Demand for gold, silver coins exceeds supply

scrippsnews.com ^ | 10-14-2008 | Tim Grant

[sergeantdave]

“Not nearly as well as stocks and bonds, over time.”

Depends. If you bought Nazdog in March, 2000, you’re still looking up trying to find the basement.

And if grandpa bought C & H Mining back in 1910 for $1,000 a share, all you have left is pretty wallpaper.

[supercat]

Not nearly as well as stocks and bonds, over time.

Gold has less risk of becoming worthless. An I-Bond or TIPS may provide inflation protection if the government honors it, but its value is contingent upon a single entity (albeit a big one). The value of gold, by contrast, is not entirely contingent upon the actions of any single entity. If anyone will accept gold in trade, it will have value.

That having been said, the physical gold market seems poised to bubble. It's unclear exactly what's going to happen if too many people try to redeem gold paper that's been oversold. My understanding is that gold markets don't particularly distinguish between paper suppliers, but I suspect there are in reality huge differences in the level of counter-party risk. I have no idea how markets should handle that.

[Duke Phelan]

Rhodium is used in cell phones, and there aren’t a lot of mines that produce it around the world. I know of one in Australia and another in Africa and just a few others.

Try getting a new mine up and running these days. If you try in the U.S. you immediately get hit with a lawsuit from the Sierra Club or some other environmental group to stop it.

Northern Dynasties pebble mine in Alaska, which has found the largest copper/gold/molybdenum deposit in North America was hit with a lawsuit to stop it going into production. They’ve been on hold for about 5 years. There was even a vote on shutting down mines in Alaska on the ballot in August (submitted by environmentalist to stop it) because of the Pebble mine, thank God it failed. This is one reason that copper, molybdenum, and gold production are falling all over the world.

Adanac Moly in Canada is the first big Molybdenum project to even be allowed a permit for open pit mining in the last 15 years and they don’t even expect to be producing until 2010, while supplies are falling.

World production of gold has fallen almost 20% over the past 8 years. African production is down big due to not enough reliable power in South Africa for the deep mines.

One of the largest platinum producers is in Russia, yeah there’s a stable country.

The biggest copper mines are located in some of the worst countries and some have been shutting down due to threats against workers and damage to machinery.

[tacticalogic]

Platinum is probably the best counterfeit-proof metal because its density (21.9kg/l) is more than 13% greater than that of gold or tungsten. It's rather pricey, though, and the price may be affected by economic factors.

Well, like I said earlier, I'd expect it to retain value because of it's intrinsic properties. With gold, I think there's the possibility of confiscation. FDR did it once already, and he seems to have been elevated to some kind of tin God inside the beltway so I wouldn't put it past them to do it again.

[factoryrat]

I just sold off some scrap 90/10 cupro nickel, it sold for about $3.10 a pound.

[sam_paine]

Gold has less risk of becoming worthless.

So what does this chart tell me?

[DeaconBenjamin]

I just sold off some scrap 90/10 cupro nickel, it sold for about $3.10 a pound.

I trust it was not in the form of coinage.

[kaspergutman]

If you bought Nazdog in March, 2000, you’re still looking up trying to find the basement. And if grandpa bought C & H Mining back in 1910 for $1,000 a share, all you have left is pretty wallpaper.

Good point. Investors who purchased gold at the peak in 1980 for $850 an ounce would have to see prices at $2400 to just break even today, inflation-adjusted. And, some investors who waited a few years later and bought gold after the crash are still sitting on large real profits.

There are some data points to estimate the expected future returns of various financial assets. So, equities are expected to return 4% to 5% real and fixed income is expected to return 1% to 3% real. Gold, though, has no earnings and returns no dividends or interest. It's a commodity, and the real expected future return of commodities is zero. That's pretty much what gold has done very long term, mirroring inflation.

[ctdonath2]

As if a EMP bomb wiped out the records of every bank?

Nope. As if everyone just decided to use plastic instead of cash for everything - which they're getting awfully close to.

Dollars used to be exchangeable for gold/silver. It was explictly printed on the dollar, then less so, then not at all (everyone knew you see...). People got used to using paper exclusively instead of precious metals, and the exchange process became so inconvenient that practically nobody bothered. Then Nixon (?) ended the exchange option entirely, and "floated the dollar" - you couldn't swap a dollar for a fixed amount of gold any more, you had to buy it at market prices ... and inflation took off. Funny thing was, almost nobody cared that their lawful claim to significant quantities of gold had just been terminated by fiat. I figure it was the biggest heist ever.

I see the same now: with physical dollars being in short supply (see above post where someone had to get bank manager approval to withdraw a little cash), and with nearly all financial transactions occuring electronically (Federal Reserve IOUs), and the US Mint keen on relatively low dollar production ("We have _never_ devalued the dollar!" boasts their website), methinks the government will at some point soon simply declare (in a very tactful manner) that it will simply not deal in cash any more. Oh, sure, the Mint will still run, and businesses may use currency for petty cash, and federal IOUs may be exchanged for cash (like any other goods), but for all practical purposes the electronic/virtual dollar will be "floated" independent of real dollars. The hardest part will be dealing with the overlapping name ... but faced with the hope of legally stealing billions, legislators will find a way.

[BlackVeil]

But there is a substantial disconnect between the paper and physical market for precious metals. Buyers who are able to find silver coins will pay more than $20 an ounce to obtain them and around $1,000 an ounce for gold.

Totally correct. In Australia, the price for silver bullion coins is three times that of the quoted international market price. (That is, prime minted silver coins.)