October 2, 2022

Panic Selling Crushes Gold and Silver Prices – Bearish Sentiment Reaches Extreme Levels

goldThe precious metal markets, which have been under a constant drumbeat of negative news and bearish price forecasts for months, sold off sharply today.   Bearish investors seemed to reach the “give up” stage as gold and silver fell below key technical levels.  Panic selling continued to cascade throughout the day as precious metal investors hit the sell button and buyers stepped aside.

By the end of the trading day, gold dropped an astonishing $84 per ounce to close at $1,478, down over 5% on the day and below $1,500 per ounce for the first time since July 5, 2011.   Silver had an even worse day with a price decline of 6.5%, closing down $1.81 per ounce at $25.95.

Analysts had multiple reasons for the huge decline in gold and silver prices including the belief that inflation will remain subdued and the Federal Reserve would begin to slow the pace of monetary stimulus later this year.  In addition, many trend following investors are repositioning out of precious metals into other investment opportunities such as stocks which have appreciated by over 100% since the depths of the financial crisis.  By contrast, gold and silver  have been unable to breach highs reached in mid 2011.

Also weighing on investor’s mind was the fear that the proposed sale of over $500 million of Cyprus gold reserves would further pressure gold prices.  Comments in the Wall Street Journal suggested that other countries may also be forced to sell their gold reserves.

The news about Cyprus “gets people to wonder: Will there be central-bank liquidation of gold when other countries get into trouble?” said Adam Klopfenstein, senior market strategist with Archer Financial Services in Chicago. “Selling gold might be the new caveat for any future [bailout] deals.”

The match that ignited the explosive move to the downside was struck on Wednesday when Bloomberg reported that Goldman Sachs predicted sharply lower gold prices and suggested that investors actually short the gold market.

The turn in the gold price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum, according to Goldman Sachs Group Inc., which reduced forecasts for the metal through 2014.

The bank cut its three-month target to $1,530 an ounce from $1,615 and lowered the six- and 12-month predictions to $1,490 and $1,390 from $1,600 and $1,550. Goldman recommended closing a long Comex gold position initiated on Oct. 11, 2010 for a potential gain of $219 an ounce, analysts Damien Courvalin and Jeffrey Currie wrote in a report today.

“Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” the Goldman analysts wrote in the report. “While higher inflation may be the catalyst for the next gold cycle, this is likely several years away.”

Goldman cut its 2013 gold estimate to $1,545 an ounce from $1,610, trimmed its 2014 forecast to $1,350 from $1,490, and set year-end targets of $1,450 in 2013 and $1,270 in 2014. Goldman recommended starting a short Comex gold position, targeting $1,450 with a stop at $1,650, the analysts wrote.

Ironically, the biggest worry for gold and silver investors now comes from the precious metal ETFs, which greatly contributed to the precious metals bull market as investors poured billions of dollars in the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV).  If investors in the GLD and SLV initiate panic liquidations, a sharp rebound in gold prices may be wishful thinking despite today’s huge sell off.  According to Goldman Sachs,  “The fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across Comex futures and gold ETFs remain near record highs.”

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

The bearish sentiment and price action on gold and silver seemed to have reached extreme levels.  Does anyone hear a contrarian bell ringing?

The Financial System Has Reached The Implosion Point

coinA profound thanks to all the short term fickle speculators in gold and silver who have shifted their portfolio allocations to stocks, bank accounts and certificates of confiscation government bonds .  The shift to paper assets has provided what will in hindsight be the best buying opportunity for gold and silver since the crash of 2008.

BY:  GE Christenson

March and April 2013 may go down in history as the tipping point for the western financial system.

We have already seen:

  • Lehman Brothers and many other financial firms collapse.
  • $700 Billion in TARP funds arranged by banking insiders for banking insiders at the expense of US taxpayers.
  • Over $16 Trillion in bailouts, guarantees, swaps, and loans created by the Fed and given to various banks, nations, and other insiders.
  • MFGlobal took “segregated” customer funds, the exchange provided no compensation to customers, and yet no criminal indictments have been issued.
  • Global derivatives total $700 Trillion to well over $1,000 Trillion, depending on who is counting. Some are “toxic waste.”
  • Many European bailouts and “fixes.”
  • Spain, Italy, Slovenia, and perhaps France in trouble.
  • US official debt approaching $17 Trillion with unfunded liabilities many times larger.
  • The Federal Reserve creating $85 Billion per month (over $115,000,000 per hour) to support banks and the US government.

So what other disasters could occur? In a word, Cyprus!

  • Not because the EU and Cyprus took Russian money.
  • Not because several banks will close.
  • Not because some deposits will be confiscated and/or frozen.

In my opinion, the sign that a tipping point has occurred in the financial system is the real story:

  • The veil of banker honesty has been lifted. The EU/IMF/ECB will do whatever is necessary to support the banks, even if it means they will confiscate (tax, steal, bail-in) customer deposits.
  • Customer deposits are NOT assets held in the bank for safe-keeping, but are liabilities of the bank and are not guaranteed to be made whole.
  • Billions of dollars were removed prior to the Cyprus freeze, so insiders clearly knew in advance of the ordinary depositors (see below). There is no “level playing field” when billions of dollars/euros are in play.
  • According to Jeroen Dijsselbloem, Dutch finance minister and Euro Group President, this is “the template for any future bank bailouts.” In other words, your deposits are considerably less safe than you thought. Your bank could fail, and your deposits might be used to compensate for derivative losses or other losses that the bank incurred.
  • The FDIC in the US, as well as England, Canada, and New Zealand, has announced similar policies, agreements, and plans to confiscate deposits in the case of an emergency. Is this a sign that an emergency is not only possible but probable and imminent?
  • Confidence in the banking and financial system has been seriously damaged, perhaps irreversibly.

Following are a few quotes from respected commentators:

Jim Sinclair: If the fools that have attacked Cyprus persist then it is the start of an avalanche that will destroy confidence in fiat currency, the fractional reserve system and central banks. What are the central bankers terrified of? My answer is the mountain of old OTC derivative coming home to roost.” Link.

Tyler Durden: “With every passing day, it becomes clearer and clearer the Cyprus deposit confiscation “news” was the most unsurprising outcome for the nation’s financial system and was known by virtually everyone on the ground days and weeks in advance: first it was disclosed that Russians had been pulling their money, then it was suggested the president himself had made sure some €21 million of his family’s money was parked safely in London, then we showed a massive surge in Cyprus deposit outflows in February, and now the latest news is that a list of 132 companies and individuals has emerged who withdrew their €-denominated deposits in the two weeks from March 1 to March 15, among which the previously noted company Loutsios & Sons which is alleged to have ties with the current Cypriot president Anastasiadis.” Link.

Peter Cooper: “Depositors in the beleaguered Bank of Cyprus are now facing losses of 60 per cent on deposits over 100,000 euros as the Cyprus Government seems to have woken up to the fact that this is its last chance to steal money off these mainly foreign depositors. It’s an absolute travesty and a red letter day for European Union banks…

“Money in EU bank accounts is clearly now up for grabs by any government that recapitalizes its banking sector. Moreover, the Cyprus precedent is going to cause a run on the weaker banks that will make this sort of recapitalization inevitable. Standby for a systemic banking crisis in the EU…

“What the EU has done in Cyprus is the modern equivalent of the failure of the Credit Anstaldt in 1931 that brought on the Great Depression with thousands of banking failures around the world.” Link.

Jim Sinclair: “I believe Cyprus is the defining moment whereby the physical market for gold overtakes the paper market for gold as the arbiter of price. When that occurred in 1979 the price of gold began its move to seek its maximum valuation.” Link.

Julian DW Phillips: “When it was announced [in Cyprus] that both large and small depositors were to have a percentage of their deposits seized, it was not the amount that horrified the world but the discovery that you do not own your own bank deposits… Most investors worldwide are of the belief that when you deposit your money in a bank, it simply has safe-keeping of that money. The realization that you have lent the bank your money and are an “Unsecured Creditor” of the bank is an unpleasant revelation.” Link.

Michael Snyder: “What you are about to see absolutely amazed me when I first saw it. The Canadian government is actually proposing that what just happened in Cyprus should be used as a blueprint for future bank failures up in Canada.

The following comes from pages 144 and 145 of “Economic Action Plan 2013″ which you can find right here. Apparently the goal is to find a way to rescue “systemically important banks” without the use of taxpayer funds…”

“In addition, branches of the two largest banks in Cyprus were kept open in Moscow and London even after all of the banks in Cyprus itself were shut down. So wealthy Russians and wealthy Brits have been able to take all of their money out of those banks while the people of Cyprus have been unable to…”

“The global elite are fundamentally changing the game. From now on, no bank account on earth will ever be able to be considered “100% safe” again. This is going to create an atmosphere of fear and panic, and no financial system can operate normally when you destroy the confidence that people have in it.

Confidence is a funny thing – it can take decades to build, but it can be destroyed in a single moment.” Link.

Ellen Brown: “Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.” Link.

Richard Russell: “I’ve been asked to name one future situation of which I’m most certain. My answer is this – I believe the surest situation (change) in America’s future is a decline, even a drastic decline, in our standard of living. We’ve spent it; we’ve spent what we didn’t have. And somewhere ahead, probably much sooner than we think, will come payback time. And it won’t be pretty.” Link.

Summary

GE Christenson
aka Deviant Investor

Why The Long Term Price of Silver Is Guaranteed To Rise

By: GE Christenson

Walking-Liberty-HalfBegin the analysis in 1971 when Nixon dropped the link between the dollar and gold. A pack of Marlboros cost (depending on local taxes) about $0.39. We paid about $0.36 for a gallon of gasoline. The DOW Index was about 850. Silver was priced at about $1.39.

Times have changed! Read Part 1 of Silver – Keep It Simple!

Today we have more currency in circulation, far more debt, and much higher prices – what does it mean?

Examine Graph 1. The prices for retail cigarettes, crude oil, national debt, silver, and the true money supply (TMS) (see notes at end) are shown on a log scale graph with all prices normalized to start at 1.0 in 1971.

Click on image to enlarge.
  • National debt (green line) has increased rapidly since 1971 and even more rapidly, on average, than the other items. (National debt has increased over 12% per year for the last five years.)
  • Silver (black line) and crude oil (red line) prices have been erratic with peaks in the early 1980s, troughs in the late 1990s, and substantial rises since 2001.
  • Cigarettes and TMS have increased steadily since 1971.
  • TMS (also M2, M3, etc.), debt, and most commodity prices have increased exponentially since 1971. Because the dollar was not backed by gold, dollar creation, total debt, and prices increased rapidly.
  • Not shown are some prices that increased more rapidly (medical costs and college tuition) and some that increased more slowly (postage and bread).

Graph 2 shows annual silver and crude prices smoothed with a centered five period moving average. This removes much of the “noise” in the price data and shows longer term trends better. Note that the price of silver actually reached about $50 per ounce in early 1980, but the average daily price in 1980 was only $16.39; the smoothed daily average was about $11.

Click on image to enlarge.

Statistical Correlations

  • Silver prices in dollars (annual average of daily price) correlated with crude prices in dollars (annual average of daily price) at 0.83 – a good correlation. Both are commodities, both are affected by politics, and both are sensitive to money supply, actual inflation, and inflationary expectations.
  • TMS correlated with national debt at 0.99 – a tight correlation. When budget deficits increase the national debt, the money supply expands accordingly.
  • Silver prices (annual average shown) correlated with national debt at 0.67 and with TMS at 0.58. The smoothed silver price correlation to national debt was 0.76 over 40 years and much higher over the past 13 years.
  • Silver prices (smoothed) correlated with crude prices (smoothed) at 0.93 – an excellent correlation.

So What?

  • National debt correlates tightly with TMS. Smoothed silver prices correlate well with both national debt and TMS. We may be apprehensive about future silver prices, but we can be 99.99% certain about the inevitable increase in national debt. Based on the 40 year correlation between silver and national debt, silver prices will continue to rise.
  • Both crude oil and silver are commodities that experience large price volatility. On average, they go up and down together; and, over a 40 year history, their prices have clearly moved substantially higher. I see many reasons to expect both to move higher in the long term.
  • Crude oil is the most important commodity in the world. Its per capita use, on average, is rising and the world’s population is increasing, so demand will remain strong, unless the world suffers a massive financial and economic collapse. Further, the easily available oil has been taken so there is little chance that inexpensive supply will increase. More demand coupled with flat or declining supply requires higher future prices. Higher crude oil prices strongly suggest higher silver prices.
  • Central banks are “printing money” in their desperate attempt to fight deflation, levitate asset prices, bailout banks and countries, and encourage inflation. This guarantees further increases in national debt and TMS and price increases for most commodities including crude oil, cigarettes, and silver.

Price of Silver as a Projection Based on Other Variables

We can construct a calculated price for silver based on three variables – national debt, TMS, and the price of crude oil. Examine Graph 3 of smoothed silver prices and the calculated price of silver based on those three variables. Note that the correlation is 0.86 – quite good. The silver price has both a monetary component (national debt and TMS) and a commodity component (crude oil). Together they produce a simple but effective projection for the smoothed average price of silver over the past 42 years.

Click on image to enlarge.

For the Future

Assume national debt increases 12% per year for the next five years like it has for the past five years. Assume TMS and crude continue their past five year growth rates (11% and 8%). The estimated price for the smoothed average price of silver is about $55 in 2016. The peak price on a spike higher could easily be triple the smoothed price. Look for $100 silver in 2015 – 2017 unless a deflationary collapse occurs – to the detriment of everyone including banks, politicians, and national governments.

Conclusion

Debt, money supply, and the prices for most commodities have exponentially increased over the past 42 years. Prices for crude oil and silver have substantially increased but inconsistently. I can be certain of death and taxes, and I feel confident that the national debt and prices for crude oil, cigarettes, silver, and most other consumer items will drastically increase in the next few years – under circumstances similar to the past 40 years. A hyperinflationary increase is also possible, in which case, all commodity prices will be unbelievably higher. Assuming no deflationary collapse, expect $100 silver relatively soon – perhaps in 2016. Read Past & Future Speculative Bubbles – What They Indicate for Gold and Silver!

GE Christenson
aka Deviant Investor

Silver Bullion Coin Sales Heading for Record Highs In 2013

Sales of the American Eagle silver bullion coins soared in March, continuing a trend of record breaking sales that has been in force for the past five years.

american-silver-eaglePrior to the financial crisis, sales of the one ounce American silver eagles averaged about 10 million coins per year.  The near collapse of the financial system in 2008 raised profound questions about the integrity of the financial system and the rush to precious metals was on.  Since 2008, annual sales of the American Eagle silver bullion coins have soared with average annual sales of over 31 million coins.

According to the U.S. Mint, sales of the American Eagle silver bullion coins totaled 3,356,500 ounces in March, up 32% from comparable sales of 2,542,000 ounces during March 2012.   Total sales of 14,223,000 ounces through March 31, 2013 soared by 40.3% over the comparable prior year period.

The previous record year for silver bullion coins was in 2011 when 39,868,500 coins were sold. The 2011 record may wind up looking like a low number compared to projected total sales for 2013.  Based on sales for the first three months of the year, annualized sales for 2013 could hit a record shattering 57 million ounces although even this estimate may be too low.  As the slow motion collapse of the European banking system speeds up, the looming specter of  huge losses by bank depositors could create a total loss of confidence in paper money and ignite a panic move into gold and silver.

The U.S. Mint has vastly underestimated demand for the American Eagle silver bullion coins and was recently forced to suspend sales twice as physical demand for silver soared (see U.S. Mint Sold Out).

Since 2000, investors have purchased almost a quarter billion ounces of silver bullion coins from the U.S. Mint, worth almost $7 billion based on the current price of silver.

American Silver Eagle Bullion Coins

YEAR

OUNCES SOLD

2000

                 9,133,000

2001

                 8,827,500

2002

               10,475,500

2003

                 9,153,500

2004

                 9,617,000

2005

                 8,405,000

2006

               10,021,000

2007

                 9,887,000

2008

               19,583,500

2009

               28,766,500

2010

               34,662,500

2011

               39,868,500

2012

33,742,500

2013

14,223,000

TOTAL

            246,366,000

Total sales for 2013 are through March 31, 2013.

How To Buy, Store and Sell Gold and Silver

By: GE Christenson

You want to buy silver and gold. There is much to consider!

safe

  • Physical metal or paper promises?
  • From which supplier will you buy it? Price is not the only consideration.
  • Where do you store it? Your sock drawer, a safe, insured and secure vault, or in another country?
  • How do you sell it and when?
  • IRS Rules

 

Physical, ETF, or Paper?

Do you want actual physical silver and gold that you can hold in your hand? If you do, then buy coins or bars and skip ahead.

If you want to buy and sell easily without taking delivery of actual metal, then perhaps you should invest in an ETF (Exchange Traded Fund) for gold and silver. The fees are minimal; ETFs are convenient and good for frequent trading. The two most popular are GLD and SLV. They are also criticized by many analysts, so I encourage you to also consider PHYS, PSLV, GTU, and others.

If you want paper, then buy options or futures contracts and be careful. When elephants fight, the grass gets trampled – and most of us are merely grass in the world of futures trading.

You Want to Buy Physical Gold and Silver Coins and Bars. Good! Where?

There are many dealers who will sell over the internet and ship to your home or to a secure storage vault. Their prices will vary slightly and so will their terms for payment and delivery. See the partial list and brief comments at the end of this article to get started. There are many other fine dealers in addition to the few examples I have listed.

Storage

More important than where you buy is whether you will buy for delivery to your home, delivery to a secure domestic storage facility, or for delivery to a vault outside of the United States.

Your home – Convenient and close but vulnerable to fire and theft. Your sock drawer is not recommended – buy a safe, hide it, and tell very few.

Safe deposit box at local bank – Secure, less convenient, probably not insured, and vulnerable to a search warrant, court order, and banking shutdown. Use a local bank, not a branch of a huge mega-bank.

Secure storage in the USA – Very secure and safe but may not be close or convenient. Are you comfortable with such storage? If so, then this is an excellent choice. Choose a vault OUTSIDE the banking system.

International Storage – You can store in commercial vaults in London, Canada, Switzerland, Hong Kong, Singapore, Australia, and other locations. The IRS MAY want to be told what you are storing and its value if you are an American citizen and storing internationally. See IRS Rules.

How Do you Sell Your Gold and Silver?

If you are buying for insurance against devaluing paper currencies, perhaps you intend to hold it for a long time or expect to will it to your family. In either case, don’t sell it.

If your gold and silver coins are in your possession, then you can sell via the internet or take them to a local coin store. Most companies that will sell to you via the Internet or a phone call will also buy back at a slight discount to sales price (they have to sell at a mark-up to stay in business). You can also sell on eBay or to private individuals. There probably will be tax implications, so consult with your tax advisor.

When to Sell Gold and Silver?

Again, there is no right answer for everyone. Some will argue that gold and silver are essential insurance against unbacked paper currencies and so should never be sold. Investors may want to hold until they see some large price, say $150 silver and $4,000 gold. Others wish to trade in and out, buying low and selling high. Your choice will help determine if you want paper silver, an ETF, coins, or bars, stored domestically or offshore. It is easy to sell paper or an ETF. It may be less convenient to sell coins and bars that you have stored in a safe deposit box. It probably will be easy to sell gold stored in Switzerland.

Jim Sinclair, legendary gold trader and investor, says buy “fish lines” and sell “rhino horns.” What he means is that markets, especially gold and silver markets, often move too far, too fast, both up and down. The down moves – the fish lines – scare out leveraged speculators and “weak hands” and usually indicate good buy points for long-term investors. When leveraged speculators, hot money, and the public drive the market higher in a parabolic spike upward, the chart looks like a rhino horn, and that often indicates a good time to sell. There will be many more signals, but most of us are overwhelmed by greed and fear, especially panic, and we often miss the signals. In 1929 the “signal” was to sell when shoeshine boys were giving stock tips. Something similar will happen at the next panic high in gold and silver, but that may be years away.

IRS Rules

The IRS has instituted new rules for United States taxpayers. We are now required to report holdings of foreign assets on form 8938 (Statement of Specified Foreign Financial Assets) and form TD F 90-22.1. Consult with your tax attorney and financial advisor, but the simple interpretation is this:

If you own financial assets in another country worth more than certain amounts, usually you must report these assets on form 8938 with your federal tax return and on form TD F 90-22.1 due June 30 of each year. It is wise to comply with IRS requirements as the penalties can be severe. There may be exceptions that your professional advisor can discuss, but these relatively new requirements may influence your choice of investments and their storage locations.

Alphabetical (partial) list of gold and silver vendors with brief comments on each.

Please do your own research before making a purchase.

APMEX – Large gold and silver bullion and coins dealer operating out of Oklahoma. They maintain a sizeable inventory and will buy and sell online in several currencies with reasonable commissions. Apmex will “lock-in” a purchase price online and accept a personal check in payment (with delayed delivery). If you wish, they will also arrange for secure storage with a subsidiary company and ship directly to that insured storage facility. Apmex will assist with the purchase of silver and gold for investment in your qualified IRA.

Bullion Vault – Secure insured vault storage in London, Zurich, and New York for both gold and silver. Purchases can be arranged quickly and online in different currencies with low costs for storage and insurance. It is easy to sell or take delivery of your metals.

Global Gold – Secure insured vault storage in Switzerland, Hong Kong, and Singapore for both gold, silver, platinum, and palladium. Purchases can be arranged quickly and online with low costs for storage and insurance. It is easy to sell or take delivery of your metals. Ownership is physical and fully allocated.

GoldMoney – Secure insured storage in the UK, Switzerland, Hong Kong, Canada, and Singapore for both gold and silver. Purchases can be arranged quickly and online in different currencies with low costs for storage and insurance. It is easy to sell or take delivery of your metals.

GoldSilver.com – Large gold and silver coin and bullion dealer operating out of California. They maintain a sizeable inventory and will buy and sell online with reasonable commissions. GoldSilver.com will arrange storage in Singapore, Hong Kong, Canada, or the USA. You can easily sell your gold and silver holdings or take delivery. They also will assist with purchasing gold and silver coins and bullion for your retirement accounts. If you have time, watch their instructional videos.

Hard Assets Alliance – This is a relatively new company that attempts to meet many needs including convenient gold and silver purchases with secure insured and allocated storage for gold and silver. Silver can be stored in the US but currently only gold can be stored offshore in several countries. Their downloadable information booklet states:

Exempt from US reporting requirements. As a domestic institution, GBI’s US customers are exempt from both the FBAR and Form 8938 filing requirements if offshore metal storage is elected.”

In some circumstances, this exemption from US reporting requirements may be important in your decision-making process.

Lear Capital – Large gold and silver coin and bullion dealer operating out of California. They maintain a sizeable inventory and will buy and sell online with reasonable commissions. Lear Capital will assist with purchasing gold and silver coins and bullion for IRA and 401k retirement accounts.

Liberty Gold and Silver – A smaller gold, silver, and platinum coin and bullion dealer operating out of Oregon. Liberty Gold and Silver will assist with purchasing gold and silver coins and bullion for IRA accounts and can arrange secure allocated storage in the USA, Canada, Germany, Switzerland, and Singapore.

Perth Mint – Located in Australia, the Perth Mint has been in business for over 100 years and is owned by the Government of Western Australia. The mint refines and produces a variety of products, special coins, and commemoratives in gold, silver, and platinum. The Mint receives over 70,000 visitors each year. You can purchase coins and bullion for delivery and arrange for allocated or pooled storage of your metals.

SilverSaver – Secure insured storage in the USA for gold and silver. You can make convenient periodic purchases by direct withdrawal from your checking account. This allows for a signup and forget “dollar-cost averaging” purchase plan. You can also take delivery of your gold and silver or easily sell it back to SilverSaver.

The Ultimate Gold Trust – Gold can be purchased and held in Switzerland. This storage solution is recommended by Julian D. W. Phillips, a frequent commentator on gold and gold storage options. Read his latest article on the safety of offshore storage.

GE Christenson
aka Deviant Investor

Gold and Silver Bullion Coin Sales Soar In February

Sales of both the American Eagle gold and silver bullion coins soared in February compared to the previous year.

According to the U.S. Mint, sales of the American Eagle gold bullion coin totaled 80,500 ounces in February, up 283% from comparable sales of 21,000 ounces during February 2012.  During January, the Mint sold 150,000 ounces of the gold bullion coins compared to 127,000 ounces during January 2012.  January gold bullion sales were the six largest on record and the most since July 2010 when the Mint sold 151,500 ounces.

Total 2013 sales of the American Eagle gold bullion coin through February are up 56% over the comparable period for last year.  Year to date, the U.S. Mint has sold 230,500 ounces of gold bullion coins compared to a total of 148,000 ounces during the first two months of 2012.

The American Eagle gold bullion coin is available in one ounce, one-half ounce, one quarter ounce and one-tenth ounce versions.   The vast majority of gold bullion coins are purchased as one ounce coins as can be seen from the February sales breakdown listed below.

FEB 2013 GOLD BULLION SALES
OUNCES # COINS
ONE 68,000 68,000
HALF 2,500 5,000
QUARTER 3,000 12,000
TENTH 7,000 70,000
80,500 155,000

Sales of the American Eagle silver bullion coin also remained robust after last month’s record shattering sales total.  During January, the U.S. Mint sold 7,498,000 silver bullion coins as public demand for physical silver coin soared.  The huge demand for the American Eagle silver coins forced the U.S. Mint to suspend sales twice as they sought to ramp up production to meet demand.  Ever since the financial crisis and the subsequent open ended money printing operations by the Federal Reserve, demand for physical silver has continued strong.   Prior to 2008, total annual sales of the silver bullion coins averaged only around 9.5 million coins.  During 2012, the U.S. Mint sold 33,742,500 silver bullion coins.

During February, the U.S. Mint reported that 3,368,500 American Eagle silver bullion coins were sold, an increase of 126% over sales of 1,490,000 ounces during February 2012.  Year to date sales of the silver bullion coins through February total 10,866,500, up by 43% over the comparable two month period during 2012 when 7,597,000 silver bullion coins were sold.

Long term investors are taking advantage of temporary price weakness in precious metals to add to positions (see APMEX Reports Sales Spike).   Virtually every major central bank in the world is now engaged in open ended money printing operations and blatant attempts to competitively devalue their currencies.  The public is not stupid and continued demand for physical gold and silver proves that gold and silver are becoming the default store of value.

Both the American Eagle gold and silver bullion coins are sold to the Mint’s network of authorized purchasers who buy the coins in bulk based on the market value of the precious metals and a markup by the Mint.  The public is not allowed to purchase bullion coins directly from the Mint but are allowed to buy numismatic versions of the coins.  The gold and silver bullion coins are sold by the authorized purchasers to the public, other bullion dealers and coin dealers.  The rationale for the Mint’s use of authorized purchasers is that this method makes the coins widely available to the public with reasonable transaction costs.

The Fundamental Reasons For Owning Gold and Silver Are Stronger Than Ever

One of the best methods for protecting wealth against a constantly depreciating paper currency is to own precious metals.

The bull case for precious metals remains intact as central bankers worldwide have become the lenders of last resort for nations that have exhausted their borrowing capacities.  Very little has changed since 2008 when the world financial system stood at the abyss of collapse.  Unsustainable debt levels continue to increase even as the capacity to service the debt diminishes.

As discussed in Why There is No Upside Limit For Gold and Silver Prices, the U.S. has reached a tipping point on the road to insolvency. Despite trillions in stimulus spending, both job creation and economic growth have been extremely weak and are likely to remain so.

Economists Kenneth Rogoff and Carmen Reinhart, authors of This Time Is Different: Eight Centuries of Financial Folly, offer comprehensive statistical evidence of the dangers of excessive public debt.  As documented in their book, once public sector debt reaches 90% (which the U.S. is very close to) a country has only three options, all of them bad.

According to Rogoff and Reinhart, the only way out for overleveraged nations is a restructuring through default, austerity or allowing inflation to increase while repressing interest rates at a very low level.

Default is the most drastic and least likely remedy to be used by a country such as the United States which issues its own currency and can create an unlimited number of dollars to service debt payments.

Austerity, the second option, is a highly unlikely scenario under our current democratic system.  Any politician voting for austerity measures would quickly be voted out of office and replaced by another politician promising continued funding of the social welfare state.  Since over half the country’s population currently depends on entitlement programs to survive, the power of the majority vote guarantees that austerity will not  become a policy for putting the country back on a fiscally sound economic path.  The inability to reduce unsustainable spending  or impose confiscatory rates of taxation leaves the government with one bad option – print more money.

The United States is currently locked into policy options that guarantee a long term rise in gold and silver prices.  The current weakness in precious metals represents a buying opportunity for those seeking to accumulate and protect their wealth over the long term.

Expect $200 Silver As The Shift To Real Assets Accelerates

By: Deviant Investor

silver-coin-sm

    • Silver has no counter-party risk. It is not someone else’s liability. Silver Eagles or Canadian Silver Maple Leaf coins are recognized around the world and have intrinsic value everywhere. The same is NOT true for hundreds of paper currencies that have become worthless, usually because the government or central bank printed them to excess to pay the debts of governments that did not control spending.
    • The price of silver in US dollars since the year 2001 has been strongly correlated with the ever-increasing official national debt of the United States. Read $100 Silver! Yes, But When? I doubt that anyone believes the national debt will decrease or even remain constant over the next four years. We have every reason to believe that it will increase by well over $1,000,000,000,000 per year for many years. If the national debt is rapidly increasing and it correlates, on average, with the price of silver, then we can be reasonably certain that the HIGHLY VOLATILE price of silver will increase substantially over the next few years.

Click on image to enlarge.
    • Silver has been used as money (medium of exchange and a store of value) for over 3,000 years. In most cultures, silver has been used for daily transactions far more often than gold. I have read that the word for “money” is the same as the word for “silver” in many languages.
    • In the United States silver was used as money – coins – until the 1960s when inflation in the paper money supply caused the price of silver to rise sufficiently that silver coins were removed from circulation. Do you remember silver dollars? They contained approximately 0.77 ounces of silver. Currently the US Mint produces silver eagles which contain 1.0 ounce of silver – and cost approximately $35.

silver-coin

  • Argentina has devalued their currency several times and has dropped eight zeros off their unbacked paper money in the past 30 years. The United States has not dropped any zeros from dollars, but it took approximately one-half of one dollar to buy an ounce of silver 100 years ago, while it takes over 30 in today’s reduced value dollars. It took about 20 dollars to buy an ounce of gold 100 years ago and it takes over 1,600 dollars to buy that same ounce of gold today. There are many more dollars (paper and electronic) in circulation today compared to 100 years ago. Hence the prices, measured in declining value dollars, for silver, gold, wheat, crude oil, bread, coffee, and ammunition is MUCH larger.

 

  • Throughout history the prices of gold and silver have increased and decreased together, usually with gold costing 10 to 20 times as much as silver. A historical ratio of 15 or 16 is often quoted and that places the current ratio, which is in excess of 50, as relatively high. Since Nixon “closed the gold window” on August 15, 1971 and allowed the dollar to become an unbacked paper currency that could be created in nearly unlimited quantities, the gold to silver ratio has ranged from a high of approximately 100 to a low of approximately 17. There is room for silver prices to explode higher, narrowing the ratio to perhaps 20 to 1. When gold reaches $3,500 (Jim Sinclair) and subsequently much higher in the next few years, and assuming the ratio drops to approximately 20 to 1, the price of silver could approach $200 per ounce, on its way to a much higher number, depending on the extent of the QE-Infinity “money printing,” panic, hyperinflation, and investor demand.

 

  • If you think a silver price of $200 per ounce is outrageous, I suspect you would find near universal agreement among most Americans. But is a national debt in excess of $16,000,000,000,000 less outrageous? If unfunded liabilities are included the “fiscal gap” is, depending on who is calculating it, approximately $100,000,000,000,000 to $220,000,000,000,000. For perspective, that places the unfunded liabilities of the US government at approximately $700,000 per person in the United States. Is $700,000 unfunded liability (debt) per man, woman, and child more believable than a price for silver of $200?

It seems likely that the populace will eventually realize that:

  • Government spending is out of control and will not be voluntarily reduced.
  • “Printing money” or debt monetization (QE) is necessary and inevitable in order to continue funding the excess spending of the US government. More money in circulation means a declining purchasing power for the dollar. The decline is likely to accelerate at some time in the future.
  • The real value of our savings and retirement diminishes as the dollar declines in value.
  • People will panic and shift into real assets to preserve their purchasing power. (There is no fever like gold fever!)
  • That panic will cause gold, silver, and many other real assets to drastically increase in price, as measured in devalued dollars.
  • It is better to be early than late if a panic-moment is about to arrive.
  • Silver is less expensive per ounce than gold and more available for purchase than gold, particularly for middle-class westerners. An investment into silver is likely to appreciate more than a similar investment in gold.

What Do You Believe?

  • Do you believe that excessive spending and debt will be reduced?
  • Do you believe that the decline in purchasing power of the dollar over the last 100 years will suddenly
  • Do you believe that congressional promises for Social Security, Medicare, Medicaid, and government pensions will be broken?
  • Do you believe the Federal Reserve will continue to print the money to pay for those promises?
  • Do you believe your savings and retirement are totally safe in paper investments denominated in dollars?
  • Do you believe, as history indicates, that paper money eventually devalues to zero while gold and silver retain their value?
  • Do you believe that the world will suddenly stop using silver, instead of finding new uses for it every year?
  • Would you rather trust silver coins in a safe place or paper money and political promises?
    Most people will do nothing to protect their financial future. Will you?
    GE Christenson
    aka Deviant Investor

American Silver Eagle Bullion Coin Sales Soar To All Time Record High

With two days remaining in the month of January, U.S. Mint sales of the American Silver Eagle bullion coins have already established an all time record high.   The latest numbers from the Mint show total sales of 7,420,000 silver bullion coins as January 29, 2013.  Total sales during January 2012 amounted to 6,107,000 coins.  During January 2011 (the previous monthly record high for silver bullion coin sales) the Mint sold 6,422,000 coins.

The public demand for silver seems insatiable.  To put the unprecedented demand for silver into perspective, prior to the financial crisis of  2008, total yearly sales of the silver bullion coin averaged only about 9.5 million coins per year.  With the Federal Reserve furiously printing money to keep the financial system glued together, investor demand for both physical silver and gold bullion is likely to increase dramatically.

The US Mint has been unable to keep up with the demand for American Silver Eagles for the past two months (see U.S. Mint Sold Out).  During December, unexpectedly strong demand resulted in the suspension of silver bullion coin sales during mid December after the entire stock of 2012 coins was sold out.  At the time the Mint announced that the 2013 American Silver Eagles would be available on January 7, 2013.

Opening day sales on January 7th for the 2013 American Silver Eagle bullion coins turned out to be the largest on record with sales of 3,937,000 coins.  Demand for silver bullion continued to climb and by January 17th, the Mint once again announced that sales of the silver bullion coins would be suspended until the last week of January.  When sales resumed this week, demand was again much higher than anticipated.  Due to record demand, the Mint previously announced that they may have to institute rationing of the coins.  Since the US Mint’s production schedule has been blown right out the window for two months running, it would not be surprising if rationing of the coins was implemented.

Sales of the American Eagle Gold bullion coins has also soared during the first month of the year.  January sales to date of 140,000 ounces of gold bullion coins is the highest monthly sales since June 2010 when the Mint sold 151,500 ounces.

Gold At $10,000 – Silver At $400 – Here’s How It Will Happen

By GE Christenson:

This is not a prediction of future prices of gold and silver; it is an indication of what could happen in a speculative bubble environment based on the history of previous bubbles.

I’ll summarize a simple analysis of past bubbles.

Definitions

    • Bubble: A speculative mania in a market that is priced well beyond what the fundamentals and intrinsic value indicate.
    • Phase 1: The first phase of the bubble begins with the price bottoming and initiating a long rally. It is often indicated by a triggering event such as Nixon closing the “gold window” on August 15, 1971 – the beginning of the gold and silver bubbles that terminated in 1980. The market rallies for some years, hits a new “all-time” high, and then corrects.

When the market proceeds into a bubble phase, it rallies beyond that new high and continues much higher. The end of phase 1 and the beginning of phase 2 are the point at which the market rallies from its correction low and exceeds its previous high. See the graph of the silver market with the indicated beginning and end points for phase 1 and phase 2.

  • Phase 2: The final phase of the bubble starts when the price exceeds the “new high” and then rallies to a much higher and unsustainable level.

Click on image to enlarge.

I looked at the time and price data for the South Sea Bubble in England from 1719 -1720, the silver bubble from August 1971 to January 1980, the NASDAQ bubble from August 1982 to March 2000, the Japanese Real Estate bubble from 1965 to 1991, the gold bubble from August 1971 to January 1980, and the S&P mini-bubble from August 1982 to March of 2000. A spreadsheet will not display well, so I’ll list my results. Please realize that all prices and dates are approximate – this is “big picture” analysis.

The conclusion is that bubbles start slowly and then accelerate to unsustainable highs (on large volume) that are largely created by greed and fear but not fundamental evaluations. Bubbles generally follow the “Pareto Principle” where approximately 80% of the price move occurs in the LAST 20% of the time. Consider:

South Sea Bubble: (Extreme price bubble)

  • Phase 1: January 1719 to March 1720. Price from $120 to $180.
  • Phase 2: March 1720 to July 1720. Price from $180 to $900.
  • Time: Phase 1 – 75%, phase 2 – 25%.
  • Price: Phase 1 – 8%, phase 2 – 92%. Phase 2 price ratio: 5

Silver Bubble: (Extreme price bubble)

    • Phase 1: August 1971 to March 1978. Price from $1.50 to $6.40.
    • Phase 2: March 1978 to January 1980. Price from $6.40 to $50.
    • Time: Phase 1 – 78%, phase 2 – 22%.
    • Price: Phase 1 – 10%, phase 2 – 90%. Phase 2 price ratio: 7.8

 

NASDAQ Bubble: (Extreme price bubble)

    • Phase 1: August 1982 to February 1995. Price from $168 to $780.
    • Phase 2: February 1995 to March 2000. Price from $780 to $4,880.
    • Time: Phase 1 – 71%, phase 2 – 29%.
    • Price: Phase 1 – 13%, phase 2 – 87%. Phase 2 price ratio: 6.3

 

Japanese Real Estate Bubble: (approximate numbers)

    • Phase 1: 1960 to 1979. Price Index from 4 to 50.
    • Phase 2: 1979 to 1991. Price Index from 50 to 225.
    • Time: Phase 1 – 61%, phase 2 – 39%.
    • Price: Phase 1 – 21%, phase 2 – 79%. Phase 2 price ratio: 4.5

 

Gold Bubble:

    • Phase 1: August 1971 to July 1978. Price from $40 to $200.
    • Phase 2: July 1978 to January 1980. Price from $200 to $870.
    • Time: Phase 1 – 82%, phase 2 – 18%.
    • Price: Phase 1 – 19%, phase 2 – 81%. Phase 2 price ratio: 4.4

 

S&P Bubble: (Mini-bubble)

    • Phase 1: August 1982 to February 1995. Price from $100 to $483.
    • Phase 2: February 1995 to March 2000. Price from $483 to $1,574.
    • Time: Phase 1 – 71%, phase 2 – 29%.
    • Price: Phase 1 – 26%, phase 2 – 74%. Phase 2 price ratio: 3.3

 

Summary

Bubbles tend to follow the 80/20 ratio indicated in the Pareto Principle. Phase 1 takes approximately 70-80% of the time and covers approximately 10-20% of the total price change. Phase 2 accelerates so that it takes only 20-30% of the time but covers 80-90% of the price change. Extreme bubbles such as the South Sea Bubble and the Silver bubble experience approximately 90% of the price change in the 2nd phase. The ratio of the phase 2 ending price to beginning price is typically 4 to 8 – a huge price move. Such bubbles are rare; the subsequent crash is usually devastating.

Future Bubbles

In the opinion of many analysts, sovereign debt is an ongoing bubble that could burst with world-wide consequences. Should deficit spending and bond monetization (Quantitative Easing) accelerate in the next several years, as seems likely, that sovereign debt bubble will inflate further. Because of the massive printing of dollars, the value of the dollar must fall, particularly against commodities such as oil, gold, and silver. As the purchasing power of the dollar falls, an increasing number of people will realize their dollars are losing value, and those people will seek safety for their savings and retirement. Gold and silver will benefit from an increasingly desperate search for safety as a result of the decline of the dollar. Assuming the 80/20 “rule” and the phase 2 price change ratio of approximately 5, what could happen if gold and silver rise into another speculative bubble?

Assume that silver began its uptrend in November 2001 at $4.01 and that gold began its move in April 2001 at $255. Silver rallied to nearly $50 in 2011, and gold also rallied to a new high of about $1,900 in 2011. Assume that both surpass those highs about mid-2013 and accelerate into phase 2 thereafter. Using these assumptions, phase 1 for silver would measure 12.5 years and phase 2 could last until approximately late 2016 – early 2017. If we assume that phase 1 was a move from $4 to $50 and that represents 19% of the total move, the high could be around $250. The ratio of phase 2 ending price to beginning price would be 5:1 – reasonable.

Indications for gold suggest a similar end date and a phase 2 bubble price of perhaps $9,000 per ounce. The ratio of phase 2 ending price to beginning price would be 4.7:1 at $9,000.

The gold to silver ratio at these bubble prices would be approximately 36, much higher than the ratio from 1980. Perhaps silver would “blow-off” higher, like it did in 1980, and force the gold to silver ratio lower or perhaps gold might not rally so high. Time will tell.

Outrageous?

Well, yes, at first glance, those prices do seem outrageous. But consider for perspective:

  • Apple stock rose from about $4 in 1997 to over $700 in 2012.
  • Silver rose from $1.50 to $50.00 in less than 10 years.
  • Gold rose from about $40 to over $850 in less than 10 years.
  • Crude oil rose from less than $11 in 1998 to almost $150 in 2008.
  • The official US national debt is larger than $16,000,000,000,000. The unfunded liabilities, depending on who is counting, are approximately $100,000,000,000,000 to $230,000,000,000,000. Divide $200 Trillion by approximately 300,000,000 people and the unfunded debt per capita of the United States is approximately $700,000. That is outrageous!
  • The official national debt increases in excess of $3,000,000,000 per day, each and every day. The unfunded liabilities increase by perhaps five – ten times that amount. Outrageous!
  • We still pretend the national debt is not a problem and that it will be “rolled over” forever. That is outrageous.
  • Argentina has revalued their currency several times in the last 30 years – they have dropped 8 zeros off their currency since 1980. Savings accounts and the middle class were devastated several times. It can happen again.

Given the above for perspective, is gold at $5,000 to $10,000 per ounce unreasonable or impossible? Is silver at $200 to $400 per ounce unreasonable or impossible? Past bubbles have had an ending price 4 – 8 times higher than the phase 2 beginning price, so history has shown that such prices for gold and silver are indeed possible. Possible is not the same as certain – but these bubble price indications are certainly worth your consideration.

Would you prefer your savings in gold, silver, or a savings account? Read Ten Steps to Safety.
GE Christenson
aka Deviant Investor