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The Spot Price of Precious Metals Is Becoming Irrelevant
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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@CoS:
Hmm. What I found the most intriguing:
Its a very thin gold coin market. Coin sellers 50 years in business still know customers by the first name. More people die off the customer list, (and stop buying) than new customers coming onto the list. (OK, I made that up for dramatic effect) So in that market, the coin sellers will need to double and then double again their active customer lists. Are they marketing for that to happen? Even that does not even come close to getting 1 % of the population starting to buy gold coins. We are a long long way to Tipperary, when the supply of gold coins is going to be threatened by retail buying.
(citation needed)
This is the Internet. If you need a citation, try running a red light.
Cone of Silence, one could have said the same thing a year or two ago about the gun and ammunition market.
I respectfully disagree. Most folks don't see the cause and effect. The market for PM's from what I can see is pretty shallow, at least in the US. Once those ready buyers have bought their fill, that's all. Sure, there may be new entrants. But I don't think they're all that significant at least in the US.
I also think the dynamic and what really bears watching is the BRICS.
Uhm....University of Texas....Korean central bank....well maybe they aren't at the corner gold shop so you must be right.
I thought that UT wants their gold back. not new gold purchases. Korea is going to buy gold but who cares? Those are both on the wholesale side. The retail market has to exlode for gold to hit a mania. When is Joe Sixpack going to buy a gold coin? Never, because he does not have the cash to spare. Retail gold is very thinnly purchased. The real question to ask these guys is how many new customers did you process in the last two weeks? Remember also that gold does not do well in a recession.
First, UT sold $375MM from their stash. Rebalancing as fiduciary.
Second, there is a market for sub-1 gram gold in Asia.
Third, quit thinking like a Westerner. I'd love to hear you explain to Indians and Chinese (who, incidentally probably make a WHOLE lot less than J6P) find room in their family budget to buy gold.
Fourth, I know a couple of people who did not buy gold until it broke above $1k/oz. Granted, a couple of people make for an anectdote, not data. But that is only in my sphere of friends. So multiply by whatever and you have the beginning of a trend.
I think that it is great that Indians and Chinese value gold more than westerners. They have a rich history and for good reasons cherish gold. Looking at the pareto chart, maybe 5% of westerners can afford a gold coin, its less than one percent of the Chinese or Indians can afford one. If those countries ever let more of their people out of poverty, then we may see a gold mania.
First, everybody has a rich history. Just ask them.
Second, when Indians climb out of poverty the first thing they buy is....a cellphone. India has 1.2 billion people, and they will have 800 million cellphone users by the end of this year. Collectively Indians own some 18,000 tonnes of gold. Only 200 million of them have access to modern sanitation, which makes for some powerful aromas in summer Patna or Varanasi. Funny priorities, but to each his own. If they are to keep accumulating the asset, their economy will have to pick up, and the continued "climb" (in China, too) will have to depend ultimately on easy availability of Home Equity Loans in the US. The drop in gold brought out buyers, but that has slacked off dramatically over the last week. A visit to the gold markets in Connaught Place or Old Delhi can help separate the now-dead promoter hype from reality. Let gold drop to $1350 again and perhaps the residual buyers will come out.
For some insight (not sugar-coated and obviously foreign) into India, a good place to start is William Dalrymple's book "The Age of Kali". I would think the average ZH commenter would jump all over the concept behind Kali Yug, as it's kind of a Mad Max society ruled by a coalition of Jamie Dimon and Jeffrey Dahmer.
UT started buying in 2008. Korea is expanding holdings in a major way...and the wholesale market is wholesale because it is large, also known as 'important'. Wholesale v. retail is an unimportant distinction in this context, the paper vs. physical context. Besides which I don't know how you would accurately call either of these very large buyers 'wholesale' unless they re-sell to retail, like at the UT student union bullion shop and latte study center. Which they don't. They are in fact large RETAIL purchasers if one understands the terms correctly.
Anyway, who is hoping for a mania in gold? The post discusses the possibility of physical shortages, and the quotes indicate that they are likely in silver, not so likely in gold.
You're not making much sense.
This maybe the first time in human history when fiat maintains it's purchase power... or not... My money is on the latter... literally... The world will grow asset rich and money poor... IMO...
Silver is the poor mans gold, there are a lot more of them and a lot more silver to go around. Gold is for the big money, silver is for the small that is where the mania should be for the first time buyers and frankly the better value since street price will never be priced at production cost like the paper market currently is close to. The physical market is going to ultimately ignore and decouple from the paper market for that reason alone.
Lucky for us in the west that we don't have to compete with say, 3.5 billion Asians who have a long history of buying gold as a means of saving and wealth preservation, and don't give a flying fuck about what the Fed's up to, or what Draghi said last week, or whether putting Cyprus' 10 tons on the market will make the price crash. Because if those people ever started to get money, say from having all the western manufacturing moved to their countries, if they ever started having the means to buy gold, why, we might be left with nothing but our beloved paper promises.
Fantasist.
There are a majority of people out there who keep their "wealth" in paper assets. When the Bernank has the prices of everything suppressed so that there is no return on any asset, eventually those holding paper will want the fuck out, and gold is where they will be running to.
Not a mania, because the Chinese Government alone is only on pace to gobble up 200% worth of the world's annual gold production in 2013. They don't count, they're stupid repeat customers. /s
COMEX isn't dead....but it sure smells funny.
If there really were a signficant divergence between paper price and physical price, why wouldn't big money arbitrage it away? It'd be risk-free profit. Buy futures, demand delivery, then sell the physical at a profit.
+1. But you also have to price in the risk that you won't actually be able to take delivery.
Exactly. Which really is a bigger risk these days than it might seem at first glance.
Guns and gold are flying off the shelf like hot cakes in my Neck of da Hood.
removed..
good move
Each one of my gold ounces are worth $10,000
Each one of my silver oz's is worth $1,000... Back to historical ratio, bitchez!
Why are people paying a premium for physical? At Scotiabank pms are still available, silver for the usual high commission, gold much lower commissions.
The Asians are going to stick it up JP Morgans rear end
When the Asians are done with JP, they'll have no rear end left to stick it up.
Well, if you wanted to get people to stack the phyz, w/o causing a panic, then the current developments are exactly the right thing to do.
W/O CAUSING A PANIC? WHOSE NOT PANICKING? I'M NOT PANICKING!?!? YOU STOP PANICKING! *deep breaths deep breaths*
I used to buy stuff on eBay all the time. No bargains there anymore.
We can go one step futher: phys prices do not matter also.
Ask a cypriot - what would he rather have - an account at Cyprus bank or stack of coins at $1300 or even at $1000/oz?
You either have it or you have a paper claim to some shit that can just evaporate.
See what the top dealers are charging:
http://comparegoldprices.com/
https://comparesilverprices.com/
21-29% for silver eagles, or they're out of stock.
Thanks. Around here a 1/10 gold coin is going for $202.
and this is for cash or wire only. difficult to set up. with credit card add another five to ten percent...
"
The Spot Price of Precious Metals Is Becoming Irrelevant"You guys are rediculous. Just try and sell some of your precious to someone without the mention of 'spot price' coming up. It does not matter what YOU think gold is worth, whether that is 1600, 1900 or 3000, your going to get spot + or - a bit depending on who it is.
And it does not matter if every freaking 'dealer' in the USA is out of gold, when the gold comes in, youll be buying, or selling it, around the spot price. And that could be the current 1470 level or it could be 850 or 2000, but the point is, that it 100% matters what the paper price of gold is.
You are wise and strong. You must be very tired after running another 4 minute mile again today, Dear Leader. We do not deserve you.
Yes, Dear Leader. You are much wiser than your years, Dear leader.
this is what you look like upvoting your own post.
People come into our shop everyday looking to buy Silver rounds. We send them packing.
One of the local Pawn Shops has a sign up that they will trade guns and ammo for Gold and Silver. He has a sign on a few guns (An M1 Garand for example) stating that they can only be purchased with Gold or Silver.
Either China or Russia or both will announce a gold-backed currency... then the US Dollar is shit in the wind. be interesting to see the crash of the bond and stock markets collapse in tandem... Buffett and krugman will be selling hand-jobs in a back ally for $5/a toss.
Gold is no longer a safe haven it used to be primarily because of a faulty price discovery mechanism. The problem today is that the price of Gold is not derived by it's physical demand or supply but more by the speculative positions standing long or short on the commodity exchange like any other traded commodity, stock or currency.
The basic mechanism of price discovery (based on demand and supply for actual use) of anything traded on an exchange has been terminally infected by speculators having access to unlimited funds and super fast computers for trading leading to volatile price swings. This has been made worse by the launch of ETFs for anything and everything under the sun by the financial community.
The price of everything including Gold is likely to suffer when the speculators unwind their positions due to some event that they have not anticipated or foreseen.
http://www.marketoracle.co.uk/Article35345.html
www.letstalkmoney2012.in
did you not read the title of the article...?
Uhhh...thasss..whut...ther...doin'....TPTB know PaperPonziCollapse is near, so they are (trying to) pound down the price of physical in order to buy in low.
still waiting for the metal i ordered the week of the smackdown to even ship.
Seems like the sheeple have learned to stay out of the derivatives markets and buy physical on the lows. Good times are coming for PMs.
"Gold Rush From Dubai to Istanbul Drains Supply as Premiums Jump"
http://www.bloomberg.com/news/2013-04-30/gold-rush-from-dubai-to-istanbul-drains-supply-as-premiums-jump.html
"Perth Mint Works Over Weekend as Gold Demand Surges on Price"
http://www.bloomberg.com/news/2013-04-30/perth-mint-works-through-weekend-as-gold-demand-surges-on-price.html
oh btw.. my order from coinabul finally shipped. 3 week turnaround isn't that bad I guess. BTC>>GOLD
Some points:
With all the supposed new vaults in London (Barclays, Deutsche, Malca Amit, additional space in Brinks), then where did all the gold, that is demanding extra space, come from?
I say gold and not silver since silver does not have to be vaulted in London according to the LBMA. Gold vaults have to be subterranean. It would also make sense if the new Vaults are located in the City of London to fit in with security protocols and procedures of the City of London police.
The JPM and HSBC vaults may be full or be reaching their insurance capacity. This would explain the need for extra vaulting. However this theory would also suggest that as the gold price rises, a 'full' vault would keep hitting its insurability max, and have to reduce storage ir renegotiate its insurable max.
Furthermore, how can the Bank of England supposedly hold over 400,000 gold delivery bars at the Bank? What kind of insurance if any does the Bank have that the Commercials can't get? Since it would all be ultimately Lloyds insurance anyway.
Just some points...
By the way the Malca Amit and Brinks storage vaults are out by Heathrow airport in Feltham.
most of the big pm storage facilities are very close to airports
This whole thing was a con game from the begining. Paper derivatives have no relationship to the physical markets except for the ability of the grifters to convince the sheeple that the two are tied together. That is like saying betting on a horse race is the same as the race. People must be retarded. Thank goodness that the scum banksters have finally lost credibility. Good luck with your paper bankster fools. You are screwed.
Will the last person out of the COMEX and LBMA please turn the lights off.
Cash is trash and gold is cold; short cash at every turn but the big winner is the S&P, baby! Stocks for the long term!
The selected inflation hedge of choice is the common share of the corporate ponzi-phere.
Doncha just hate that? Shorting the Zimbabwe stock market was a flawed trade too!
Same argument I've heard before with prices at a much higher level. Yawn.
I was listening to the radio yesterday and there was an ad saying that with the increased shortages of gold and silver
new "hot" investment metal is-wait for it-TUNGSTEN! The site tungstennow.com will tell you all about it.
I couldn't believe it! As we know, some folks have already invested in tungsten-when they thought they were buying gold.
Another sign that things are getting really crazy again.
As a layman in the PM arena, the one aspect of paper versus "metal in hand" is the potential for selling paper indicating OWNERSHIP of gold, many times over the actual amount held by the bank / seller. That to me is fraud.
And no, the mantra "Well not everyone is going to ask for their gold at the same time" is not a viable excuse. History is littered with examples of "it can't happen here."
I'm actually wondering if the price of physical will unintentionally, but to much celebration, drive up the price of paper gold shares. For those just wanting to make a buck on a trade, i wonder if paper will be made out to follow physical on the uptick, extract more wealth. Watch for it, since it's all a tulip fest anyway.
I up-ticked you for the paper following physical idea. Not so sure it is a tulip fest.