Posted on 11/18/2008 5:05:32 PM PST by LegendHasIt
THERE'S a worldwide run on gold coins.
Even as the price of the precious metal itself comes under pressure along with commodities like oil and copper, people around the world are demanding so many of the valuable coins that government mints are having difficulty filling orders.
A spokesperson for the US Mint tells me that gold coins in this country, for the past month, "are being allocated because of an increased demand."
And the price that the government charges coin dealers has recently been increased by as much as 10 percent for a 10-ounce coin.
Robert Mish, a coin dealer in Menlo Park, Calif., says customers who want to purchase 200 gold coins often have to wait up to two weeks. Six months ago, he said, a purchase that size could have been filled immediately.
(Excerpt) Read more at nypost.com ...
Interest in stashing away some 'shiny stuff' has been rapidly picking up since the 'bailout', and has gone crazy since the election. I'm actually kind of surprised that the price hasn't gone even higher.
Perhaps of interest to the Atlas Shrugs Ping List?
Thanks
Id there is a global run on Gold coins, the tells me that there is a huge demand for gold. If so, can someone please explain to me why the price of GOLD itself is stuck in the low $700 to $720 range ( 30% off its 2008 high ) for the past 3 months ?
I just read an article on that this morning... Lemme see if I can find it.
"More importantly, the real issue is not about when the one or two U.S. banks increased their short position, but how large that short position grew in the August Bank Participation Report. The CFTC is deceiving a U.S. Congressman by attempting to reduce the argument to when the short position was increased, not the obscene and manipulative size of the position. This is deception through omission and misrepresentation. What difference does it make when the manipulative position was established? The issue is how can a short position of 25% of the world production of any commodity, held by one or two U.S. banks, not be manipulative?
Bear Stearns held the largest concentrated short position in COMEX silver (and gold) futures at the time of its forced merger with JP Morgan in March. That position was not discovered until the publishing of the August Bank Participation Report followed by the October 8 letter from the CFTC to Congressman Miller. Furthermore, Bear Stearns had no legitimate backing to the short silver position, either in actual metal or cash. Otherwise it could have been delivered against or bought back, just as would have happened were it a long position.
The price of silver at the time of Bear Stearns implosion was $20 to $21 an ounce. A free market covering of a concentrated short position of this size would have driven silver prices to the $50 or $100 level and would have exposed the long-term manipulation. Rather than let the free market deal with the required short covering of such an uneconomic and unbacked short position, government authorities arranged to have the short position transferred to JP Morgan. This was undertaken by the U.S. Treasury Department, along with taxpayer guarantees against loss to Morgan worth billions of dollars. This was done, no doubt, to save the financial system from imploding. This was also patently illegal, as it aided and abetted the silver manipulation."
As I understand it, this is fairly silly.
The coins are worth less as metal than they are as coins. If you want to invest in gold you should just buy gold. The whole reason the government sells these coins is because people tend to collect them rather than spend them which means that the difference between cost of production and face value is all strictly profit for the government.
Not that I object to the government collecting some hefty non-tax revenue in the midsts of its growing deficits.
Here’s an argument that says investing in Gold is a loser :
http://seekingalpha.com/article/106544-why-gold-will-decline-more-than-the-markets
I was scanning the news headlines on MarketWatch.com and came across this story, titled “Getting it Right and Still Losing.” In the article by Mark Hulbert, it is mentioned that experienced investment newsletter writers Harry Schultz, Howard Ruff, and James Dines have lost a significant amount of their investment funds by investing in gold and silver during the market turmoil of the last year. According to Hulbert, the losses sustained by these three market professionals ranged from 64.9% to 70%.
Mark Hulbert’s conclusion in this article is that although the newsletter writers had foreseen the coming declines, they didn’t know exactly when they would occur and therefore were unable to take advantage of the profit opportunities by maneuvering their money on the opposite side of the market downdraft. Because Mark Hulbert has been reviewing newsletters for quite a while, it would appear that his conclusions about these three market professionals is accurate. Unfortunately, just as the newsletter writers got the gold market wrong, so too does Mr. Hulbert in his assessment of the actual reason why these people to failed come out winners.
Despite their experience, the mistake that Harry Schultz, Howard Ruff, and James Dines made is very simple. They believed that if the stock market was going to collapse, then gold and silver would be the place to invest all of your money. Unfortunately, when the price of stocks fall, so too does the price of gold, and to a greater degree, gold & silver stocks.
The only time that gold and silver prices rise at the same time that the stock market falls is when the government itself is on the brink of bankruptcy. While it may be the assertion of the newsletter authors that the government is on the brink of failure, the process of actually getting to that point requires a significant amount of bailouts.
So, what evidence do we have to show that gold and silver actually does go down more than the general stock market? David Marantette, former publisher of the Goldstock and Dear Dow Letter wanted to emphasis the importance of this concept so he included the available data from the period during a gold bull market (1975-early 1980) to make his point.
Marantette picked all periods that the Dow Jones Industrial Average fell by 10% or more and compared that performance with the price of gold until 1984 and the Philadelphia Gold Stock Index (XAU Index) from 1986 until March 2001. I gathered the data from May 2001 until October 2007. Take note of the fact that out of thirty Dow declines of 10% or more, the price of gold/gold stock index declined 28 times. Of those 28 declines, gold fell by a greater percentage than the Dow Industrials in 27 instances.
Given what has been demonstrated, the lesson should be clear: gold and gold stocks cannot climb higher at the same time that the Dow Jones Industrial Average is in a declining trend. If the newsletter writers believed that gold was the place to be when the stock market declines then it stands to reason why they lost so much money. Timing wasn’t the problem, instead it was the lack of understanding of the relationship between the selloff in the general stock market and a selloff in the price of gold and gold related assets.
If I remember right the price is artificially low because the hedge funds are having to sell off so much gold to raise capital. I have also heard that you cannot purchase gold for the current market price, but a good bit higher.
On the other hand, here’s an argument that tells us investing in Gold might be a winner :
http://seekingalpha.com/article/106110-jeffrey-christian-gold-and-silver-could-spike
Jeffrey Christian is one of the most established names in the commodities industry. The founder of CPM Group, a fundamentally focused commodities research and asset management firm, Christian is also author of “Commodities Rising,” a 2006 book examining the long-term outlook for commodities.
Before founding CPM Group, Christian was head of commodities research at J. Aron & Company, which was acquired by Goldman Sachs. He spoke with the editors of HardAssetsInvestor.com about recent trends in the commodities market and how investors should be positioning their portfolios today.
HardAssetsInvestor.com (HAI): Let’s get right to the point, Jeff. The commodities markets and commodities pricing has been crazy recently. Just look at oil, moving from $50/barrel to $140/barrel and back to $50/barrel again. What is going on?
Jeffrey Christian, founder, CPM Group (Christian): Basically what you’re seeing right now is a massive liquidation of assets across all asset classes. You’re seeing institutional investors and proprietary trading desks liquidate their leveraged investment positions, at any price.
They’ve been doing it for a couple of reasons: 1) prices are falling; 2) credit lines are either being pulled back or completely taken away. In many cases, these investors have no choice but to liquidate their positions.
The size of the paper markets for currency and commodity futures is huge. If you look at gold, silver and currencies, the ratio of underlying assets to derivatives is 100-to-1. In commodities, it’s probably 40-to-1. So you have all these paper assets being sold back into the market.
Basically, everybody’s running for the exits at once. That’s what’s causing prices to fall.
HAI: How far along are we in this process?
Christian: There’s no way of knowing for sure. If you look at gold and silver, there has been unprecedented demand for small gold and silver products at the same time that these leveraged positions are being liquidated. You’ve seen very little liquidation on the COMEX. A lot of the liquidations are taking place in over-the-counter products, which makes sense, as that is where the leveraged money was operating.
But there is no visibility into the over-the-counter market. There are simply no numbers. You don’t know how much there was at the start of the liquidation, and you don’t know what’s left. The sense is that we’re pretty close to the end of the de-leveraging process, but we’re not quite there yet.
HAI: What happens when we do get to the end of de-leveraging?
Christian: At the end of the de-leveraging, you will see a divergence between gold and silver on the one hand and industrial commodities on the other. Even today we have this very strong demand for physical gold and silver globally, from India to the Middle East to America. Once the de-leveraging ends, I think gold and silver prices could spike sharply higher, possibly as early as late November or early December.
The industrial metals, on the other hand, might start building a base. I think they may move up from where they are today, but it could take a while. People will look at them through the lens of the recession, and they will assume demand for industrial metals will be less forthcoming.
HAI: Has the collapse in commodity prices scared off some of the new entrants in the commodity space? And won’t that dampen any recovery?
Christian: What we’ve found is that there have been very few commodity funds that have simply closed and left the commodity space. The vast majority of fund companies are simply moving to cash. That’s important because when the prices bottom out, these guys will start investing again, and prices will rise because of their reinvestment patterns.
HAI: What about the large pension funds and institutions, many of whom just got into commodities right near the peak? Will they stay the course, or will they pull up stakes and go home?
Christian: I think some will be scared off but the vast majority will stay. They will be chastened, and for at least the next 12 months, they will remember that the market can go both up and down. But they will still be there.
You saw a similar trend after the Tech bubble. People got in near the high and lost a lot of money, and they were scared off and didn’t invest in Technology for a while. But eventually they came back in, albeit in a more chastened and rigorous fashion.
We’re actually excited that this might mean more interest in the kind of fundamental analysis CPM provides. We think some of the people who rushed into the market and bought long-only indexes and such will say, “I’m still interested in commodities, but I want to do it more intelligently now.” They might want to do a long/short approach more grounded in both macroeconomic analysis and microeconomic analysis of what’s driving individual commodities.
HAI: Let’s turn to some of those individual commodities. We’ve talked already about gold and industrial metals, but what’s your take on the Agriculture space?
Christian: We focus on the tropical Agricultural commodities, and our view varies from commodity to commodity. We’re more bullish today on coffee and less bullish on cocoa, for instance. Cocoa is a more price- and income-sensitive commodity. As people cut back on their budgets, given that cocoa prices have been rising over the past few years, you’ll see people buying less cocoa and chocolate. Once people start drinking coffee, on the other hand, they’re hooked, and they tend to be less cost sensitive and price sensitive.
HAI: What about Energy?
Christian: On Energy, we have a complex view. We think crude oil will be extremely volatile. We’ve moved from a period in the market where you had a very tight supply/demand balance to a period where capacity is exceeding demand. Moreover, capacity will grow more rapidly than demand over the next year or so. In that kind of environment, oil can trade from $50-$70/barrel for a while. Eventually, I think it goes back up.
HAI: During the heyday of the commodity bubble, you cautioned investors that there would be a major supply response to continued high prices. Are we seeing that supply response, and how has it been impacted by the credit crisis and recent price drops?
Christian: You’re seeing discussions of this in the Oil market, and it’s true in base metals and other commodities too. One of the ironic outcomes of the current financial problems is that it will be more bullish or commodities two-to-four years out than would have otherwise been the case.
You did in fact see a supply response to high prices in Oil and other commodities over the past few years. But with the current financial constraints, the provision of financing for new development in a number of commodities is being pulled. You’re also seeing mines cut back and close, in aluminum, copper, molybdenum, gold and other commodities.
So, long term, you will have a supply constraint, and that will be more bullish for prices once demand returns.
HAI: Everyone I talk to is bullish on gold. I wonder: What could go wrong? What could keep gold prices down?
Christian: The answer is that everything has to go right for the price of gold to fall. We’ve spent an incredible amount of time over the past few years thinking about what could cause gold prices to fall, and our conclusion is this: For gold to fall, all of the factors that have driven the price of goal upward over the past seven years would have to reverse. That means better economic conditions, a more stable and predictable currency market, reduced inflationary expectations, stronger equity and bonds markets, and a more stable political environment.
HAI: Sounds nice to me.
Christian: It would be nice, yes. But you really have to get back to a place where the economic, political and financial situations are less worrisome ... before you see people sell gold and push prices lower. That’s the most likely scenario for lower gold prices we can come up with.
HAI: One final question: Should investors be considering commodity equities here, given the pullback in those markets?
Christian: We don’t talk publicly about individual equities. But we do, of course, look at them, and it is true that a lot of commodity equities are starting to look more attractive now.
I’ve been spending a lot of my time with clients talking about the difference between value and price. In the gold mining equity market or any other mining market, even Oil and Gas, you saw that the price of the equities last year exceeded what could be considered a reasonable value. Now, the prices of a lot of equities are far below what you could consider a reasonable value for the enterprise.
We’re finding a lot of investors who are working really hard studying different commodity, mining and Oil and Gas investment opportunities. So far, though, they are not pulling the trigger. They’re waiting for a sign that the commodity markets have turned, and then they will come in and buy.
On the supply side, there is a tremendous amount of money looking for good investments right now. On the demand side, you have a lot of projects that are grossly undervalued, because they are caught up in the moves of the broader markets.
HAI: Sounds like an interesting opportunity. Thanks, Jeff, for your time.
I think the 700 billion $ given to Goldman Sachs is being used to manipulate the PMs and short the miners.
I can’t find the article I wanted, but this one touches on some of the reasons:
http://www.kitco.com/ind/saville/nov182008.html
............Excerpt..........
...In the short-term, prices are moved by factors such as sentiment changes and margin calls; and these factors are often unpredictable. For example, there is no way of knowing the financial situations of the large speculators that dominate the trading of COMEX gold futures, and, consequently, no way of quantifying the risk that these speculators will be forced sellers of gold in the near-term. It is therefore possible that an extension of the de-leveraging trend will push the gold price to new lows for the year over the coming days, although the Commitments of Traders data suggest that a lot of de-leveraging has already taken place and that a move to new lows would be short-lived.
When considering the outlook for the next 6 months or longer, the only gold-bearish argument that currently holds any water is the deflation-related one. If the forces of deflation overwhelmed the efforts of central banks such that the total supply of money began to contract, then gold would probably keep performing well in terms of most other commodities but would perform poorly in terms of the deflating currencies. As a result, we would not be intermediate-term bullish on gold if we thought that genuine deflation (a contraction in the money supply) was a likely outcome.
It could also be argued that even if the money supply continues to grow at a robust rate, the outward signs of inflation will become less evident over the year ahead and this will lead to weaker investment demand for gold.
******************************
I (not that I am an expert on the commodities markets by any means) also think that the low price of gasoline / oil is a contributing factor.
Plus there are lots of really crazy things going on in all the markets, and I think even a lot of the people that normally know what they are doing in trading, are kind of scared to make any big moves. They are sitting on cash until SOMETHING stabilizes.
Just to point out the craziness: Platinum is UP over the last couple of days, DESPITE predictions indicating that there is going to be a 20%-30% reduction in demand for it over the next year or so, leading to a surplus.
Another thing that could be keeping gold prices low is reports that there is a big new gold find in Mexico.
Somebodies with more gold than is being demanded are selling into the demand. After they sell they're just going to wait till it goes lower so it can come back to its rightful owner.
Thanks... That is closer to what the article I read this morning (but can’t find now) was saying.
Yes, Thanks, that was also part of what I was looking for.
Big industrial consumption down.
Puny consumer consumption up.
Gold will be the next bubble.
It has already started; it is down but performing much better than any other investment with the exception of treasury bonds.
When treasuries tank due to a massive increase in supply money will pile into gold.
Hope this isn’t breaking any FR rules, but - anyone interested in 1oz Krugerrands, drop me a note, I’ve got a bag full I want to sell.
What’s your prediction for 2009-2010?
Gold is good. That being said, we prefer to find our own. It’s a win-win situation when done correctly. Eliminate the middle man. Pick, shovel, gold pans, sluice box, dredge, equipment (that just gets me giddy..LOL), and a lot of back-breaking work. ;)
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