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.
The extraordinary demand for coins and small bars can be viewed as an early sign that the market is moving into backwardation. In other words, the backwardation is in effect being reflected by higher premiums above spot for physical metal, rather than spot itself rising and going into backwardation.
Central banks do not transact in small bars and their coin transactions are inconsequential compared to the size of the market. So the market for fabricated product is relatively free from government influence. But central banks of course exert a dominant influence on the market for LBMA-sized bars by using their existing gold stocks, and they can keep the spot price for gold (which is determined by the buying/selling of LBMA-sized bars) artificially low by dishoarding gold from their vaults.
So my thought is that if gold does not climb back above at least $900 quickly, a shortage of LBMA-sized bars will develop unless central banks allow their vaults to be cleaned out, much like Ft. Knox was drained in the weeks leading up to the 2-tiered London gold price created in March 1968, with an official price at $35 per ounce and a free-market price well above that level. If central banks allow their vaults to be cleaned out at these current low prices, then look for some contrived government imposed dictum on the gold market, just like they did in March 1968. Price controls would be one possible dictum.
To conclude, the present situation reminds me of August 1976, just weeks before the Democratic Convention confirmed Jimmy Carter as that party's presidential candidate. Gold slid down to $100 per ounce even as the inflation and economic outlooks were worsening. Gold looked dirt-cheap back then even though its price had risen three-fold from just a few years before.
By the end of 1976, gold had climbed 32.3% from its August low. By the end of Carter's presidency four years later, gold climbed more than eight-fold. I wonder where gold will be at the end of the next president's first term in office?
Importantly, the precious metals remain within the clear uptrends. For the past twelve months ending Friday, August 15th, gold is up 17.5% and 7.8% against the US dollar and euro respectively. Silver, however, during the past twelve months is down -6.2% against the euro, but up 2.3% against the US dollar. And while silver's performance may look bad, it is worthwhile keeping in mind that the Dow Jones Industrial Average during this same period is down -9.3%.
James Turk, August 17, 2008
If you would like more detail and to see the historical price charts James is referring to, go to his website at www.GoldMoney.com.
Incidentally, just within the last couple days since August 15, gold rose from $772 per ounce to its current level of $835. Silver also rose from $12.11 per ounce on the 15th to its current level of $13.89.
I personally ran into this situation with Kitco the last couple weeks. I was helping someone purchase silver on August 5th. Today, Kitco claims that they are backlogged with orders and cannot confirm receipt of payment, thus they can not ship the physical silver bars and coins. As alluded to in this article, this is just a made up excuse to give Kitco time to try and find the inventory to fill the demand.
Needless to say, I am not very happy with them, but there is little I can do about it.
These are historic times, whether you realize it now or not. Protect yourself and take the needed steps. If you need assistance in analyzing your options, please contact me.
A good name is more desirable than great riches;
to be esteemed is better than silver or gold.
Rich and poor have this in common:
The LORD is the Maker of them all.
A prudent man sees danger and takes refuge,
but the simple keep going and suffer for it. Proverbs 22:1-3 (NIV)
If you have questions or comments, please feel free to contact me at the address below.
Email: DeltaInspire@panama-vo.com
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