Posted on 10/12/2008 8:36:40 AM PDT by SeekAndFind
Michael Zielinski at the Mint News Blog sent me a note the other day regarding this item he recently published, an item that seems to be making the rounds on the internet over the last 24 hours and for good reason.
Michael wrote:
There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.
The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.
Well, the price of gold wasn't exactly stagnant today - it was down $63!
Naturally, coin dealers are still desperate for inventory (check out the CNI bullion page which now shows American Eagles available at $80 over spot after having been "Out of Stock" for most of the week and probably "Out of Stock" again by the time you call).
Oh yeah, and the SPDR Gold Shares ETF (NYSEArca:GLD) added another five tonnes today after the price plummeted.
You know, I get the part about investment demand only accounting for about 20 percent of overall demand for gold bullion, but the deal with coin shop shortages really is smelling fishier with each passing day, particularly in light of this data assembled by Michael:
The following table shows the ounces of gold sold by the United States Mint in the form of American Eagle Gold bullion coins. These figures are taken from the US Mint website. You can visit the link for monthly data, as well as the figures for Silver and Platinum Eagles.
American Gold Eagle Bullion Sales (ounces)
1986 1,787,750
1987 1,253,000
1988 851,000
1989 839,000
1990 715,000
1991 472,000
1992 638,600
1993 796,000
1994 559,500
1995 600,500
1996 729,500
1997 1,317,000
1998 1,839,500
1999 2,055,500
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 492,000*
*through October 2008
The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year? ...
With unfulfilled physical demand, why has the market price of gold remained stagnant? I think we will see this situation play out with some interesting consequences during the remainder of the year.
Yes, the consequences could be quite interesting...
People have been pushing gold for years. I believe that will be the next thing to crash. I would have given it another two years, though. I have to admit that I will be surprised if it happens now.
Can anyone explain this in “dumb people trying to buy gold” terms.
Because a lot of fools are not smart enough to buy the real thing.
One way to play this is to buy shares in the miners. They have been beaten down in the market turmoil, and are trading at historic lows in relation to the price of gold. Also, with oil coming down, a major input cost for miners is reduced.
Don’t be in a hurry. The market will thrash around for a while. But I would suggest looking at miners like GG, NEM, AUY, and PAAS, and consider sharting a position (in small nibbles).
I believe the US Treasury is hoarding gold and silver once again. This explains why there is none on the street and several dealers have told me that large amounts of gold and silver have been bought by purchasers representing unknown clients, yet, no doubt, the government.
See #4!
Like your picks. Especially GG and AUY at these prices.
The Buffalo is also being produced in the uncirculated 'Celebration Coin' option. In addition to that, there are the four coins of the 'First Spouse' series.
I do not recall that many different offerings in Gold before, and maybe (aside from demand for Eagles), the mint is trying to move the other (higher profit) offerings by default.
Ping to read later
Why would this not drive the price up? A “no-ask” should drive it up as much as a “no-bid” should drive it down. Help me understand. This entire thread seems to make no sense.
It fell over $40.00/oz. on Friday.
For many, the real purpose of buying gold is NOT to make a profit in dollars, or in any other currency. It’s to use that gold AFTER the currency of the dollar has been devalued to zero, or near zero, and there is no alternate currency available.
It is to give you SOMETHING to use so you can purchase the necessities of life during such a time period, no matter how short.
If you’re buying gold to make a profit in dollars (or other currency), you’re not getting the point. That’s not to say that investing in gold for a profit is wrong, only that it’s not the purpose for which many are buying gold.
Correct, that is why you go to the bank and buy the real thing, not some-worthless piece of paper saying you may are may not own gold and is insured by AIG. LOL
Hedge funds, etc., are going through something of a fire sale, to raise capital to meet redemptions and obligations. This has hit all commodities hard, and is driving the price down on paper. There is still high demand for physical, although not many sellers. The dealers see the current distortion, view it as temporary, and are holding back. Just IMHO.
The gold bubble pop has been very nicely set up. When the dollar bounces back to about 1.3 - 1.5 pounds or makes significant gains on the Euro then the bubble will begin to pop.
If that happens any company involved in precious metals mining are going to make out like gangbusters.
Sure. The big coin dealers put in pre-orders each year for their expected demand in gold coin. Smaller dealers who have less money to invest in such orders count on the large dealers to fulfill their demands on an as needed basis. The big dealers have stepped away from the Eagles as a base gold coin.
Since the US Mint makes very little actual profit from Eagles, they’re not trying to push the sales. They’d much rather push higher profit pieces, and had a very tight production schedule for the 50 state quarters as well.
However, those who purchased a lot of Eagles at a premium, expecting the market to soar, are now watching their Eagles drop down in value tremendously, and are trying to push the market back up so they don’t lose much money.
Oh, and an undercurrent that isn’t mentioned is that small dealers are finding the paperwork requirements starting to draw down on their time for gold coins, which is absent from smaller silver transactions. They’d much rather push coins that are below reporting limits.
The metal market along with soft commodities are going through the selling and deleveraging by the banks and hedgefunds who are raising cash. Hence, paper gold is bearing less relationship to the value of physical gold. The gold and silver exchange traded funds are now matters of concern. This means that people now want pysical gold or gold in hand.
As the US prints more and more dollars to pay for entitlements, pensions, wages, the bailout, etc., the currency is debased. Think Weimar, Argentina and Zimbabwe.
Now what will happen when other countries stop buying our treasuries which heretofore have been financing our expenditures?
Gold is the historic safe haven.
As Jim Rodgers, famous commodities trader, said this week 29 year old MBAs on Wall Street driving maseratis will be driving farm tractors in ten years if they’re smart.
There is a major disconnect between street availability and market price, but if you think about the electronic/paper markets versus physical bullion you will have your answer.
Physical bullion is tied to the electronic/paper market of gold/silver futures, mine stocks, and currency markets. There are far more shares of such electronic/paper markets than there is bullion. It seems to me that the ratio of the two is so great that physical bullion is drowned out by the electronic/paper market.
I believe once the electronic/paper markets collapse, we’ll see the bullion price take over and gold/silver prices skyrocket.
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