Precious Metals News and Commentary
Thoughtful coverage to both sides of the gold story, price weakness due to forced selling of paper contracts and price strength due to overwhelming physical demand.
Why Jim Rogers chooses silver over gold
Gold is down 12 percent versus silver’s one third sell off. If prices move to the upside will the same ratios hold true?
The never-ending search for gold
Tales from the Great Depression and whatever we’re in right now.
Mother of All Short Squeezes for Gold
More and more people are putting together this string of factors and coming to the same conclusion:
1.) the price of physical gold and paper gold have disconnected
2.) instead of paying huge premiums for physical gold, just take delivery from the COMEX.
3.) the COMEX does not have nearly enough gold to cover open contracts.
Gold Hedges Fell 2.3 Million Ounces in Third Quarter
Gold miners hedge book is down to 16.5 million ounces from 29.1 million ounces a year earlier and 41.5 million ounces in the third quarter of 2006.
Equities and Commodities Tumble – Gold Decoupling
Equities and commodities seem to be growing increasingly correlated, while gold seems to be decoupling from both.
It’s only two trading days into November, and gold is already posting a sizable gain for the month. I took a look at some recent historical data to try to see if gold displays any seasonal performance patterns.
Specifically, I looked at the closing price of gold for each month since 1998. Then I determined the percentage gain or loss for each month based on the difference between the closing price present month and prior month.
With the percentage change for each month, I could take a look at the average gain/loss for each month and the number of times gold was up or down for each month. While this is only a limited set of data, it does suggest some strong seasonal patterns.
Closing Monthly Gold Prices 1998 – Present
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Monthly Percentage Change Gold Prices 1998 – Present
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Based on the data examined, gold typically experiences its worst month in October, which certainly held true this year.
Gold experiences its strongest month in September. This year gold posted its second biggest monthly percentage gain in September. Other strong months based on the data include January, November, and December. So far this year, January has held true. Will November and December follow?
I usually don’t put too much faith in seasonal patterns, but I feel that they are useful to be aware of. If nothing else, this is just one more factor contributing to a growing number of catalysts which could propel the price of gold higher into the end of the year.
The following memo was sent by the US Mint to authorized bullion purchasers.
MEMORANDUM TO ALL AMERICAN BUFFALO BULLION COIN AUTHORIZED PURCHASERS
SUBJECT: 2008–Dated American Buffalo Bullion Coins
On Monday, November 3, 2008, the United States Mint will resume taking orders for 2008-dated American Buffalo One Ounce Gold Bullion Coins.
Final inventory for these bullion coins is based on current in-house blank supplies and supplies are limited. The United States Mint will allocate these remaining coins among the Authorized Purchasers (AP’s).
The United States Mint will use a slight modification of its standard allocation process, which is as follows:
Monday morning, the inventory available for sale that week will be divided into two equal pools for this bullion coin product.
The first pool for this bullion coin product will be allocated equally to all active American Buffalo One Ounce Gold Bullion AP’s respectively (active AP’s are those which have purchased American Buffalo One Ounce Gold Bullion Coins in the past three fiscal years).
The second pool will be allocated based on each AP’s sales performance for this bullion coin product in the last three fiscal years (e.g., an AP who purchased 30% of all American Buffalo One Ounce Gold Bullion Coins during this time will be allocated 30% of this second pool).
Each AP will be advised via fax Monday morning (or if a government holiday, Tuesday morning) of its allocation, and will have until 3 p.m. on the following Friday to place an order for its allocated coins.
Any unordered coins remaining after 3 p.m. Friday will be put back into the pool for allocation the following Monday only until coin inventory for this product is depleted.
Included in the communication with each AP’s initial allocation on November 3 will be its allocation percentage based on sales performance.
Thank you for your patience and your continued support of the United States Mint Bullion Coin Program.
Premium for silver coins soars
Premiums are climbing for silver in any form. Even dealer buy prices for junk silver coins are a few dollars above spot.
Has your barber recommended investing in gold and silver yet?
Zimbabwe gold mines face collapse
Zimbabwe’s gold mining industry was Africa’s third largest nine years ago.
Is the silver futures market about to crack wide open?
“COMEX traders are trading contracts either side, long and short, of 479.4 million ounces of silver but only have 131.5 million ounces behind it.”
New 49’ers seek California Gold
It’s the great new outdoor activity of our time. Prospecting for Gold.
3 men with gold confuse sheriff’s sale
Three men attempt to buy foreclosed properties with bags of gold and silver. The sheriff conducting the sale opines that the three men are “anarchists” engaging in “paper terrorism.”
A market report from Legend Numismatics. The last section is of interest. Would be buyers of gold bullion are increasingly turning to generic gold coins instead, meaning semi-collectible coins such Gold Double Eagles from the early 1900’s.
New policy on purchase and sale of silver Libertad coins
A new policy from a Mexican bank with over 800 branches. They will raise their re-purhcase price for silver coins to align with the re-sale prices and try to match public supply and public demand. Basically, they will establish a price for silver based on actual market forces rather than Comex prices.
There has been much recent coverage of the rising premiums being paid to purchase physical gold and silver bullion. This has been cited as a consequence of the extreme demand for precious metals and evidence of the growing disconnect between market prices and physical prices.
I decided to look at some data to calculate exactly what kind of premiums are being paid and see if any trend or patterns in the data could be determined.
Specifically, I looked at selling prices for 100 ounce silver bars on eBay. I decided to use this as a source of data since 100 ounce silver bars have historically been a low premium method to acquire silver. Also, bars of silver are relatively undifferentiated. Bullion coins from different countries or with different dates often carry premiums based on those differences.
I used eBay data because it was accessible. Completed auction records can be obtained for the prior two weeks or more. Also, I believe that eBay represents a real time, liquid market of buyers and sellers who discover prices through a bidding process. Quoted dealer prices may be for delivery at a later date and may not represent actual available supplies.
There are some possible flaws with this method. It does not take into account potential premiums for different manufacturers. I don’t know if people pay more for different makes of bars. Also, shipping costs are not included in the price data used. Some auctions may carry higher shipping charges which would impact the final selling prices. And lastly, some auctions were “true auctions” which start at a minimal opening bid while others were fixed price listings.
Data was available from October 13 to today’s date. I did not include data for today or October 13, since it may represent partial data. I determined the average price for each day’s auctions which closed with a sale. I compared this to the closing market price of silver for each day.
Here is a summary of the data:
Average Price for 100 Ounce Silver Bars on eBay Compared to Market Price of Silver
| Date | Bars Sold | Ave Price | Market Price | Premium | Premium % |
| 14-Oct | 12 | $1,557.17 | $10.89 | $468.17 | 42.99% |
| 15-Oct | 10 | $1,524.70 | $10.92 | $432.70 | 39.62% |
| 16-Oct | 29 | $1,465.07 | $9.99 | $466.07 | 46.65% |
| 17-Oct | 19 | $1,427.68 | $9.56 | $471.68 | 49.34% |
| 18-Oct | 28 | $1,422.00 | $9.56 | $466.00 | 48.74% |
| 19-Oct | 46 | $1,419.04 | $9.56 | $463.04 | 48.44% |
| 20-Oct | 21 | $1,431.76 | $9.79 | $452.76 | 46.25% |
| 21-Oct | 17 | $1,391.94 | $9.86 | $405.94 | 41.17% |
| 22-Oct | 19 | $1,428.11 | $9.84 | $444.11 | 45.13% |
| 23-Oct | 25 | $1,382.84 | $9.34 | $448.84 | 48.06% |
| 24-Oct | 37 | $1,367.78 | $8.88 | $479.78 | 54.03% |
| 25-Oct | 13 | $1,389.31 | $8.88 | $501.31 | 56.45% |
| 26-Oct | 33 | $1,329.91 | $8.88 | $441.91 | 49.76% |
| 27-Oct | 15 | $1,337.33 | $9.01 | $436.33 | 48.43% |
Some charts based on this data appear to the right. (Click for larger versions) The data is only for a limited time frame, but it does spur some interesting observations.
The premium paid for a 100 ounce silver bar has ranged from 39.62% to 56.45%. The premium represents the amount paid in excess of the so-called “market price” of silver. People are clearly paying astounding premiums to acquire physical silver.
On October 15 and 22, the market price of silver dropped. In each instance this caused the percentage premium to rise. This lends some evidence to the anecdotal observation that a decline in market price only spurs greater demand for the physical metal.
Two distinct prices for silver seem to exist. The paper price for the contractual right to acquire future silver, and the physical price to acquire real silver, in hand. How and when will this situation resolve itself?
There have been several recent reports of bullion buyers seeking to take physical delivery of silver and gold from the COMEX. This would allow buyers to purchase real silver at the heretofore “fictional” paper price. If these deliveries take place and become a dependable source of purchasing physical silver, premiums for 100 ounce bars and other physical silver would likely begin to subside.
On the other hand, some are voicing the possibility that since the COMEX only has small coverage of physical metal for outstanding contacts, if enough contact holders demand delivery they will be forced to default and settle in cash. If this occurs, the likely result would be soaring market prices for silver and potentially greater premiums as the argument for physical scarcity gains another leg of support.
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More linkworthy gold and silver news and headlines from various places around the internet.
Mints struggle to meet metals demand
Provides some specific insight into the Royal Canadian Mint. They have doubled their output twice in the last right weeks. Quote from a bullion dealer, “Now it’s 99 per cent buyers and one per cent sellers, and people are buying whatever’s available.”
Goldcorp: Implosion Offers Shiny Opportunity
If you follow gold stocks, you know that they’ve all been decimated in recent weeks. The last time Goldcorp traded at its current price, gold was at $400.
A few weeks back the US Mint announced that they would be taking unprecedented actions to deal with the demand for bullion coins. This included production halts for some bullion coins and limited production for others until existing blank inventories were depleted. Read the full US Mint memo with details of the actions.
Yesterday the following memo was released announcing that starting Monday, the US Mint will resume taking orders for the remaining 1/10 oz. Gold Eagles and Platinum Eagles. The memo also provides some insight into how the US Mint will ration the remaining supplies.
October 24, 2008
MEMORANDUM TO ALL AMERICAN EAGLE BULLION COIN AUTHORIZED PURCHASERS
SUBJECT: 2008–Dated Bullion Coin Products
On Monday, October 27, 2008, the United States Mint will resume taking orders for 2008-dated American Eagle One-Tenth Ounce Gold Bullion Coins and all sizes of American Eagle Platinum Bullion Coins.
Final inventory for these bullion coins is based on current in-house blank supplies and some supplies are very limited. The United States Mint will allocate these remaining coins among the Authorized Purchasers (APs).
The United States Mint will use a slight modification of its standard allocation process, which is as follows:
Monday morning, the inventory available for sale that week will be divided into two equal pools for each bullion coin product.
The first pool for each bullion coin product will be allocated equally to all active American Eagle Gold One-Tenth Ounce and American Eagle Platinum APs respectively (active APs are those which have purchased American Eagle Gold One-Tenth Ounce or American Eagle Platinum Bullion Coins in the past three fiscal years).
The second pool will be allocated based on each AP’s sales performance for each bullion coin product in the last three fiscal years (e.g., an AP who purchased 30% of all American Eagle Gold One-Tenth Ounce Coins during this time will be allocated 30% of this second pool).
Each AP will be advised via fax Monday morning (or if a government holiday, Tuesday morning) of its allocation, and will have until 3 p.m. on the following Friday to place an order for its allocated coins.
Any unordered coins remaining after 3 p.m. Friday will be put back into the pool for allocation the following Monday only until coin inventory for each product is depleted.
Included in the communication with each AP’s initial allocation on October 27 will be its allocation percentage based on sales performance.
Please note: The inventory for the American Eagle Platinum One-Tenth Ounce Bullion Coins is very limited and will be allocated to the Authorized Purchasers with the highest sales performances for the past three fiscal years for this product.
Available inventory will remain on allocation each week for the American Eagle Gold One Ounce and American Eagle Silver Bullion Coins.
We will keep you informed when more information becomes available for the American Buffalo Bullion Coins.
Thank you for your patience and your continued support of the United States Mint Bullion Coin Program.
Links to some excellent gold and silver related stories and blog posts:
In Russia, investing in gold is difficult and any profits are hampered by 18 VAT charged on bullion purchases. As an alternative, some turn to jewelry. Sales of gold jewelry have surged 50% in the past two months.
Why the Price of Gold is Sinking Fast
Some great outside the box thinking about what’s keeping the price of gold down. Read the full post, but here’s my attempt to quickly summarize the idea: Gold and stocks are supposed to be negatively correlated. But since diversified investors now own both, does that make gold and stocks correlated?
How to Buy Physical Gold and Silver on the COMEX
The idea seems to be catching on.