The Spot Price of Precious Metals Is Becoming Irrelevant

Tyler Durden's picture




 

Submitted by Adam Taggart via Peak Prosperity,

In light of the recent violent down-and-up action in the precious metals, we invited the executives behind the Hard Assets Alliance (HAA) on to discuss the impacts they're seeing recent developments have on the balance of buying and selling for gold and silver.

The HAA is a large precious metals bullion dealer that gives the retail investor access to an institutional-grade platform for purchasing, storage, and delivery. The platform itself is operated by Global Bullion International (GBI), which counts a number of the country's largest banks and funds among its clients. So today's guests have an exceptionally good finger on the "pulse" of bullion transactions in today's market.

(Full disclosure: The HAA is endorsed by PeakProsperity.com. Details on why and the business relationship between our firms can be found here)

In this podcast discussion, Chris asks Ed D'Agostino (General Manager, HAA) and Savneet Singh (President & Co-Founder, GBI) what's remarkable about the recent action in the precious metals.

For starters, demand is off the charts:

Savneet:  It’s tremendous. On Friday and Monday we had the two largest days of selling. We at GBI had some of the biggest days of all time. We had four to five times as many buy orders and sell orders, both in number of trades and in volume. Far more significant buying than selling, and it’s continued throughout the week. Buying has been just tremendous on the gold side. It’s been robust across markets – both in the United States and also in our overseas locations. It’s been consistent across the board.

 

It’s also representative across all of our dealers. When we surveyed our dealers to get their feelings on what’s happening, it’s been off the charts. Our refiners had two times as many orders as they usually do. Our bullion dealers had, on average, three to five times as many orders as they normally do. Our bullion banks had the same type of positive inflows verses outflows.

 

Ed:  That’s the same with the Hard Assets Alliance. We’ve seen record inflows of cash deposits over the last two weeks, and purchases have far outnumbered – basically nine-to-one at the Hard Assets Alliance for purchases verses sales of positions. 

Second, the demand we're seeing is from existing customers who are returning to buy in bigger volume as they see the precious metals as being "on sale" right now. This is creating supply strains across the system. If we get to a stage where another 1% or 2% of the population decides to become first-time bullion buyers, supply could become exhausted quickly:

Ed:  I think there’s going to be some serious supply constraints. I agree, we're nowhere near mainstream yet. Once more conventional retail investors wake up to the fact that they need some sort of protection in their portfolio against debasement of currency and inflation the demand is going to surge.

 

Savneet:  At this moment, particularly on gold, I just don’t see there being a shortage. Even ETF and closed-end funds are looking for a better way to buy. We’ve never had a problem being able to coordinate extremely large purchases for them. We’ve already hit the capacity on the silver coin side where there’s just not enough out there to satisfy demand. Because that demand is centralized around coins, people will have to wait for what mints want to do – whether it’s the Royal Mint, the U.S. Mint. You are kind of tied to the supply of one producer. Silver bars are a little bit better, but silver is just a much smaller market than gold is. I think you're absolutely being exposed to shortages there.

 

On the gold side, I think if gold ever became truly mainstream, as Ed was talking about gold's total market value is $5-6 trillion dollars. If 1-2% of the population wanted to buy some at current prices, there’s just not enough of it. So, two things happen: Either you have a gigantic price re-rating, or you don’t have supply. 

Third, the surge in physical buying combined with tightening supply is resulting in the premium paid over spot price for physical bullion to march upwards quickly. For all of recent memory, the price of precious metals has been determined in the paper marketplace (e.g., COMEX; LBMA). That may now be changing. Should the availability of physical bullion start setting the price action, the spot price quoted in the paper market for gold or silver will become an anachronistic irrelevance:

Savneet:  Internationally you traditionally see huge buying after a price selloff. But since the recent huge selloff, you've had more buying than people ever imagined internationally. What was unique about this selloff is that the buying surge occurred in the United States as well.

In the U.S., when we’ve had huge price run-ups, we have lots of buying. It’s not often that within the same day of a huge price decline, we have significant buying. So it was different than other very large days in our company’s history in that you've just had such counterintuitive buying.

Ed:  And such a big disconnect between the spot price and the actual price that you're going to pay for physical, particularly on the silver side. You could make the argument that spot price is becoming irrelevant relative to the physical market because silver is well north of the 20% premium over spot right now. 

Click the play button below to listen to Chris' interview with Ed D’Agostino and Savneet Singh (31m:12s):

 
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Mon, 04/29/2013 - 21:55 | 3512252 Canadian Dirtlump
Canadian Dirtlump's picture

shit thing is it is becoming irrelevant when buying... but not selling to a dealer. Selling on kijiji, fine. I guess it is the first step.

Mon, 04/29/2013 - 21:59 | 3512267 rajat_bhatia
rajat_bhatia's picture

This desperation on the part of goldbugs is so sad

Mon, 04/29/2013 - 22:00 | 3512273 Zer0head
Zer0head's picture

the Hard Assets Alliance (HAA)

Mon, 04/29/2013 - 22:38 | 3512407 Long_Xau
Long_Xau's picture

Anyone holding paper gold will find themselves in a situation where they'll be asking for the physical, and there will be no physical coming their way. The only physical they would get, only if they really persist asking for it would be physical fucking in the ass.

Mon, 04/29/2013 - 23:12 | 3512538 Enslavethechild...
EnslavethechildrenforBen's picture

With their Military in Africa taking over the mines, the counterfeiting elite should be able to print an unlimited quanity of paper metal shares and force the price down even further. Sad, but that is the way that it is.

Tue, 04/30/2013 - 02:43 | 3512980 Rubicon
Rubicon's picture

The Morgues vaults are being ransacked by the rich demanding their bullion. Maybe they have finally twigged!

 

Tue, 04/30/2013 - 07:10 | 3513126 GetZeeGold
GetZeeGold's picture

 

 

This desperation on the part of goldbugs is so sad

 

Smells like teen spirit desperation.....but it's not coming from my sock drawer.

 

Relax and pop some Prozac......buy some more stawks. Turn on CNBC....you'll be feeling better in no time.

Tue, 04/30/2013 - 09:04 | 3513342 Atlasshruggedme
Atlasshruggedme's picture

/sarc?

Tue, 04/30/2013 - 09:55 | 3513533 _ConanTheLibert...
_ConanTheLibertarian_'s picture

You obviously completely missed the point of this article. The paper price will become irrelevant.

Tue, 04/30/2013 - 01:01 | 3512821 dark pools of soros
dark pools of soros's picture

any clown that still has paper gold deserves their fate..  that drum has been beaten to death

I know you all hate bitcoin, but it is kinda apt that this 'awakening' in gold has finally started to get out of the mud after the world got wise to fiat by studying bitcoin... why they couldn't of figured it out by knowing gold, who knows

I stack both, and advise the same.  There is a hell of a lot of arbitrage to made during this chaos and mining bitcoins is a hell of a lot easier than mining gold

 

 

Tue, 04/30/2013 - 05:47 | 3513080 buyingsterling
buyingsterling's picture

Bitcoin may rise, but in the end it's just fiat with a limited supply. Why not Bertcoin, Bobcoin, and Boobcoin? The possibilities are as endless as there are programmers to provide a stable trading platform. Bitcoin fails the test of durability: grid down = pants down.

Tue, 04/30/2013 - 07:05 | 3513134 GetZeeGold
GetZeeGold's picture

 

 

Off with the heretics head!!!

 

By decree of the Winklevoss twins.....both of them.

Tue, 04/30/2013 - 08:24 | 3513231 Race Car Driver
Race Car Driver's picture

> Why not Bertcoin, Bobcoin, and Boobcoin?

 

Well ... technically ... Bitcoin wasn't named after a person or bird, so the other possibilities in staying with the theme might be: Bytecoin, Blockcoin, Sectorcoin, Frag(ment)coin ... etc.

Just sayin'.

Tue, 04/30/2013 - 10:46 | 3513770 TheCanadianAustrian
TheCanadianAustrian's picture

Bitcoin isn't fiat. Go look up the definition.

Tue, 04/30/2013 - 08:51 | 3513307 sessinpo
sessinpo's picture

This question of physical hoders versus paper is not totally correct.

 

For example, someone holding a SINGLE comex contract for gold is unlikely to demand delivery of physical. They simply offset their trade in dollars. This is certainly true for the average American.  How many of us are willing/able to pony up the cost of taking delivery?

The same goes for GLD, the ETF.

The holders or shortsellers of paper PMs are speculators that are not wanting the physical. They are either betting on higher or lowers prices OR they are hedging against other positions they hold.

The buyers of actual physical (such as myself), don't care what the paper players are doing. I buy PMs to preserve wealth. Paper players are in the market to speculate.

Tue, 04/30/2013 - 09:09 | 3513370 He_Who Carried ...
He_Who Carried The Sun's picture
>>The Spot Price of Precious Metals Is Becoming Irrelevant<<

RIGHT! AND MY FRIGGIN' MONEY TOO!!
JUST FEED YOURSELF TO THE MONKEYS!!
SERIOUSLY, ZH, hoW loW can it get...? This author is a total moron!

Mon, 04/29/2013 - 22:02 | 3512277 TeamDepends
TeamDepends's picture

No raj, you've got it all wrong.

Mon, 04/29/2013 - 22:07 | 3512305 DoChenRollingBearing
DoChenRollingBearing's picture

Yes, he is wrong but either does not know it or does not care.  If things go south in a bad way in the financial markets, we will see.

Time will prove all things.  I choose to buy & hold gold, for safety's sake.

Tue, 04/30/2013 - 01:30 | 3512875 sitenine
sitenine's picture

You are wise, Dochen.

Tue, 04/30/2013 - 01:38 | 3512900 Bay of Pigs
Bay of Pigs's picture

No DoChen, that guy is just an asshole in a long line of trollish assholes we've seen here at ZH over the years.

Mon, 04/29/2013 - 22:13 | 3512317 DaddyO
DaddyO's picture

raj doesn't seem to understand the difference between desparation and disbelief.

In my experience, there is no desparation, only disbelief at the level of corruption within the Cartel and their willingness to manipulate prices.

This disbelief is also fueled by the wanton disregard of the law and the brazen behaviour of the Cartel...

When you sit in your mother's basement and limit your outside contact, you perceptions become scewed.

Daddyo

Mon, 04/29/2013 - 22:13 | 3512326 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Yeah but sometimes Mom wears some really sexy stuff. 

Mon, 04/29/2013 - 22:22 | 3512360 TeamDepends
TeamDepends's picture

If your mom is Brigitte Bardot, we're with you.

Tue, 04/30/2013 - 03:34 | 3513016 capitallosses
capitallosses's picture

Maybe 40 years ago.

Mon, 04/29/2013 - 23:22 | 3512564 NoDebt
NoDebt's picture

Yeah, he's got it wrong.  But the bigger issue is WHY there is a disconnect between the paper and physical price.  The reason MATTERS.  If it's just a couple weeks of dislocation that's no big deal- moving physical gold around between buyers and sellers is not much easier than it was decades ago.  If it persists, you have a REAL problem borne of lack of faith in markets and counter-parties.  The spread between paper and physical gold will indicate the level of distrust that paper gold buyers have in the seller on the othe side of the transaction (the discount).

What has been amazing to watch is that physical gold demand didn't just hang in there, it went UP as prices fell.  There were no "weak owners" that quickly got washed out of the market as prices fell.  That's what makes me think this may not be a short term phenomenon.  Perhaps it fades in a month or so, but perhaps not.

I am betting the paper gold market has just begun an era of trading at a discount to the physical market.  The counter-party risk would need to be effectively ZERO for them to trade at the same exact price.  I don't think anyone is going to assume a zero-counter-party-risk any more.

 

Mon, 04/29/2013 - 23:26 | 3512583 DavidPierre
DavidPierre's picture

 

"My buddy in NYC just called me. He was chatting with a high level relationship manager in a big bullion bank private wealth management area. It's a pretty small-knit community. This guy worked at JPM until about 6 months ago and now works at another Euro-based bullion bank (there's only a few).

He (my friends contact) said that there's a massive scramble going on in Europe right now by very wealthy families and individuals to get their 400 oz. bars OUT of the bank vaults. He said "imagine a very wealthy Swiss family walks into a JPM office and says 'Id like to take my $30 million in gold bars out of your bank and if you don't let me do that I'll move my $100's of millions you manage somewhere else.'" Apparently this scenario is going on en masse. In fact, he said not too long ago JPM sent around a notice to wealthy clients that their bars were safe in a segregated vault account at JPM.

He said everyone is aware of what's going with the paper vs. physical scheme and now these wealthy entities are doing what they can to get their physical bars out of the bullion bank vaults. It certainly explains the drain in "eligible" gold from the Comex, most of coming from JPM's vault.

He also said that he suspects - although he can't confirm - that someone like a John Paulson held a gun to GLD's head to get their gold out of GLD. That's part of the bar drain from GLD. He can't confirm it was Paulson specifically, but Paulson is a private bank client of JPM's. JPM is also Paulson's main hedge fund prime broker."

 

Denver Dave

www.lemetropolecafe.com

 

 

Mon, 04/29/2013 - 23:58 | 3512675 gwar5
gwar5's picture

Thanks Dave.

 

Sounds exactly like what Jim Sinclair was just saying about elites and wealthy families securing physical gold now ahead of economic chaos and a post-crises metallic system. Sounds like an updated version of John Law France, right before the Mississipi Bubble popped. The smart, swift, and the well-connected who secured physical metal quickly were the winners.

I include Goldbugs in the smart category today because they're already hedged out of the system. Thanks to ZH, JS, KWN, GATA, Lemetropolecafe, Jim Willie, and all the many others... Goldbugs could see it coming.  Thanks so much!

Tue, 04/30/2013 - 00:05 | 3512700 fourchan
fourchan's picture

paulson is smart enough to do it.

Tue, 04/30/2013 - 08:07 | 3513199 BurningFuld
BurningFuld's picture

You know this really picked up speed with the "Cyprus Affair" . People with money do not feel safe with it in a Bank so buy Gold and put it in private storage. I mean if you have 50 million in a Bank are you really going to make a cash withdrawal?

Tue, 04/30/2013 - 00:52 | 3512809 PontifexMaximus
PontifexMaximus's picture

A wealthy Swiss family never ever holds gold with JPM snd never ever holds GLD. In the max. they hold ZGLD SW, because phys. delivery is always available through Zürcher Kantonalbank via 12,5 kg 995 standard bars.

Tue, 04/30/2013 - 05:57 | 3513086 Urban Redneck
Urban Redneck's picture

If, however, they have an unallocated gold account account with a local bank- then there is nothing to prevent that bank from hypothecating the gold to reduce storage costs and increase returns.  The problem is systemic, just as greed is.    

Tue, 04/30/2013 - 08:06 | 3513204 BurningFuld
BurningFuld's picture

AND that gold could be counted for "Bail in" purposes.

Tue, 04/30/2013 - 10:31 | 3513702 DosZap
DosZap's picture

AND that gold could be counted for "Bail in" purposes.

Sure it will, IF your stupid enough to have it IN their system.

Tue, 04/30/2013 - 05:59 | 3513091 Edward Fiatski
Edward Fiatski's picture

http://upload.wikimedia.org/wikipedia/commons/a/a1/Burning-money-and-yua...

http://en.wikipedia.org/wiki/Sycee

"A sycee was a type of silver or gold ingot currency used in China until the 20th century. The name derives from the Cantonese words meaning "fine silk". In North China, the word yuanbao, was used for similar ingots. This word is attested in the 19th-century English-language literature on Xinjiang and the trade between Xinjiang and British India as yamboo or yambu.

Tue, 04/30/2013 - 08:42 | 3513284 Ranger4564
Ranger4564's picture

I suspect that the wealthy families are not the destination of the evaporating JPM Gold... I suspect that gold is being shipped to the vaults of the Oligarchs / Templars in preparation for the takedown of the global banking system. From the kind of things happening, I believe the time is soon when the larger international banks are taken down and JPM declared bankrupt... thereby taking with them a vast amount of wealth... wealth that goes to the oligarchs. Goldman will be the last bank standing I think, but it too might finally be retired after the main event.

Tue, 04/30/2013 - 12:30 | 3514319 Herd Redirectio...
Herd Redirection Committee's picture

The wealthy families = Billionaires + = The Oligarchs.

Solved it for you.

Tue, 04/30/2013 - 11:45 | 3514083 rustymason
rustymason's picture

"My buddy in NYC just called me. He was chatting with a high level relationship manager in a big bullion bank private wealth management area. It's a pretty small-knit community. This guy worked at JPM until about 6 months ago and now works at another Euro-based bullion bank (there's only a few). ..."

That was taken from "Penthouse Letters for Goldbugs."

Tue, 04/30/2013 - 05:55 | 3513084 buyingsterling
buyingsterling's picture

Here's why the disconnect matters: If it persists, anyone holding longs will perceive delivery as a radical discount to the market value. That is sure to prompt deliveries, which may be settled for cash, but settlements should be for a premium, presumably enough to cover market purchase at the disconnect price. Suddenly paper conversion looks like a bargain and we're off to the races. Disconnect = deliveries or delivery failures, and the house of cards comes down.

Tue, 04/30/2013 - 01:28 | 3512872 tyler
tyler's picture

Whatever happens will happen.  I hope the best for all really, but T's let me say this when I was strapped I needed to sell.  The price matters man.  What's youre end game if it's not the price?  Real shit man.  I've been liquidating, seen stocks shoot while I was holding a metal promise guys.  Durdens man look at my history on this site guys.  Fuck it then ban me, man I got a site now

 

thetalkativeone.com is a little of what selling silver did for me.  I got beats, good soul I got shirts 4 sale.  Can't beat em!  Almost

 

peace, love

the talkative one

Tue, 04/30/2013 - 12:32 | 3514332 Herd Redirectio...
Herd Redirection Committee's picture

If you buy on margin, sure, the price matters.  If you are just converting your savings, and won't need to touch it for 2-5 years then price at the moment is irrelevant.

You have to realize what we are dealing with here are the death throes of a dying paradigm (fractional reserve fiat banking).  Its (the Fed, controller of the USD) not going to willingly relinquish its influence.

Tue, 04/30/2013 - 01:33 | 3512893 lickspitler
lickspitler's picture

raj has a bit of a point. everyone working themselves into a lather about the great physi_jizzy shortage but gold still has a 14 handle and silver looks like a bucket of dogs vomit.

just sayin... hell i,ll keep stackin till i have to sell a kidney

Tue, 04/30/2013 - 02:10 | 3512945 JOYFUL
JOYFUL's picture

raj's 'point' appears to be atop his head...the business of shortages will not be announced on your television...or in your other MSM media neither - see Sinclair's latest on KWN for an example of that truth....Cyprus cyprused agin...with nary a peep to disturb the sheep appearing in the puppet press...http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/30_Ji...

And then play that back to back with Turk's interview... http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/29_Tu...

Barrick...back in the hedging game like a porcine poltergeist chowin down...kaboooom!

your bucket o dog's vomit is actually a fake vomit joke mat...laid out on the sidewalk for as to help hustle the hustlers to step into the street...and join the rest of the roadkill what failed to take mommy's hand when crossin the big decouplin street!

(Mommy Mommy!...Willie the Weasel is lying in the road all flattened! Mommy!) http://www.youtube.com/watch?v=1DPEKVV7R9k =

Tufty the Squirrel is very naughty
Tue, 04/30/2013 - 08:34 | 3513263 BobPaulson
BobPaulson's picture

The decoupling can still be explained away by the convenience cost. It could decouple, hope it does, but the doom of jpm still is like looking for the face of Jesus in a slice of burnt toast. I hope people are not planning for them to collapse next week because it aint gonna happen. You can't crush guys who can print money.

It fiat dies, the suckers will be the fixed income pensioners. The banksters will come out on top, guaranteed. Your guns are more likely to settle the score than your gold. Hopefully the gold helps you avoid being one of the patsies they gyp, but they can buy the government, they can certainly buy the police.

Tue, 04/30/2013 - 02:39 | 3512948 JOYFUL
JOYFUL's picture

dup

Tue, 04/30/2013 - 03:55 | 3513027 CompassionateFascist
CompassionateFascist's picture

1 ASE looks like 2-3 days groceries after the dollar dies. Long 4 July weekend should be about it. 

Mon, 04/29/2013 - 22:00 | 3512280 Canadian Dirtlump
Canadian Dirtlump's picture

I don't own any gold. I'm not desperate for anything either, other than for nature to take its course and reality kick in. Suspension of disbelief only works in the movies. I don't need to be counseled out of saving me from myself.. LOL...

Mon, 04/29/2013 - 23:53 | 3512667 ShrNfr
ShrNfr's picture

As you wish. But you ought to seriously consider aquisition of something that represents fungible time and effort. There are things other than precious metals. Farmland and forestry are reasonable. Both are necessary today and in the future. Worst case, buy stock in a company with a low price to tangible book, like less than 1. The major international oils are not bad either. Their tangible book does not reflect their sunk costs of exploration that will produce oil in the future. Just keep away from those funny pieces of paper with funny looking pictures on them.

Mon, 04/29/2013 - 22:04 | 3512294 Pareto
Pareto's picture

.......as is your pinhead comment.

Mon, 04/29/2013 - 22:04 | 3512296 kliguy38
kliguy38's picture

how much do you get paid for each reply you get you troll.....tell your mom you can afford to get out of the basement soon

Mon, 04/29/2013 - 22:15 | 3512339 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Maybe Mom wants me to stay! Every since dad hurt his back Mom really needs her needs to be taken care of.

Do NOT follow this link or you will be banned from the site!