May 28, 2022

Gold and Silver Recap: Falling Prices

Another Precious Week in the Market

So who’s buying on the dips then?  Gold, silver and platinum prices are all down – mainly from Friday.

But have thy really gone down?  After all, the reason that we’re being given is that the dollar’s not weakening any more.  So what’s really happening, gold going down or the dollar going up?  Temporarily up.

Precious Metals London Fix Prices
Gold $1,322.50 -45.00 (-3.29%)
Silver $23.05 -1.37 (-5.61%)
Platinum $1,673.00 -18.00 (-1.06%)
Palladium $586.00 -5.00 (-0.85%)

Gold is essentially a short on all the currencies in the world, so it does pay us to look at what those currencies are doing.  For a while it seemed that they were only agreed on one thing, they were going to get to the bottom first.  Even the British Conservative government, that relishes its tough spending talk, has said that it is monetarily expansive.

So gold can’t help but go up.  Let’s not treat it as some speculative metal that people hold when the entire world is going crazy (although it helps when the world is going crazy) but look at it as a currency among others, but one that can not be printed.

So gold is bound to get in a bit of trouble when the industrial countries decide to get serious about printing out money.  If competitive devaluation is really over then so is gold, for the next few years.  But who are we kidding?  Competitive devaluation will be there until inflation starts hitting.  Then it will be too late.  And the central banks will be buying gold as well.

Speaking of which, South Korea is starting to buy gold.  It’s all a bit odd, these Asian countries with massive foreign currency reserves (and South Korea is only the fifth largest) speaking about buying gold.  If China loses faith with the dollar, then it could get hairy.  The dollars prospects, that is, not China.

Silver has been the purer precious metal play and so almost doubled gold’s fall.  This is despite China suggesting that it will cut back on its exports by as much as 40%.  Jim Rogers, the man who first opened the eyes of many investors to commodities, has also come out as a big bull on silver.

So the dark horse is palladium, which declined the least of the metals this week.

Palladium is like platinum in that most of the production is in either the Russian Federation or South Africa. But unlike platinum, Russia has been in a price fixing operation, by buying stocks of the metal in lean times and has been offloading it.  Well these stocks are drying up.  Just like central bank stockpiles of gold started to about five years ago.  And we all know what happened then.

US Mint Changes Rules for Authorized Purchasers

The United States Mint recently revised the requirements to become an Authorized Purchaser for their American Eagle Gold and Silver bullion programs. Since the start of the program, the US Mint has used an authorized purchaser network to distribute the coins to the public.

These Authorized Purchasers are the only ones allowed to buy bullion coins directly from the United States Mint. They purchase the bullion coins based on the market prices of the metals plus an established premium. The premiums are currently $2 for Silver Eagles and 3%, 5%, 7%, and 9% for one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce Gold Eagles. Authorized purchasers are also required to create a two way market for the coins to ensure liquidity for US Mint bullion coin investors.

There are currently eight authorized purchasers for gold and twelve for silver.

Changes to the requirements recently made effective included modifications to the sections “Purpose”, “Marketing Support”, “Experienced Market Maker”, and “Tangible Net Worth”. The most significant change was the addition of a new section “Right to Temporarily Refrain from the Review of New Applications.”

The new section states the following (emphasis added):

The United States Mint reserves the right to temporarily refrain from the review of new AP applications during periods in which the allocation of any bullion product is required. The temporary refrain period will continue until a minimum of nine months after all allocations have been lifted, but no more than one year after all allocations have been lifted.

For more than two years the US Mint has continually resorted to their allocation program (rationing) in times when gold and silver bullion demand has spiked. From 2008 to 2010, Silver Eagles have spent more time under allocation than not, with the program implemented February 2008, lifted in June 2009, reinstated in December 2009, and lifted in September 2010.

Under the newly established rules, the US Mint can refrain from considering applications of potential new authorized purchasers until at least June 2011. During this time, if another demand spike necessitates the use of the allocation program, the clock starts again, but only after allocation has been lifted. Given the pattern of the past two years, the period of refrain could last indefinitely.

By law the US Mint is required to supply American Gold and Silver Eagles in quantities sufficient to meet public demand. In reality, the supply of coins is limited based on the number of planchets the US Mint can obtain from foreign suppliers, and distribution is limited based on the small number of authorized purchasers and the new hurdles placed before potential applicants.