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

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I’d like to make sure we don’t get so sidetracked by the 90% silver comments that we miss discussion of what I took to be the two biggest takeaways from Chris’ interview with Robert:

  1. The buy/sell dynamics of today’s retail bullion market look nothing like those seen during the last PM buying mania ('79-80)

  2. The general US populace is slowly (and carelessly IMO) dis-hording its bullion wealth to a mostly foreign few

A main goal of this site is to obtain empirical information that helps us determine where we are in the ‘ThreeE’ timeline. Robert has provided some very useful insights for us:

  • PM demand from the masses has yet to arrive. A mania involves long lines outside the door of your local coin shop. In some cases, demand is so intense you need to let the sellers in first so you'll have product to offer the buyers outside. Right now, we're nowhere near that stage. In Robert's shop, it's rare to see more than a single customer in the store at any given time.
  • Sellers far outnumber buyers & their composition has dramatically changed vs previous decades. In the past, most sellers were knowledgable investors or collectors who timed the market to sell bullion they bought in a calculated manner over many years. Today, most sellers are largely indiscriminate, and are selling out of financial pressure (mostly either elderly who need to liquidate b/c they are not getting enough income from their other investments, or younger folks who have inherited PMs and simply want cash now). In short, most people transacting with a bullion dealer today are prioritizing short-term fiat over longer-term sound money.
  • The few active buyers are well-informed, deep-pocketed and predominantly foreign. This to me was the biggest and most concerning (for the US) point of Robert's interview. After many decades of amassing bullion from around the world, the US populace is now blindly dis-hording that wealth. It's now going to very savvy buyers who are buying based on a fundamental appreciation of the true future value of gold & silver. They buy in big quantities on a regular basis, and make even bigger ones during price downdrafts. And much of what they buy goes outside the US (Robert sees the biggest demand from Asia these days).
As an adjunct to this last point, I dropped by Robert's shop at the end of the day yesterday to let him know we published the interview. We chatted about these points above, and he observed that I was the only non-foreign customer who had come into his shop that day. Almost as if on cue, a regular customer of his from India walked in the door and quickly purchased nearly $35k in bullion. 

I’m the first to agree that Silicon Valley exists (for now) in a reality-distortion field. There are super-concentrated percentages of both wealth and foreign residents here, so I don’t pretend this is indicative of the rest of the US. But, my small example above shows that buying of the sort Robert describes is indeed going on.

And if there ever is another PM buying mania of the sort we saw in 1980, things could get even nuttier, faster. As Robert said: there will be fewer local shops to go to, there will be fewer (and possible more relecutant) sellers to offer inventory to the buyers, and a material amount of potential supply will have already been shipped off of our shores. 

This in my mind is the bigger picture that merits discussion.

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In the LBMA market, for example, market participants traded an average 19.6 million ounces of gold PER DAY in July 2011.1,2 Keep in mind that the total gold mine production in 2010, globally, was approximately 86.5 million ounces. Global gold mine production is not expected to increase significantly year-over-year, so the LBMA is essentially trading a year's worth of production in less than a week. And this is just ONE market. When you add the COMEX futures and gold ETFs, the paper trading volume becomes absurdly high. When price discovery is dictated by levered paper contracts with no physical backing, it's extremely easy and relatively inexpensive to jostle the spot price around.~Source
And, speaking of COMEX, from Jesse's Cafe'

In summary: I expect physical dealers will soon see what real lines outside their doors are like.

Oh, and one more thing!  Catch 

Grant “Things That makes You Go Hmm” Williams on Gold (A Must Listen) Check out the gold Indian Households are thought to hold and compare that to the supposed holdings of the world's Central Banks...

 

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 As I read the discussions on this topic, I realize that I probably won’t be selling into a bubble market, so liquidity won’t matter so much to me because I will probably sell at a later time. Those who are CM readers are most likely ahead of this frenzy. If I have to sell in this type of market it will be because of an unforeseen emergency or to build up cash reserves. I can believe that if TSHTF most Americans would recognize the value of silver coins and accept them for goods or services since the market will probably  determine the value, i.e. a dime for a loaf of bread. I know that I would. 

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[quote=redfir223]I can believe that if TSHTF most Americans would recognize the value of silver coins and accept them for goods or services since the market will probably  determine the value, i.e. a dime for a loaf of bread. I know that I would. 
[/quote]
"It" happens.
[youtube: http://youtu.be/7ubJp6rmUYM]

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I didn’t know these laws. This is taken from a writer to a libertarian blogger. He is oddly against copyright laws so…CS
"At no inconsiderable expense with my Canadian and US CPAs, I plumbed the depths of US Tax law on bullion sales and exchanges and discovered some interesting facts. Of course in the process of discovery, pretty much anything I found just chapped my hide. 
"Here are some items, in no particular order–received from my CPAs and my metals dealer:
"1. The small premium you typically pay for Gold US Eagles reflects the fact that these are not reportable by dealers during the sale of same. Nice! Thanks!
"1a. Non US gold coins are reportable in sales of 25 ounces or more. 1,000 or more silver ounces are also reportable.
"2. If you trade gold for silver to take advantage of the insane gold to silver ratio of over 50 to 1, these are not like commodities. You can be taxed on the gain of gold in this trade. My dealer did not know this. Did I take note of this. Oh, Hell No!
"3. If you sell gold or silver that you held less than 1 year, this is ordinary income. Stack, don’t sell.
"4. PM holdings of more than 1 year are capital gains. Gold bullion is up to 28%. Interesting juxtaposition in the non-reporting of American Eagles gold coins. Report a trade and pay 28%, twice the normal cap gain rate. 
"5. If you sell PMs for a loss, the wash sale rule applies. In other words, if you sell and buy back the same metal within a 30 day period, you can’t take the loss immediately. You must wait more than 30 days to get the losses. 
"6. The $600 1099 rule was removed by Congress last year. No dealer I worked with is obeying this rule in any case. A nice stab at the beast.
"7. Trading appreciated silver or gold for another commodity such as land, hard assets, services etc is a taxable event. See item 9

"8. And a notch or two on the weird-o-meter.
"My Canadian CPA told me bankers in the land of the loonie are fearful of the FUBR and FACTA laws. They are concerned that if they violate those laws they could be arrested upon entry to the US. They worry they may be placed on some sort of Fascist Stasi list if they are thought to be sequestering US citizens assets in their bank, even to the extent of allowing US Citizens living in Canada to depositing their PMs in Canadian Bank safe deposit boxes.
 
 

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Thank you!

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  1.  If you can’t touch it, hold it, possess it, control it, you likely have nothing.

  2.  You cannot eat pms. If things get really bad (AND YOU HAVE NO INKLY AS TO BAD THEY ARE REALLY GOING TO GET), pms will become meaningless - think about the lady in leningrad with box of gold jewellry she collected from all the people who thought they could exchange gold for bread when there was none.  There are so many priorities before pms.

  3. a series of natural catastrophes is imminent.  they will overwhelm everything.  what remains will be plundered by the human locust hoarde that survives the catastrophes.

  4.  a better strategy might be to get right with whatever belief system you wish to adhere to. 

 

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[quote=safetyfactorman]

  1.  If you can’t touch it, hold it, possess it, control it, you likely have nothing.
  2.  You cannot eat pms. If things get really bad (AND YOU HAVE NO INKLY AS TO BAD THEY ARE REALLY GOING TO GET), pms will become meaningless - think about the lady in leningrad with box of gold jewellry she collected from all the people who thought they could exchange gold for bread when there was none.  There are so many priorities before pms.
  3. a series of natural catastrophes is imminent.  they will overwhelm everything.  what remains will be plundered by the human locust hoarde that survives the catastrophes.
  4.  a better strategy might be to get right with whatever belief system you wish to adhere to. 
     
    [/quote]I’ll stick to my 5 G’s.
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How many Italian Silk Suits could you buy with an ounce of gold in 1980 versus 2012?

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 ps the 5 g’s are"
G*faith it’ll work out, has 3,800 times before.

In fact, there are over 3,800 past examples of paper currencies that no longer exist.~Source Crash Course Chapter 6

Gold (Heart Silver Too)
Guns
Grub
Government will eff it up tryin to fix it—they’re quite experienced at that

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OMG !, Where to start in response to the issue of “refinery backups” and the potential for taking a deep discount if your silver isn’t in the" right form".Does anyone out there including Chris see what a total can of worms you open by postulating this idea in reference to 90% US silver coins? I’m not talking about spoons and chalices here but rather a known entity in terms of silver content. How convenient for one party to the transaction declaring that " oh, by the way, we’ve decided we only want to give you 70% of the value of the silver in your alloy(coin)your trading because it’s Sooo inconvenient to us " who in his right mind would believe they are telling the truth??What an easy way to scam an extra ~25%. Mish do you really think it’s worth that kind of a discount to refine an alloy like silver coinage? If you do than you must believe in the “we say so” power of the refineries. We are not talking about refining low grade ore here. Do you also think that all the coinage in these transaction will be refined to pure silver-that the market will demand only purity- and if so what is your knowledge base for this- tell us what the percentage of coins is that are currently refined in these transaction. The answer is that they are not necessarily refined at all as there is a healthy market in their current form and that is likely to increase if things collapse or the value of silver skyrockets.They are refined so they can be used in industrial, manufacturing processes but under the scenario of a currency collapse this is not what will be needed- there will be enough pure elemental silver and gold for these things .

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Does Mish also think copper contaminated gold (Eagles and Krugarrands) will be deeply discounted while Maple Leafs sold at spot?

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Good points Adam that before this podcast I was not fully aware of.[quote=Adam]
I’d like to make sure we don’t get so sidetracked by the 90% silver comments that we miss discussion of what I took to be the two biggest takeaways from Chris’ interview with Robert:

  1. The buy/sell dynamics of today’s retail bullion market look nothing like those seen during the last PM buying mania ('79-80)
  2. The general US populace is slowly (and carelessly IMO) dis-hording its bullion wealth to a mostly foreign few
    …
    [/quote]
    I was barely a teenager during the last PM mania, but can remember it being a daily topic on the evening news on the TV.  I don’t have a TV in my own home now, but my sense is gold is not in the media in the same way now.   Almost no one in my daily circles I know is even thinking about buying gold.  
    I remember during the housing bubble my friends were all talking about how much their house had appreciated and they were going to sell and buy even bigger houses; no discussion of bubbles at all though.   
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I am fine with junk coins and any type of scrap.  All it takes is a little math to determine the value.  If you are trading or bartering with "junk" chances are you have exact change.  A refiner that says they are going to pay you less for junk is insane,  especially with copper getting hotter as time goes on.  I understand it takes time and energy to refine "junk".  But I also don’t think you need to recycle a coin into another coin.  If you and I needed to do business when there is no cash involved,  I would accept your junk items without an arguement.  If you have a lot of flat coins I might only need to place them on my scale to confirm the weight.  Why would I destroy something that was designed to be traded?  Don’t let the thought of having to do math to determine value make you feel the need to melt something because exercising your brain is extremely valuable.  I consider junk to be high grade ore. lol

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 During the 1980 silver spike, all forms of silver that were not in .999 form were discounted by dealers that had to contend with a very serious problem.
Imagine that you are a small bullion/coin dealer and you have people lining up outside to buy and sell.  It’s a frenzy. Spot prices are gyrating wildly, up and down, but mostly up.  Most of this was in response to the Hunt brothers attempting to corner the physical market, which they nearly did until the rules were changed on them.

In order to satisfy the Hunt’s needs for storage-ready silver, the refiners had to take what was coming in off the market and fashion it into 1000oz 0.999 pure bars.  

So these Brinks trucks are scavenging silver from all the coin shops and other locations around the country and delivering it to the refiners.

Now, if you know anything about the refining process, the 0.999 form silver coming in could simply be melted and poured into the requisite 1000ox bars, assayed, stamped and sent off.

Anything less than 0.999 has to go into a nitric acid process for purification.  It’s a much more involved and slower process and has a throughput that was swamped by the volumes at the time such that an 11 week back up developed.  

So if you were a coin dealer your choices included buying and selling the 0.999 stuff at or around spot or buying so-called junk silver that was piling up at such an alarming rate that your back rooms were entirely crammed and it was spilling out into the rest of your store as you waited for the refinery backlog to clear.

Your choice, as a business-person is to either keep tying up your capital in a growing pile of unrefined silver even as prices are making you nervous, not accepting any more sub-0.999 silver, or offering a discounted bid.  

While this next mania may well play out differently, and there may be less demand for COMEX deliverable material, we thought there would be some value in listening to a very smart man who happened ot be there, right in the thick of it all during the last mania.

Finally, to those that are jumping right over an entire stretch of probable history to "we’re going to be using junk silver for barter’ I would suggest that it’s quite likely that there’s a lot of territory between here and there, if we ever get there in our lifetimes.  Also, if we do go there more quickly than I am thinking, then I would next suggest that we’ll have other more pressing problems than what the putative dollar exchange value of our coinage might be.  Such as, there won’t be a dollar to compare our silver against and our economy will have largely collapsed.

As always, if a piece of information creates an emotional response it means that a belief is in play.  Finding out what that belief is, and whether it is a limiting or enhancing belief is a good practice in these interesting times.

 

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When I first "took the red pill", I needed to figure out what form of bullion to buy.  I went to my friends who knew absolutely nothing at the time and presented a few different forms to them and this was thier reply:
- 90% Silver coins (old dimes/quarters):  "Dude, that is a dime.  It’s worth a dime.  I don’t care what you say, it’s worth 10 cents.  You got jipped."

  • 10 ounce Silver Bar: "What is that? Lead or something?  Wait this is Silver?  How do you know the guy who sold it to you didn’t sell you Lead or painted this or something?  This isn’t Silver, BS!"

  • Canadian 1oz Silver Maple Leafs: "Oooohhh damn these are cool!  I’ve never seen real Silver coins before.  How much is that worth?  It says $5 but this is worth more right?"

  • Suisse PAMP 10gram Gold (in sealed hard plastic): "Wow, is that a mini-Gold bar?  Can we open the package, I wanna feel it.  How do you know if it’s real Gold if you’ve never opened the package?  Why is there an Indian on it?  Somebody probably got this at Burger King as a toy when the movie Pocohantas came out, LOL!"

So basically, if you bought Silver and Gold with the intent to actually BARTER or TRADE, this is what the general public thinks.  You will never convince the average person who has never seen Precious Metals before that a 10 Cent Dime is worth anything but.  The average joe on the street has never seen a Silver or Gold bar in their life and will think its fake.  People will always recognize a minted coin and rarely will argue it’s authenticity.  Your best bet is to pay the 10% minting fee and just get Eagles, Maple Leafs, or one of the others if your intention is to trade in any kind of situation with the general public.

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Scroll down to mock NYT Front Page, classic:
opinion.financialpost.com/2011/08/19/gold-to-decent-suit-ratio-suggests-gold-overvalued/

 

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Tommy, just a thought, but what would the average Joe have that I might want to trade my 1964 coins for? I mean, if they’re that ignorant, surely they’re not prepared to function and I would move on to someone that was. And don’t you think that by the time tshtf the general public will be much more informed?

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[quote=cmartenson]As always, if a piece of information creates an emotional response it means that a belief is in play.  Finding out what that belief is, and whether it is a limiting or enhancing belief is a good practice in these interesting times.
[/quote]
Fine advice for accurate internal navigation (without which, all our external efforst will eventually come a cropper).
Thanks!
Viva – Sager

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[quote=cmartenson]As always, if a piece of information creates an emotional response it means that a belief is in play.  Finding out what that belief is, and whether it is a limiting or enhancing belief is a good practice in these interesting times.
[/quote]
My belief has been that pure silver is too soft to be handled frequently, so it’s mixed with alloys – usually 90% or 95% silver.
My thinking (or belief) has also been that should the time come that "there won’t be a dollar to compare our silver against and our economy will have largely collapsed" – in that possible transitional period of time, gold is too valuable and too scarce to serve as a currency in daily use. Yes, of course, gold would still serve as a store of value as would silver and many other things, but silver coins stamped U.S. Mint would very likely be a useful form of money to have on hand. Of course, something will likely eventually be put forward as currency estblished by putative holders of gold … but that is subject in its turn to hyperinflation or other forms of currency-banking fraud, no?
Now, is my belief limiting or enhancing?