Forty to One: The ‘Odds’ Favor Gold and Silver

THERE IS A MYSTERIOUS DYNAMIC at work in Western gold and silver markets in that “paper” precious metals seem at times to be falling in price, while “street” prices for in-your-hand bullion is constantly rising. The real fact of the matter is that the “spot” prices reported on the Internet and elsewhere are regarding bullion futures contracts, and not actual physical gold and silver. Those prices do NOT include additional costs like fabrication and delivery… and they certainly do NOT contain the “premiums” being charged on the street for the real thing.

The people on the commodities exchanges (from where we get “spot” pricing of gold and silver) are simply trading paper around. Consequently, these figures are misleading—especially with Western central banks manipulating the markets (with the aid of their cohorts) in order to prop up their worthless currencies. Even though an increasing number of investors are requiring physical delivery of the bullion their “paper” contracts promise, the exchange rates still reflect fictional pricing dynamics at best.

In the Western nations: On the “street” there are shortages of both gold and silver bullion in any form, but especially coins, ingots, and small bars.

Therefore, dealers in the West are finding that they have FORTY buyers for every ONE seller who is willing to part with their precious metals in exchange for declining paper currencies (see the article further below).

Meanwhile, in other parts of the world like the Orient and Middle East, gold is readily available in shops. As the following picture (sent me by one of my friends) of a “gold souk” in Dubai clearly shows, the “on the street shortages” are a Western phenomena alone as the Western economies collapse themselves from their own debt weights:

Gold in abundant display within a Dubai shop window

Gold in abundant display within a Dubai shop window

 

Gotta Have It

So with the shortages here in the Western nations as people scramble to acquire real money in the form of gold and silver, the dealers are tacking higher and higher premiums on the REAL gold and silver to reflect the true supply/demand dynamics they see every day in their shops—even while the “paper” traders play games within the commodities markets.

But remember: When the dollar and Western economies collapse, “paper” bullion with be worth no more than what their then-undeliverable promises are printed on.

The only real protection against the Economic Tsunami that is to come is physical gold and silver in hand. Period. Those wise enough to realize the biblical and historical truth of that statement will well-position themselves to be recipients of the coming wealth transfer. Those that do NOT, will find themselves suffering the loss that the wise then inherit. (Hint: Proverbs recommends you be counted among the wise, and not among the foolish who inherit destruction.)

Moreover: To confirm what I have stated above and in other articles, consider the data revealed in the following article excerpt about what is happening today in the gold and silver markets. I will pick up below it with my final comments and recommendations:

The New Gold Rush: Supply of Coins Tight at Tucson Stores

By Dan Sorenson
Arizona Daily Star, Tucson
Sunday, November 2, 2008

http://www.azstarnet.com/sn/business/265218.php

The price of futures contracts for gold surged to more than $1,000 per ounce earlier this year, then dropped back before surging again as the financial crisis rocked stock markets in September. Then the price of gold futures started slipping again.

In October, Bloomberg News reported, the price dropped 18 percent, the most it has in a single month since 1980. Gold for December delivery closed at $718.20 an ounce Friday on the New York Mercantile Exchange.

Your college Econ 101 course may not help you understand the latest gold coin rush.

Banks have been on wobbly knees, the stock market has been plunging, and 401(k)s are as deflated and sad as four-day-old party balloons.

But, oddly, gold has been both falling in price and in short supply for those looking for a safe haven during the stock market storm. Some Tucson dealers say gold coins are scarce at best, even as gold—and silver—prices are falling.

There is even more complexity within that scenario, local dealers say.

Retail gold coins generally sell for the current price of the metal they contain, plus a “premium”—the dealer’s fee—on each coin. Of late, the premiums have risen significantly to reflect the shortage of supply of some denominations, the dealers say.

“I get 10 to 20 calls a day, ‘Do you have any gold or silver?’ We don’t have any, and we can’t get any,” said Peter Spooner, a coin expert at American Stamp & Coin, 7225 N. Oracle Road.

“There are people who are selling their stocks to get into gold and silver because they fear we are going into a tremendous depression,” said Spooner. Yet, he noted, the “price of paper (futures contract) gold is dropping while the price of owning actual hold-in-my-hand gold is going up” when the seller’s premium is added.

Historically, it would be cheaper to buy an ounce of gold in one coin than to buy an ounce as four quarter-ounce coins. But the price for an ounce of gold is actually cheaper if you buy it as four quarter-ounce coins than in a single 1-ounce coin—if you could find one, said Brett Sadovnick, owner of Tucson Coin & Autograph, 6470 N. Oracle Road.

In this case, a classical supply-and-demand situation is at work: There’s more demand for the 1-ounce coins than the quarter-ounce and other smaller coins, so it’s driven up the price of the 1-ounce coins.

 

Buyers Might Be Newcomers

Sadovnick isn’t quite sure why buyers are fixated on the 1-ounce coins. Gold is gold, purity being equal.

It could be that the buyers driving the demand for the 1-ounce American Eagle coins are newcomers fleeing the wild uncertainty of the stock market for the relative calm of the world’s longtime favorite precious metal. Maybe they feel better about owning the hefty full-ounce American Eagle, rather than a handful of smaller gold coins—half-, quarter-, or tenth-ounce — that weigh just as much. Sadovnick isn’t sure.

“I’ve been a coin dealer in Tucson since 1998, a professional since 1974. I haven’t seen a situation quite like this,” said Sadovnick. Not even the crazy precious metals roller-coaster days of early 1980—when gold hit $850 an ounce for one day—compares, Sadovnick said.
And it’s not just gold, he said.

“I placed an order a month ago, 1,000 1-ounce silver bars. I paid him spot (the spot price), plus $2.50 an ounce premium,” Sadovnick said. That order might not arrive until January.

“Three months ago I could have bought it from them for the price of silver, plus $1.50 an ounce, and I would have had delivery in a few days.”

Even Jim Ganem, owner of the venerable Arizona Stamp & Coin, 4668 E. Speedway, is baffled.

The shop is the only Tucson dealer mentioned on the U.S. Mint’s Web site as dealers of American Eagle coins, and Ganem says he can’t get any Eagles, or anything regularly. He said the U.S. Mint sent out a notice saying it isn’t making the coins because even they can’t get the gold blanks to stamp.

 

40 Buyers to One Seller

Ganem said hedge funds are dumping billions of dollars worth of gold contracts they hold, driving down the price of gold. But to actually get gold, not just a contract, buyers are having to pay a premium—a higher premium than he can recall in the past.

Some of those contract holders are asking for the gold they represent, instead of just trading in the paper. But that gold is disappearing in an instant on the spot market, said Ganem. He said he gets a few chances a day to buy gold that becomes available, but that it disappears in a matter of minutes.

“Typically,” he said, “we’re running 40 buyers to one seller right now coming into the store to purchase. People don’t want to be in the stocks, real estate, and they don’t trust the banks—three typical havens for large amounts of money. The other one is metal.”

One would think the skidding stock market and real estate decline would be driving up gold and silver prices. And while it did initially, in September, the price of precious-metal futures plunged in October.

An industry expert in Phoenix said the gold market isn’t behaving in a traditional manner.

David Henry of Arizona Coin Exchange Inc. in Phoenix is a wholesaler who sells to coin and precious metals retailers. He said most people who buy paper gold, contracts, never physically possess the gold, choosing instead to resell the contracts, hopefully for more than it cost them.

“You can get it, physically, but it’s complicated,” Henry said.

Physically possessing gold is an entirely different mechanism, Henry said, something that is done for security—a way to safely hold value, often for a very long time.

Unfortunately, he said, this is an occasion for a “Perfect Storm” scenario.

The price isn’t high enough to bring sellers into the front door of coin and precious metal shops, and the main source of new gold, the federal government, can’t deliver.
Spooner said the vagaries of the current gold market don’t change his view of gold.

“I don’t present gold as an investment,” said Spooner. “Buying a half- to 1-ounce piece of gold every month is like insurance… like portfolio insurance. In economic turmoil, it’s a flight to safety.”

 

Decline in Gold Futures

The price of futures contracts for gold surged to more than $1,000 per ounce earlier this year, then dropped back before surging again as the financial crisis rocked stock markets in September. Then the price of gold futures started slipping again.

In October, Bloomberg News reported, the price dropped 18 percent, the most it has in a single month since 1980. Gold for December delivery closed at $718.20 an ounce Friday on the New York Mercantile Exchange.

As you see in the article above, these artificially low prices on the commodities exchanges are merely illusions. So the key is to obtain gold and silver anywhere you can while the prices are relatively low (though dealer premiums are so high) while you still are able to do so. Once the dollar collapses nobody will part with their silver/gold… except when they may be buying up all your worldly possessions in return.

So let me be blunt: Buy gold and silver bullion in any form—but especially coin form—anywhere you can get your hands on it—while you still can. You can move your IRAs and 401(k) offshore outside of the USA and UK into gold and silver (see my note at the bottom of this article about AFE). Even sell your sports gear, Longaberger-basket collection, jet ski—and even a few of your TVs and iPods if you have too—to get liquid with your money, and then buy all the gold and silver you can obtain. And let me add: Do so VERY QUICKLY.

As I have said before in other blog posts, I also highly recommend you take a firm look at Joseph Wealth Systems (JWS) as a reliable supply source for gold bullion coinage. While the dealers in the Western nations (like the ones in the article above) are desperate for precious metals coinage to meet the phenomenal demand, JWS is reporting a fully-fluid coin supply that is still abundant in the face of the increasing demand. Their prices for their gold shekels and quarter shekels are also very competitive with the increasingly high-premium coin prices being found through other dealers (and again, you can actually GET coins!).

Add to this fact that you can become an online gold coin merchant yourself (if you so choose) and you can readily understand how JWS can be a very lucrative source for your gold coin acquisitions. (Note: JWS does not offer silver coins at this time, so you will simply have to get silver anywhere you can find it.)

Lastly, I highly recommend you study the information I provided for you in my blog article God’s Money and Private Coinage. That article will help you to see both the biblical/historical aspects of owning gold and silver as bona fide REAL money, while also providing you an understanding (through an excerpt from Murray Rothbard wise counsel) in the benefits of owning privately minted coins.

God bless you as you earnestly seek God’s Wisdom… and not merely the gold and silver He created.

In Jesus (Yeshua),

Rich

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