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After my last article, What Is Pushing Down the Price of Gold?, I got a lot of feedback from readers that many coin shops are reluctant to sell or have stopped selling gold and especially silver. The explanation is counterintuitive, as I discuss in this video.
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what a fag
It takes a fair amount of time for a mint to turn a 1000 oz bar into coins. So yes, coins can run out when there is an upsurge in demand.
The “coordinated smashdown of gold and silver” was on everyone’s mind this week, but is it true? Did the price of paper gold (futures) divorce from the price of physical gold? One thing is for sure, the dollar gained from 21g to over 22g of gold on Friday. A 5% move in the world’s biggest paper currency is a big move.
http://monetary-metals.com/april-21-2013/
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Above is the opening of Keith Weiners weekly report on the backwardation/contango of the PMs. (You need to register - free - to get access.) Keith is "one of us." He believes in holding metal. He doesn't buy into the 10 million naked shorts coming out of the Fed. He points at the open interest in the futures and that it contracted during the "dump." The Cobabis also dropped. I think that Keith sees a drop in the paper spot and uses that in his cobasis. He could be 100% off. If the physical were rising - as some here claim is happening through their direct experience - and the shorts hit the paper spot and near futures, then the cobasis would have risen.
I can say for sure that Jim Sinclair pays little attention to the COT - open interest - reports. He writes that when he was heavily in the business in the '70s, he would maintain huge spreads. When he wanted to get short, he would sell his longs. That would close out a bunch of contracts and reduce the open interest.
Keith doesn't quite add up. I have changed my mind. Now I want to see Fekete, Weiner and Sinclair in a cage fight. My bullion would be on Sinclair. Why? Because Fekete and Weiner are both academics and Sinclair spent 45 years trading. You know......trading. If you screw-up you don't get dinner. Int he Academy if you screw up, you just go write another paper. Bernanke comes fromt he Academy.
I was comparing Weiner and Fekete the other day. I couldn't quite put my finger on why I find fekete more convincing. Now I have a better feel.
Here Weiner is not doing anything constructive. He is merely pointing out - correctly - that extrapolating the demand for coins - perhaps quantity sold - may not indicate the real "demand." OK Keith. But what can you tell me for sure?
One crack I find in Weiner is that he is careless about his use of "spot price." Fekete is very careful when discussing backwardation/cobasis that the "short end" he examines is the physical price. Some may call that the spot price. Some might call the current month futures price the spot price. At Weiners site, you don't know whether he is talking physical or prompt future. Fekete will be the first to admit that getting the real physical price is hard to do. Would you call say 100 coin dealers to take an average? Would you call JP Morgan for what they sell wholesale - and expect an honest answer. I am sure that instead of an answer, they would ask - how much do YOU want to sell US and at what price?
Weiner is smart. Ahead of the curve. Only other analysts who talks about backwardation. Chris Martenson is beginning to catch on that he needs to crank backwardation into his thinking. Chris is real smart. He will figure it out and give a decent report.
Those dealers, right now, could sell their over-priced eagles or junk silver coins on Ebay for $8-10 premiums. So if they're sitting on stock bought at $28 or $29, they could easily liquidate.
Problem is, they can't get more supply at the spot price and that's the issue. I had to pay a 25 percent premium the other day for junk silver, coinflation price was $16.79/dollar of face value, I had to pay $21. And that was less than APMEX was and is asking, which is between $22 and $23.
The premium at my dealer has been rising for the last three months; I used to be able to buy it for .715 times spot times face, and now it's darned near the same as spot! And APMEX is essentially *at* spot!
No shortage? Not where I live.
Seems like PM's can fall a lot faster than they climb. I'm surprised there are so many buyers now when prices could plunge again but probably will rise only slowly from here. If they plunge again there will be sellers to help the supply. Be interesting this week I think.
It is accurate to say that 100oz bars are becoming scarce. Once the 100 oz inventory is gone, the 1000 oz starts to flow faster.
soundmoneycampaign.com is agitating for a retail moneybomb on 1 may. i am skeptical of the feasibility of organizing retail investors, but see no downside to front-running that event.
Opps, Sorry for the Quad post.
I ordered a monster box of Eagles from Tulving on Apr 2 and wired them on Apr 4 before the melt down. Spot + $1.79 I still have not received them. Tulving always shipped next day . Their say that they have my silver, but can only have so much in route at a time for insurance limits. I will call again tomorrow as I am starting to get concerned. Go to APMEX.com The only silver eagles they have they want $6.99 over spot. The only 1oz silver bars they have they are asking $37 to $40 for. Seems like a disconnect to me.
I ordered a monster box of Eagles from Tulving on Apr 2 and wired them on Apr 4 before the melt down. Spot + $1.79 I still have not received them. Tulving always shipped next day . Their say that they have my silver, but can only have so much in route at a time for insurance limits. I will call again tomorrow as I am starting to get concerned. Go to APMEX.com The only silver eagles they have they want $6.99 over spot. The only 1oz silver bars they have they are asking $37 to $40 for. Seems like a disconnect to me.
I ordered a monster box of Eagles from Tulving on Apr 2 and wired them on Apr 4 before the melt down. Spot + $1.79 I still have not received them. Tulving always shipped next day . Their say that they have my silver, but can only have so much in route at a time for insurance limits. I will call again tomorrow as I am starting to get concerned. Go to APMEX.com The only silver eagles they have they want $6.99 over spot. The only 1oz silver bars they have they are asking $37 to $40 for. Seems like a disconnect to me.
I ordered a monster box of Eagles from Tulving on Apr 2 and wired them on Apr 4 before the melt down. Spot + $1.79 I still have not received them. Tulving always shipped next day . Their say that they have my silver, but can only have so much in route at a time for insurance limits. I will call again tomorrow as I am starting to get concerned. Go to APMEX.com The only silver eagles they have they want $6.99 over spot. The only 1oz silver bars they have they are asking $37 to $40 for. Seems like a disconnect to me.
Sure -- they don't to sell silver cheaper than what they paid.
The bottom for silver and gold isn't in yet. Give it another 7-10 days. As painful as the smash down is, in the long run its a good thang.
The bottom for paper silver and gold is in the bathroom.
I understand his point. That being said, everyone is out, even dealers who do hedge. I am sure you can take delivery cheaply on the COMEX right now. You could do that in 2008 when this same situation happened. In the end, it isn't about retail buying, momentary supply and demand pressures, or silver technicals. It is about the state of the currency, the government, and the banking system.
Why are the dealers who hedged out any money? They're collecting on their hedges, and can charge a premium on their inventory.
Exactly. The price is right, premium or not and if everyone is wrong as long as you don't need to make it liquid anytime soon you'll eventually get back what invested in over spot plus or at least break even. I'm convinced if nothing else silver will go back up and soon. They can't keep the paper market at production price per troy ounce for silver for a long period of time. The market is just not going to allow it. The physical market pricing will completely decouple from the paper market at this price once existing bullion and bars are bleed out bought prior to the drop in price on silver.
we few, we happy few, we band of silver holders . . .
i've said this before, like a broken record. those who want to crash the comex silver phyzz market must start taking delivery of 1000oz good delivery silver bars. buying a few stupid silver eagles here and there means very little. unfortunately. in any case, it is the good delivery bars that are leveraged 100:1 in the derivative markets. not the stupid eagles. eagles are already de-leveraged. the good delivery bars are the achilles' heel of the fraud in silver markets; not eagles.
Little strokes fell mighty oaks. Bars get turned into coins. More coin consumption, more bar stamped into coins. Its all fungible.
Haven't the exchanges said they have the option of paying off in currency?
What are the costs involved in taking delivery, over and above the cost of the contract price?
i've taken delivery of quite a few 1000oz bars in 2008. i dont know what the costs are now but in 2008, with shipping and insurance, it worked out about 2.8% over spot.
edit: i should add - i had the option of picking up the delivered bars directly at kitco depot {10hr round trip} but i elected delivery directly to my location. thus, the cost would be even lower if shipping company was not involved
Thank you. I was thinking it might have been quite a bit more than that, especially if shipping to you & insurance were involved.
Was there much time delay?
Does Comex guarantee the purity &/or would you need to have it assayed?
As soon as I can come up with a spare $24k for a 1000 oz bar I'll be sure to follow your advice.
that should be no problem
sell 1000 of your eagles (ebay, craig's, etc.). you do have at least that many, dont you?
What if we want to keep them? Wait a second, mine are at the bottom of a lake. Unfortunate boating accident.
If Nelson and William Hunt read this, maybe they can lend a hand??
They agreed not to participate in the silver market any more, so you're out of luck with the Hunt Brothers.
Tree Rings? Guy needs to get back to the Mother Ship.
CEO of his mom's basement maybe.
Please understand, the lies permeate EVERYTHING. Must keep the ball rolling, after all, no matter what the cost.
His comments on the small coin shops is correct, they don't hedge their inventory so they stop selling if the price drops below their cost.
This does not explain the big on line dealers running out of coins/bullion. They hedge and don't care what the spot price is, they make $$ on their premium over spot.
I know I contributed to the buying last week. Ordered on Monday, received on Thursday.
They can hedge and take the orders, but that won't magically create coins and small bars out of big bars, there is limited capacity to turn the stock into retail products.
@ Rich V, "They hedge and don't care what the spot price is, they make $$ on their premium over spot". I've been reading this site for 4 years and I still can't understand what hedging is? I'd be very grateful if you could indulge me with a basic explanation. Thank you, sir
Basically, keep the silver in the back vault, put your excess monies into shorts and wait it out. They're not stupid!!!
Hedging is what you, as a taxpayer, unknowingly became party to ex-post-facto through TARP, QE and any number of sordid conjures to make the TBTF banks marginally functional after they bet the universe that real estate prices would keep rising.
Look in the mirror. You are the hedge. So are the Cypriot pass book depositors. So am I. I am not very happy about it.
OBTW. You didn't have any upside. Neither did you collect any insurance premium. Just be happy that the tanks didn't roll in the streets. You should be satisfied thatyou helped other people do God's work.
Bingo. We are the ultimate payers of the debt accumulated over the last 30 years of casino gambling. They will force us at gunpoint if it comes down to it.
I'm late to reply and you have several good answers.
Easy way to understad this is an example. I buy 1000 ASEs physical @ $30 spot. I then sell short 1000 oz paper @ $30 spot. If the price drops to $25 I'm covered by the short, no loss. If the price goes to $35 I have 1000 oz physical so still no loss. I sell the physical at spot + $3 and pocket the $3. As I sell the physical I close out the paper shorts.
That is how they make their $$$ and cover their ass.
To 'hedge' something is to acquire some type of insurance, which is your protection against a negative market change.
For example, airlines worry fuel costs may go up, they therefore 'hedge' the price, they pay somebody a little bit of money, who guarantees that the airline will always get fuel at no higher than xx price.
For the airline, it seems better to buy fuel-price insurance than to worry about going bankrupt from higher fuel costs. The guy selling the insurance is betting and gambling - if fuel prices do not go up a lot, he has pure profit from the insurance premiums he collects from the airlines.
Of course, the airline needs to 'trust' the bank or other party providing the insurance, that they will pay up.
The coin dealer selling silver coins tries to do the same thing, to make sure he profits on every sale. He might have a contract with someone to sell him unlimited wholesale silver at spot or xx over spot, and then adds his own profit, so he knows he makes a profit on every coin he ships or delivers to you.
Thank you
Shorting the price, in this case of silver, so that if the price goes down you profit on the hedge, offsetting the loss you suffer on the silver, which is now worth less than when you purchased it.
http://www.investopedia.com/terms/h/hedge.asp
Definition of 'Hedge'Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. Investopedia explains 'Hedge'
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).
Thank you
It is basically "insurance" against the bet you just made. If the bet goes south, the hedge against that bet
helps offset the loss.
I could understand him better if he'd spit Krugman's load out of his mouth...
lol, I thought he was just high on Coke
Dealers are not as stupid as this guy claims. They hedge gold purchases with shorts in the market.
Uptick for you! No, they are not stupid. If anything, they know what the supply is, so they hedge accordingly.
Some dealers are conduits / agents for the Mint and they are just earning a commission so they don't give a shit what they sell at, they are making money on every sale. The Mint can't keep up with the orders. It's 2-3 weeks and growing.
at the US Mint site, you are rationed to 40 ounces, and no delivery shipment until 5/25
oh, and by the by, you don't get to pay spot. they want 31 bucks.....so much for that. they didn't get JPM memo apparently.
I should also add that I think some of these fuckers know with the demand level out there, they can gouge the customer and sell at a premium over and above what the Mint would charge, so they are effectively fucking over the buyer.
Bought deal. Nice work if you can get it.