In the past few days a number of interesting developments have been reported with respect to gold and silver bullion purchases – namely, that there aren’t any. At least none from retail investors. But not for lack of demand, that’s for sure.
Bullion sellers and dealers, from Kitco to the Perth Mint to the U.S. Mint to the mom-and-pop coil dealer down the street, have been unable to meet demand from retail bullion buyers. Precious metals buyers – especially those on the hunt for silver – are not getting orders filled and they are being told to expect long wait times. What gives?
I decided to comb through various online sources and then to put together a brief summary of current activity in the precious metals bullion markets.
From gabrielgray on the Minera Andes (TSX: T.MAI, Stock Forum) Bullboard:
That's why I view silver traders as the weak hands, and silver holders as the strong hands. Silver that moves into the basement vaults and gun safes of the silver bugs is like a quarter dropped into a deep wishing well; you probably ain't gonna see it again. (No, no, I don't have vaults or gun safes. I don't even have a basement. I'm not even a real silver bug--I'm just a curmudgeon with a tremendous confidence in the avarice and incompetence of government and its cronies.)
Doesn't it seem just a little odd to you that silver crashes from over $20 to near $12 during a period when silver deliveries are running way behind, major dealers have no inventory and the U.S. Mint is severely rationing Silver Eagles?
My own dealer keeps insisting there's no shortage of silver, just delivery delays caused by the inability of the major mints to keep up with demand for everything smaller than 1000 oz. bars. They may be a million ounces or more behind, but hey, it's not a shortage. It's only a shortage when there's none at all, I guess.
From mj2007 on the MAI Bullboard:
Intriguing article from 'seeking alpha' about the disconnect between supply and demand in the gold and silver markets. It's a bit of a read, but well worth the 10 minutes or so it takes to go through it.
https://seekingalpha.com/article/91357-the-disconnect-between-
supply-and-demand-in-gold-silver-markets
I read the article, by a writer on Seeking Alpha known as James Conrad, at the above link – here are a two excerpts from it:
There is a huge demand for both gold and silver right now in India and North America. North American shops are completely bare of silver. Indian shops are empty of both silver and gold. Even the Indian banks don't have any gold or silver. The big western bullion banks, based in New York and London, control both the gold and silver trade. Reports from India are that they are refusing to extend Indian bank lines of credit, forcing the small banks to deliver to clients, collect money, and pay down lines of credit, before being allowed to take delivery of another gold or silver shipment. This is very abnormal. Normally, if a banker’s bank knows that its customer-bank has firm orders, it would extend the smaller bank a bigger line of credit. Not now. – James Conrad
And this:
…demand and consumption of gold in North America, including Canada and the USA, was soaring. For example, before it suspended production of bullion coins, due to shortages, the U.S. Mint’s statistics show that it was printing 2.5 times as many gold coins, and almost 4 times as many silver bullion coins, this year, compared to last year. Gold and silver bullion, in bar form, was also flying off North American retail shelves.
Bottom line: Enough people were buying, when the price was high, to exhaust the supply. Basic economics says that, in a free market, this means the price must rise. – James Conrad
In response to Conrad’s article, one Seeking Alpha reader called “Bron” commented with the disclosure that he or she works for Australia’s Perth Mint:
The shortage is simply the US Mint stuffing up its forecasting and running out of blanks (which it purchases from outside suppliers). There will naturally be a delay until these suppliers can replenish the US Mint's inventory. Converting a 400oz bars ex-refinery into a 1oz coin is not like turning on a water tap, it takes time to make stuff, in case you didn't realise. If you walk into a car dealer and they don't have your model/colour in stock, do you go around ranting about how it is a conspiricy by Green lobby groups to force everyone to cycle?
A reasonable response would have been to highlight the shortage of fabricated product at a few places, note that it is an interesting development and should be watched to see if it expands but at this time no problem in the wholesale market. But then that wouldn't be enough to scare everyone into buying GLD. – Bron
And here is an image pulled from the homepage of Kitco.com, containing text that has been copied and pasted across Stockhouse on various Bullboards:
A website for the American Precious Metals Exchange (APMEX), which claims to be the first to have reported on the U.S. Mint’s suspension of it’s Gold Eagle coins (this on the heels of supply shortages with its Silver Eagles), had this to say in response to alarm and confusion from retail investors questioning the validity of the report:
Thank You All for your comments. We understand that the latest news was disturbing to some and confusing to others. The latest news is due in part to significant manufacturing delays by private and government mints... they simply can’t keep up with the unprecedented demands of the market. Let us a address a few of the concerns you have so far:
1. The US Mint has not published this information on their website (we checked again this morning). The news of the US Mint suspending sales and future orders has also been confirmed by Mint Distributors, as well as numerous other dealers. This is a hot discussion right now on various precious metals forums and blogs. We are simply trying to provide information as it becomes available. We were the first to report this information.
James Turk, founder of the website GoldMoney.com, published an article on the subject as well, dated August 17:
Incidentally, though GoldMoney - like many other companies - had a record week, GoldMoney has not experienced any shortages of metal because we transact only in large bars, namely, those that meet the standards of the London Bullion Market Association (LBMA). These bars come into the market daily from refiners and existing stocks, such as those held by central banks. But the shortage of fabricated product has caused me to ponder whether a shortage of LBMA-sized bars might also develop at these low prices. In other words, could gold go into backwardation, meaning the spot month (i.e., physical metal) trades at a premium to future months (i.e., paper promises to pay metal in the future)? A backwardation would be unthinkable in normal times, but these are not normal times.
Franklin Sanders, on the site www.goldprice.org, is on the front lines as a dealer. Here is what “The Moneychanger” had to say on August 15:
Twenty-eight years brokering silver & gold have not prepared me for what I met this morning. One of my wholesalers said he was not selling anything, only buying, until further notice. Another refused to give any prices until he adjusted his spreads. Another was spreading one ounce gold coins, normally at $7 - $8, at $25. Another said he was making no sales for immediately delivery or deferred payment, only sales for 30 days delivery paid at once. Premiums were high: Austrian 100 coronas, 4.7%; Sovereigns 5.2%; Krugerrands 6.8%, American Eagles 8.2% (none for immediate delivery), & Mex 50 pesos 4.5%. 90% silver was at $9,783 a bag, a whopping 6.7% premium (1368 cents an ounce on a 1282 market!). Silver American Eagles for 6 - 8 week delivery, 1586 or 23.7% premium.
Later in the article, Sanders solidified his observations on current trends in the precious metals markets:
When investors pile into silver & gold, it's not any commodity bubble forcing them there, but monetary demand. They aren't buying metals because they think all the Indian ladies are going to be wearing two nose rings instead of one this season, or that the American bourgeoisie will suddenly begin stockpiling sterling silver forks again.
They are buying metals because -- listen to this, get it straight once & forever -- they distrust fiat central bank currencies (or if you prefer, national currencies). The dollar is trash, the yen is trash, the euro is trash; all are equally insolvent, equally unbacked by anything expect a politician's or central banker's promise, which is not nearly as good as that of any madame at any bordello anywhere.
There are many, many more conversations and observations like this going on all across the internet – including on Stockhouse. I encourage everyone to click through to the external links provided throughout this article to read the complete offerings, and to expand your own research and due diligence on the subject.
Please leave your comments in the box below, and good luck with your investments.