, there were people out there who did not even understand free market economics or precious metal economics; they were just buying because it was fashionable or because it was going up forever. Those are more the makings of a bubble; today most people are coming in to sell.

On Today's Typical Seller

The typical seller today is really the opposite of who they were 30, 40, 50 years ago. People used to save, either through a bank account, or keeping some coins around, putting away silver dollars when they came back from Reno or Lake Tahoe. They would be buying some interesting furniture or jewelry. And then they had income in excess of their expenses. Today, so many households are stressed having expenses greater than their income or servicing a lot of debt that they are starting to sell the things, the heirlooms, that they so prized before. So we are seeing people sell their Rolex they do not want anymore or cannot afford to keep, their old jewelry, their parent’s jewelry, and belongings that they inherited. The coins they collected when they were a kid. it is sad, in a way, because what we are seeing is the dis-hoarding of a culture.

On Today's Typical Buyer

Well, in the United States, the typical buyer is perhaps someone who has taken the Crash Course and has studied what is happening to our nation and understands that they have to protect themselves from the coming inflation and social ramifications of that inflation and the debt burdened economy. Big money is buying, but for every one buyer, there has got to be five sellers here, and I am sure that is similar among my colleagues around the country, maybe even more so. Because over here we are in a wealthier area, and I still have more sellers than buyers.

A lot of it is going overseas. A lot of the coins that came to America over the decades, over the generations, either through the fact that we had the money to buy them or through immigration or through the spoils of war, it is all going back now to the home countries. Especially if it is a home country, where their economies are rising and the people are saving rather than spending.

Just last night we had two visitors from China, colleagues of mine in Shanghai, they flew here just to see me, and they flew back the next morning. They cannot get enough coins in China; they are buying everything back that came here when the people in China could not buy their own coins. Next weekend I have more visitors coming. Coin shows, which have been all over America, are now appearing all over the world. There are now major coin shows in gathering marts in Singapore, Tokyo, Beijing, Hong Kong. It used to be once a year; now it is three, four times a year. Big auctions that used to be held in the United States are now organizing in Hong Kong and other countries.

So we are seeing a movement back in the opposite direction, and it is sad [for the U.S. market].

On the Importance of Physical Form

Chris Martenson: So you mentioned refinery problems. What is a refinery problem?

Robert Mish: A refinery problem is where a dealer buys the scrap gold and the scrap silver and his refiner cannot get it processed for several weeks or months. And that squeezes his cash flow so he has to pay less and less to the public.

Chris Martenson: So if I walk in with a bag of junk silver, it is 90% silver, it has always been trading well. But if we are in a real heyday, your refiner says, "I am backed up 11 weeks. I can take that in 11 weeks." Meanwhile, prices are gyrating. You are going to look at me and say what?

Robert Mish: I am going to say, "Mr. Martenson, I wish you had come in here with pure tradable silver or something that is exchange-ready."

The marketplace determines the choice for medium of exchange. If you have silver in any other form, if it is in odd form such as coins, broken spoons, and knives, or whatever, and I have to have it refined in order to get it back in a marketable form, it is going to suffer a discount. And that discount is going to be greater the longer it takes to turn that around.

Chris Martenson: So anything that has to cycle through a refinery has that refinery risk. What was the discount that got applied at its most maximum in the 1980s?

Robert Mish: In the 1980s, when we were about eight weeks backlogged and not everyone even had a refiner relationship and [thus] had to rely on other dealers who did, it got to about a 30% discount for having the wrong form of silver versus the right form.

Click the play button below to listen to Chris' interview with Robert Mish (runtime 28m:19s):

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Or click here to read the full transcript.

Robert Mish is the proprietor of Mish International Monetary Inc. in Menlo Park, California. He has served as a major dealer in bullion and numismatics for clients worldwide for 49 years.

Our series of podcast interviews with notable minds includes:

This is a companion discussion topic for the original entry at https://peakprosperity.com/robert-mish-front-line-evidence-that-we-are-nowhere-near-a-gold-bubble-2/

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Another great helpful interview, Chris! Lots of good info yet again.
My most recent trip to my local coin store certainly confirms the observation that there are far more sellers than buyers right now. People seemed to be coming in to sell due to a (desperate?) need for immediate cash.

I was quite surprised and disappointed in this interview to hear that Mr. Mish considers U.S. "junk silver" coins NOT a desirable form of silver to hold and could take a 30% hit from spot when sold at an appropriate time. That really sucks considering that’s the form of all my silver holdings – plus it’s recommended on the "Buying Gold & Silver" page. I’m wondering what Mr. Mish would recommend? Perhaps U.S. Silver eagles? I’ve never trusted that bars from a private vendor are going to have the "flusht" of genuine U.S. coinage.

Chris, do you have any idea what he would have suggested? Are you going to reconsider your recommendation to accumulate junk silver?

Thanks!

 

 

 

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[quote=MasterOfMyDomain]I was quite surprised and disappointed in this interview to hear that Mr. Mish considers U.S. "junk silver" coins NOT a desirable form of silver to hold and could take a 30% hit from spot when sold at an appropriate time. That really sucks considering that’s the form of all my silver holdings – plus it’s recommended on the "Buying Gold & Silver" page. I’m wondering what Mr. Mish would recommend? Perhaps U.S. Silver eagles? I’ve never trusted that bars from a private vendor are going to have the "flusht" of genuine U.S. coinage.
[/quote]
 
With all due respect, I take exception to the term "junk silver" as describing 90% US silver dollars or even half-dollars! These are hardly old spoons and forks gleaned out of an auction barrell.
This refining issue is something to be considered, but markets are seldom one-way streets – unless maybe energy and grains? Anyway, not all PM dealers are equal … at least not in my opinion. So what comes around goes around, no?
Maybe there’ll be some great buys in silver coins coming up soon?

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I just asked Robert for clarity on his comments about 90% silver coins, as that’s quickly proving to be a hot subject here:
Whether or not there’s a discount applied to junk silver coins (and 2OLD, the term "junk silver" is widespread in the industry for describing pre-1964 US silver coins) is really determined by what the market is demanding. Back in '79-80 when the Hunt Brothers were cornering the market for "pure" silver and there were refinery problems of the type Robert describes, the market was demanding pure product and anything not in 100% form was penalized with a stiff discount. Will the same happen again? Robert doesn’t know, but can’t say that it won’t.

Are 90% coins a good candidate for being a medium of exchange in a post-fiat monetary system? Maybe but not likely, says Robert. The market prefers units that are in easily divisible fractions of an ounce (1/2, 1/10, etc). 90% US coinage is not (for example, a Mercury dime is .0723 troy ounces). In his opinion, a future silver-based currency would likely see some new kind of coin or ingot that would be minted in these intuitive fractional units. Again, this is simply his personal opinion based on his experience. He’s not campaigning against owning junk silver.

So what form does he recommend for those looking to hold silver with an eye to using it for exchage at some future time? He thinks owning it in pure form will always be preferred by the market, so start there. He prefers rounds (from well-known mints) over sovereign coins, because with the latter you’re simply paying several dollars/oz over spot to get a different design on the same amount of silver. He recommends most owning 10oz or 100oz bars above all, as you can trade them in for the new medium of exchange once it’s been selected vs trying to predict in advance what it’s going to be (e.g. by buying rounds or junk coins).

I hope this clarification is helpful.

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The question is, is it worth spending premium to have a "real" U.S. Eagle of AU, AG, or Pt, rather than a stamped brick from some refinery/seller in a huge denomination. Give me the Eagles, in various denominations, JMHO.My real concern is, say, a future 90% tax on any gold sales "for the good of the country", screwing the prudent, as seems to be the current zeitgeist.
Indeed, there is only one coin dealer in my town and, as a monopoly, his sell price is way above that of a national store like Kitco, and, of course, his buy price is way lower. He will sell and buy anonymously, though, worth the $, IMHO. Several banks within traveling distance will selll Eagles but require ID, bizarre as it seems. Gold as a controlled substance, LOL
CS
 

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The writer’s perspective derives from looking at Ag as an investment. Odd pieces of broken jewelry and utensils not withstanding, US silver coins and "rounds" may someday soon regain their pre-eminence as Money. Trading Money for worth -less & less paper currency is premature, if not foolish.

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Very helpful remarks.

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I rode 700 kms through 38C heat  to listen to Stonleigh’s talk at Guildfords in Perth, Western Australia. I thought I would have her to myself. Not a chance. The room was full of newbies taking their first red pill.
Nicolle Foss is the least photogenic person I know. She is a lot prettier in the flesh than in the flash.

Anyway, she said that gold and silver are in a bubble and that when the deflationary crash comes silver will drop to $5 an ounce. Her message was that Cash is King.

I was given the mike at question time and I introduced myself as a contributer to Chrismartenson’s blog. I said that Dr Martenson is about 60% inflationist (my profound apologies if I misrepresented Dr Martenson). I outlined my impression of money as being an abstraction and that money could be created by moving the decimal point around playfully. My implication was that I do not trust King Cash. How would she respond to these ideas?

She said that she knew Dr Martenson and had shared the stage with him. She hit me with a rapid array of ideas such as the money created by central governments not getting into the wild where it would do have some effect on deflation. (I agree).

She pulled everything together with the idea that first we have the deflationary event where competing claims on underlying assets is resolved and after that then we would be in danger of inflation because of the time delay in the reflex actions of the money press.

I would like to have introduced Professor Steve Keen’s idea of a debt jubilee. But I believe that I could anticipate her response. Not going to happen while the Keynesians still breath.

I am going to spend my money on TA65.  I wouldn’t miss the show for quids.

 Nicholle, if you are reading this, my gratitude to you for soldiering on through the heat.

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.A question I have is, Is it advisable after what we’ve just been told, to have some of your coins smelted into bullion now rather than later when the crunch comes?
Could he put a person in contact with a smelter if it is advisable?  

Since the 90% coins are legal tender is there any chance of them being used as money again in the future?

 

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Concerning the price given for junk silver coins, I’m assuming that Mr. Mish is referring to the peak in 1980 when silver rapidly spiked to $50 +/- per ounce. Sixteen years before that point, these silver coins were still being supplied by the US mint and being traded at face value. Keep that fact in perspective before discounting the value of junk silver. Today’s financial climate is far different than the climate in 1980.
I prefer owning PM coins denominated in the local currency. For me, that means US coins (including junk silver.) If I trade these PMs for a given quantity of federal reserve notes, I can see that I would have tax consequences on the increased value of the PMs. For instance, if I bought a bar of silver (or quantity of silver coins) at $500 and sold it for $5,000, I would owe taxes on the $4,500 increase.

So, my question dances around the "barter" value. Say I find something that I want to buy for $5,000 and I have $200 (face value) of silver coins that would be worth $5,000 melt value. If the vendor (or individual) is willing to accept these silver coins in exchange for the product, and since the face value is $200, couldn’t the sale be transacted at $200? If so, what are the tax consequences since I paid more than $200 in FRNs? If it isn’t possible, why do the Eagles and old coins have a monetary value (far below melt value) engraved on the coin? Granted, if a retailer or another individual weren’t interested in the transaction as I’ve presented, then there would be no issue. I’d need to trade my PMs for FRNs so I would have a definable tax event.

I went to the store a few weeks ago to buy some supplements. As I was walking past the closeout bin, I saw the very supplements I wanted to purchase at a 70%+ discount. When I paid for these, the receipt (and sales tax) were listed at the sale price rather than the original value. Apparently, a vendor and buyer can negotiate any price, and the tax consequences are based on that negotiated price rather than the original value. Why would the "silver coins" price be any different?

Grover

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 ~SPAM~

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is verboten? unless refining our 90/40%coinage isn’t defacement.  I dunno robie

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 I’ve been acquiring gold and silver ever since I "took the red pill" a few months ago hoping that the increase in price is  more related to our weakening currency than an increased perception in the value of gold.  James Rickards, who Chris intereviewed recently, has some figures in his book Currency Wars on what the price of gold would have to be if we were to switch to a gold standard today, and they were higher than the current prices, some much higher.  However, I’m still somewhat alarmed to see how much the price has gone up and it’s hard not to suspect a bubble forming.  I found this interview very informative, but there is one aspect of it that still leaves room for concern in my mind.  There was an implicit assumption that, becasue there is no rush to buy gold in America, there is no worldwide bubble forming.  Since gold is priced on a global market, and since Americans are largely unaware of the fragility of the economy (and in many cases not in a position to be able to buy gold even if they were aware), it seems to me that we shouldn’t base our assesment of the status of a gold bubble on how busy traders are in California.  I’m still buying because I think metals are safer than the dollar, which is virtually guaranteed to loose value, but my (relatively inexperienced) hackles are stilled raised!

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Front-Line Evidence? There is no evidence here, just opinion and speculation.
Taking investment advice from a coin dealer is like taking investment advice from a stock broker.

Was a stock broker the right person to ask if there was a bubble in tech stocks in the late 90’s? How many real estate brokers were warning of a bubble in 2005-2006?

Goldbugs are so entertaining…

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[quote=Adam]
Are 90% coins a good candidate for being a medium of exchange in a post-fiat monetary system? Maybe but not likely, says Robert. The market prefers units that are in easily divisible fractions of an ounce (1/2, 1/10, etc). 90% US coinage is not (for example, a Mercury dime is .0723 troy ounces). In his opinion, a future silver-based currency would likely see some new kind of coin or ingot that would be minted in these intuitive fractional units. Again, this is simply his personal opinion based on his experience. He’s not campaigning against owning junk silver.[/quote]
My neighbor is a "Storage War" guy.  About 3 years ago he purchased a locker containing quite a few one ounce silver bullion coins.  He offered to sell them to me, but I didn’t recognize the coins and passed.  When he offered a substantial discount, I passed again.
The majority of Americans are not familiar with bullion coins, but they understand pre-1965 dimes, quarters and halves.  When Robert comes over from the Bay Area to purchase food from my farm, I will accept 90% silver but not his junk bullion.
Nate 

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When Chris convinced us to get into PM, we bought 90% junk, Eagles, and silver bars. Nothing like covering all the bases. As far as gold we bought all Eagles in all denominations(1/10, 1/4, 1/2, and 1 ounce). Any I buy from here on in will be in jewelry that I can buy cheap for bartering. It’s amazing how many junk or second hand shops sell gold and silver for much less than it’s value. I can’t see how anyone can think we’re in a gold bubble with all the money being printed(I know, they don’t print it any more).

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[quote=jamster777] However, I’m still somewhat alarmed to see how much the price has gone up and it’s hard not to suspect a bubble forming.  
…
There was an implicit assumption that, becasue there is no rush to buy gold in America, there is no worldwide bubble forming…
Since gold is priced on a global market, and since Americans are largely unaware of the fragility of the economy (and in many cases not in a position to be able to buy gold even if they were aware), it seems to me that we shouldn’t base our assesment of the status of a gold bubble on how busy traders are in California.  
[/quote]
Jamster:  What is a bubble?
 
After 2 back-to-back stupidity bubbles: Tech in the 1990s and housing in the 2000s, people are, understandably—bubble fearful.
I would encourage you to read Hyman Minsky’s short one page checklist on defining and identifying bubbles. Off that link is an explanation for each stage.  Do we have Ninja (no income, no job, no asset) loans for people to buy gold?
Is gold really even at stage 2???
Do you believe that gold prices are rising???
Egon von Greyerz of Matterhorn Asset Management AG is a short listen on KWN.  Link here. 
Here are the highlights of that "must listen".

  Never have we had a situation where ALL the sovereign countries were bankrupt all at one time. Not solvable. The Central Banks will print. It’ll be like an avalanche where no one knows which snowflake it’ll be that sets it off. Happen fast because of inter-connectivity an there is one ECB for several countries.  
Stage One – Displacement Stage Two – Prices start to increase >>>>>>ding, ding, ding, ding>>>>>>>Stage three – Easy Credit<<<<<<<<<<<<<<<< Stage Four – Over-trading Stage five – Euphoria Stage Six – Insider profit taking Stage seven – Revulsion Then go back in your mind to the 1990s and run it on the tech bubble, go forward then to the 2000s and run it on the housing bubble. Then run it on gold. Additionally, gold is not priced on the global market.  The price of gold is really determined largely in London and on paper traded at 100:1 to physical with a caveat that in the end you reserve the right or the LBMA reserves the right to settle your account in cash not gold.  It is, like you say a metal of global demand.  But think about how China buys most of its gold: By buying mines.  Now that is gold that is taken out of the market, but at 100 pieces of paper for every piece of gold---who cares! Sprott has done magnifigant work on paper v physical.  I don't have time today to find his paper on gold, but here is his paper on silver.   Gold is the same way.
  there were on average, over 1.1 billion ounces worth of silver traded every day in the month of April5. Truly a staggering number when contrasted against the actual amount of silver available for investment. To wit, the world will only supply about 979 million ounces this year from mine and recycling of scrap, of which it is estimated that 657 million ounces will be used up for non-investment purposes6. So in effect, that leaves roughly only 322 million ounces available this year for investment purposes. Converting to days (recall that at least 1.1 billion ounces traded each day) it leaves only about 1.3 million ounces per trading day of available supply. So, we are essentially trading the amount of physical silver actually available for investment, 891 times over each day! It really begs the question; just what are people trading in these markets?  
That’s not a bubble, that is a beach-ball held under 9’ of water. Here are just a few bubbles. Dot-com bubble, 1997 Asian financial crisis, Japanese asset price bubble 1991-on, Roaring 20s, Bengal Bubble of 1769, South Sea Bubble of 1720, The Mississippi Bubble, TULIP BUBBLE 1637+/- Dutch.      
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@JAG


Goldbugs are so entertaining…

What is this supposed to mean? I don't appreciate being labeled or judged as worthy of your bemusement.
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I’m with Grover on #9.  The other thing no one has commented about here is authenticity issues.  What if I take my 100 oz silver bar to the dealer who is suspicious of fake bars and won’t pay me until he has the bar assayed at a refinery which itself is being overwhelmed without that kind of request?  A big delay ensues. I’m sticking with junk silver and Eagles.  No bars or commemorative rounds for me.  Go over to the FOFOA.blogspot.com site and you’ll see they believe that in the long run we’ll have to go to a gold standard and that the system will work best when citizens are encouraged to put their gold into circulation.  Circulation (flow) is the key. They do see the possibility of short term attempts at nationalization/confiscation and punitive taxes, but they believe that won’t last long. Eventually, the governments will do everything possible to create a new system in which people willingly spend their gold into circulation as the new system will not be based on reserves but on circulation.  They also believe it will be gold only in the official system, no silver. Interesting theory and a lot to wrap your mind around.
Here’s where to start:  http://fofoa.blogspot.com/2012/01/gold-must-flow.html

 

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 I do want to elaborate a bit:
Is it legitimate to call someone a goldbug because they are a little concerned that we turned the corner (borrow/print 54 cents of every dollar spent) given our short and largely forgotten history?

Please don’t get me wrong my friend, I HATE gold too.  I hate hoarding.  Look at Apple (though I’m not impressed with their labor/factories) look at what they create versus what banksters create.  I’m just saying, these are unique and very sadly, familiar times.

1779, 1790, 1841, 1862, 1934, 1971 & 201?

Previous United States of America Defaults:

  1. 1779 Continental Dollar, 2 cents on the dollar.
  2. 1790 Defaulted on external debt obligations.
  3. 1841 9 states defaulted.
  4. 1863 Greenback- Gold was refused in exchange for Greenback gave notes in exchange for each Greenback.  People lost 40% on each Greenback.
  5. 1873 10 states defaulted.
  6. 1934 Liberty Bonds were oversold so they called in all gold and revalued the dollar by 70%, before then bonds were backed by gold.  Gold in 1933 was $20.67 after Executive Order 6102 (link to it here) gold was revalued at $35.00.
  7. August 15, 1971 Nixon slammed the gold window shut and other countries couldn’t redeem U.S. dollars for gold.