Don't Believe the Gold Bears' Hype
Earlier this month I drove down to Brussels, Belgium, to buy some Krugerrands. I could have bought them in my home country, The Netherlands, but I found the premiums at local dealers outrageous. In Brussels, I found a dealer that only asked a couple of euros above the spot price, which came down to a 1.5% premium. At that time, it was already surprising that at every local dealer, premiums were over 5% for 1-oz Krugerrands. And taking a day off from work, spending a full day traveling to Brussels, a distance of 220kms (about 135 miles) and EUR 60, on fuel was certainly worth the difference.
Now, with the spot price in euros pretty much similar to the price at the time I bought the coins, the Krugerrands can only be bought at crazy premiums on top of the spot price. Now, at my favourite dealer in Brussels, the bid price is even higher than the spot price.
According to Bloomberg, the reason for that is that Rand Refinery, the producer of Krugerrands, just received a Swiss order for Krugerrands of an abnormal size. It now appears that no Krugerrands will be available at Rand Refinery until the 3rd of September.
I went to Rand Refinery's website and saw that the premiums charged for large amounts (50+) 1oz Krugerrands went up to 5%! And that will get a retail margin on top of it.
The trend we are now seeing is that there is a clear decoupling of physical gold prices and paper gold prices. Whilst it is suspected that large financials are selling their gold, demand for physical gold remains high and is even increasing at current prices. This results in rising premiums and many times in dealers having to refuse coin sales. A simple Google search will lead you to websites of many bullion dealers around the world, where you can check what the difference is between bid and ask. Spreads have become enormous, and at many websites you will see that stocks are depleted. The situation with silver is quite similar or possibly even worse.
So, in other words, if you read about the metals boom/bust-scenarios and about the gold price targets that most analysts have suddenly reduced to well below $700, stop worrying. Don't take any risks; buy physical gold or silver, rather than paper. We're approaching times when almost anyone will want to buy your coins or bars. And let's not forget that mining companies do not produce paper gold. This means that that at some stage we will have to include the current premiums that are charged for physical gold into the valuations of the already undervalued mining sector.
Related Articles
|
Top Rated Comment Streams:
-
1.Hedged In662
- 2.
-
3.Smarty_Pants395
-
4.cos1000289
-
5.axelrod608282
- Free E-Newsletters
This article has 14 comments:
-
trader58
-
9 Comments
Sep 06 02:49 AM-
relmor
-
697 Comments
Sep 06 06:15 AM-
relmor
-
697 Comments
Sep 06 06:19 AMBanks held the largest increase on the short side in history, make that 3 banks. Yes 3 banks(you know the guys who tell you your money is safe, and the ones who brought you mortgaged backed secruities) controlled the price of gold and silver, and not one government official cared. They took it down from 980 to 773 in a very short time.
-
sorgmot
-
123 Comments
My Website
Sep 06 10:30 AMAs of Sept. 6, 2008 the DJIA is below the prior business cyclical high of 11400 set in 2000.
Gold and gold mining stocks are still in new (since 2000) upward trends by our Elliott Wave analysis and not below where they were in 2000.
Be happy. Holding gold since 2000, you gained 300 % against the against the dollar and against the DJIA.
But what is next cry those of little faith.
The USA money system is highly leveraged with debt owed far in excess of domestic stocks, bond, and real estate asset values owned. USA $ is rising in value against those assets while it falls in value against internationally traded commodities.l
The yield on the USA Federal 5 year note fell below 3.0 % this past week and got as low 2.8 % and closes at 2.9 %. This the lowest since 2003 which was 2.3 %. USA inflation in goods and labor unit cost is rising at 6 % or more.
Your choice. Gold are something else.
Good Luck.
-
Moral Hazards Amok
-
37 Comments
Sep 06 12:33 PMLet’s put all this in perspective. The economy of this planet is in the early stages of the great credit supercycle collapse and the melt-down in the precious metals derivatives is only one if its manifestations.
Large financials and hedge funds, who are getting weekly margin calls, are being forced to de-lever their positions and restore their balance sheets, so they are liquidating their positions. As a result, along with the global economic slowdown, sector after sector is de-leveraging; housing, banking, energy, agriculture, and yes, even the shiny precious metals.
Back in January we wondered if our credit crisis would bring us hyperinflation or deflation. The answer is in; deflation. Credit is contracting, not expanding, as credit spreads are now high and the M3 money supply has collapsed from a over 17% a few months ago to under 3% today. The fed’s efforts of containing the credit collapse are limited as they are simply pushing on a string.
However, the retail consumer/investor who is still living off of their own leveraged debt of mortgages and credit cards, doesn’t yet get it, but they will. Soon, they too will get their margin calls as they get cut off from credit. In my opinion, the shiny coins they are buying today a premium they will be selling back again for much less in a year or two from now, just like they did in the 1980s.
Of course, Iran is always the wildcard.
-
User 30121
-
338 Comments
Sep 06 03:30 PMI just love it when posters KNOW what the hell they are talking about (relmor, sorgmot)!
Unfortunately, those in the other camp (Moral Hazards Amok) just don't, or plainly refuse, to comprehend what was, and what is. Let's face it, all the preceding posters, I believe, agree that financially we are on the brink of DISASTER. So, tell me, what is going to be JUST ABOUT THE ONLY ITEM OF VALUE that is left that our government CANNOT produce like cockroaches? Ah, now you see the light. Look. Just get as much gold and silver as you can afford, put it in a safe, and, preferably a gun safe so you can already have what you'll need (in there)! Good hunting!
One last thing (Amok). So we pay a premium for gold and silver, fine, what would you rather do, pay a little up front, and recoup on the other end, or eat dirt?
-
messy
-
51 Comments
Sep 06 05:22 PM-
Reinko
-
344 Comments
Sep 06 06:37 PMFirst I post the link, after that the quote:
Link:
www.investmentrarities...
And the quote related to the futures markets says it all:
The recent revelations in the CFTC’s Bank Participation Report for August provided stunning proof of concentration and manipulation in the COMEX silver and gold futures markets. Two U.S. banks held a short position in COMEX silver futures, as of August 5, of 33,805 contracts, or almost 170 million ounces, an increase of 138 million ounces in one month. That increase is equal to 20% of the world mine production. If one or two entities bought or sold 20% of the annual world production of oil or wheat in a month, it would bring about a congressional feeding frenzy.
In gold, no more than 3 U.S. banks sold short in one month more than 10% of world annual mine production. This was the largest short position in gold and silver ever recorded by U.S. banks. After the massive and concentrated silver and gold short position was established by these U.S. banks, the markets experienced a historic decline in price. It all took place during the first widespread retail silver shortage in history. It is completely at odds how the law of supply and demand works.
Comment: Wow, going short like this explains a lot Joey!
By the way: I am from the Netherlands too...
-
elwind45
-
83 Comments
Sep 07 04:18 AM-
wakeupcall
-
1 Comment
Sep 08 12:48 AMFrustrated are you that so many gold bugs can take a punch and still stand?
Are you one of the paper “assholes” doing the punching?
What you and even many of the gold bugs do not understand is that gold is money - as is silver. Always have been. Though, so far, in this fiat-debt-money monetary system they’ve required a negative real rate (inflationary) environment to be seen as such. Otherwise they act as commodities. I suspect many gold bugs (such as your friend) instinctively know gold is money, but do not understand that there are times when it can not compete in a rigged paper system.
In the 1980’s we returned to positive REAL interest rates after rates were raised above the rate of inflation. This made paper attractive over gold. During that paper bull/gold bear market (twenty-year secular trend) gold was treated as a commodity – a weak one at that, given the supply/demand fundamentals for gold.
Silver was decimated. Which contributes to today’s fundamentally bullish case for silver (from a commodity perspective).
Now we are in an EXTREMELY NEGATIVE REAL RATE environment = INFLATIONARY. The precise level of wealth confiscation (actual inflation minus returns on paper) will vary between the laughable government numbers and more realistic numbers being tallied privately.
In a negative-rate environment such as this, gold returns as money (vs commodity). Silver is both, though it looks like the powers are attempting to destroy money silver by making it unobtainable to the public.
And yes, we CAN have monetary inflation with weak or negative economic growth. This environment is gold/silver bullish - and paper bearish.
Know your secular trends and cycles within the context of 5,000 years of price stability as measured in gold/silver.
-
Alex Stanczyk
-
48 Comments
My Website
Sep 08 07:08 AMI seriously laughed out loud reading this.
Isnt that like, the market finding the price? Oh wait, normal people arent the market, only banks are allowed to determine if there is true demand or not.
And banks have your best interest at heart.
By the way, if you didnt catch it, that was sarcasm.
www.rapidtrends.com/bl.../
-
Embarassed
-
2 Comments
Sep 08 09:52 AMWhoops. Looks like that was pretty wrong. The "Elliot Wave" nonsense is just that -- nonsense. You can always find ups and downs on a graph if you look hard enough. I'm glad it only took one market day to disprove this bunk.
-
Chris B
-
542 Comments
Sep 08 11:27 AMAs PAUL&$HARK&CO points out, they only buy when the price goes up! Gold bugs defy the laws of supply and demand - the more expensive it is, the more they want. When the price goes down, they sell it or hold (and grumble that the game is obviously rigged, or else the value of their investments would always go up, as measured in what they call fiat currency!).
It also sounds like there is a profitable spread between wholesale and retail gold, because gold investors insist on keeping the physical metal stuffed in their mattresses. I'm sure there are a lot of millionaires being minted doing exactly this, charging 5-10% premiums on the metal.
Anybody want to start a physical gold franchise with me? The higher our profit margins are, the more we contribute to the panic and conspiracy theories that drive our sales!
-
huskerbob
-
54 Comments
Sep 08 07:00 PMAs Paulsharketc. pointed out, gold bugs buy when gold goes up. But what happens when prices go down? Please read this release from the US Mint, 8/21/08:
"'Due to the unprecedented demand for American Eagle gold one-ounce bullion coins, our inventories have been depleted. We are therefore temporarily suspending all sales of these coins,' the U.S. Mint told authorized coin dealers in a memorandum dated on Friday."
Hmmm... prices go up, people buy physical gold. Prices go down, and the mint can't keep up with demand. Maybe people buy gold and silver because paper money and investments are looking scary? Maybe they don't sleep better knowing that the gub'mint is busy throwing billions of dollars at every financial failure in sight. That includes fannie, freddie, georgia, iraq, etc. What a great investment in the future of America!
Of course it is ridiculous for gold bugs to fret about manipulation. Just because there is a huge demand for something doesn't mean the price will rise.
"Gold bugs defy the laws of supply and demand" - it is the price of gold that is defying the law of supply and demand. Obviously the price of gold(and silver), for whatever reason, is not being allowed to reach the point of demand destruction.
BTW, Indian gold imports up 45% last month over august 07. Because of low prices.