Manipulation of the Precious Metals Markets

In the topic thread "Web Money Gets Laundering Rules" the subject drifted into precious metals and the current state of the markets. For over two weeks, retail supplies have dwindled to next to nothing. Local coin shops are depleted. Last night and this morning, I visited a couple of the coin collector discussion boards that I trust, and while comments were plentiful, facts were not.

Coin Sales Surge Despite Drop in Metal Prices - WSJ
By RHIANNON HOYLE And CLEMENTINE WALLOP
04-17-2013 11:28 PM
SYDNEY—Sales of gold and silver coins are surging despite the sudden plunge in precious metals, benefiting mints around the world and driving the cost of the collector items to well above the value of the metal they are made of...

Here in Austin, yesterday morning, I went to Capital Coin and Bullion. I could not have spent the cash I brought on the few coins in the display case -- and the parking lot was full. I am pretty sure that one of the guys behind me took the inventory.

This raises questions. In the past, when the London Spot Price fell, dealers simply raised their margins. Common 19th century UK Sovereigns in XF/AU went from 5% over spot to 20% over; and so on with everything else, as US 90% Silver Coin went to higher margins, of course. Raising the margins also raises the dealers' own buying prices, thus bringing in inventories for resale. We are not seeing that. Instead, nothing is left to be sold, it seems.

Some collectors suggested that dealers are sitting on inventories, just refusing to sell. Some may be, but I doubt it. Rent accrues 24/7. Cash flow keeps the doors open.

One thing that comes to mind is an alarmist view of petroleum depletion which says that rather than having constant price increases as supplies slowly dwindle, we just will wake up to find supplies gone. I dismissed that as green-communist rhetoric. Now, I wonder...

Post 1

Saturday, April 27, 2013 - 12:17pm

Michael,

I'm guessing that it is the interaction of two very different ideologies of the different groups that buy gold that has resulted in gold bullion prices dropping, but at the same time, the gold coins inventory dropping.

Those who see it as money, as an inflation hedge, as protection against fiat money are reading very different signals than those who see it as just another ETF and look at technical markers and listen to the word on the street (from those who also only see it as an ETF to speculate on).

Goldman Sachs gives a strong sell signal on gold to Wall Street, and all of the mainstream people think they are seeing definite signs of a recovery, and a bullish equity market. That group sells their gold ETFs and join the equity market. The price of gold bullion, as a result, goes down, and the hard money crowd either purchase, taking advantage of the lower prices, or they simply hold on - not selling. The hard money group's action don't have the numbers to shift the prices at the London Bullion Fixing.

Right now, the speculative crowd has done more selling than the hard money crowd has done buying, and the result is the drop in the bullion prices. Only if the bullion price goes up significantly, will the price of coins go up, and only that will bring out the inventory.

Because ETFs are not actual bullion, it is possible to have a bubble of sorts - based mostly on leverage. And people might worry about that. But in the end it is the ratio of dollars to ounces of gold that will set the average price and the daily prices will only be able to get away from that average by so much, and for so long.

There is another group that can make up a large part of a swing in the price of gold. That's the people who buy when the world looks to be on the verge of a new middle eastern war, and sell, at least some, when the level of peace in that region hasn't changed in a while. This group is moving petro-dollars into gold when things look scary, and out when the danger seems to recede. Right now I think they are neither buying nor selling. Of course, this is all just my guesswork.

For me, there is only one explanation of the disappearance of coins... The prices are too low (If you push prices up high enough - inventory will appear.) So the question has to be, "What drives the price of bulk gold coins?" - It is the price of bullion. So, "What is keeping the price of bullion low?" Lots of big money that thinks it is better to move money out of gold and into the stock market. One group is wrong, and I think it is the people betting on the bull market in stocks, and a recovery with some substance.

I'm with Peter Schiff... I think the long term prospects for gold are very bullish.

Post 2

Sunday, April 28, 2013 - 3:41am

http://www.scotiamocatta.com/products/buy.htm

There ya go boys.
You can order as much as you like subject to 9500 CDN max/24 hour period. This is within branch in Canada.

And for the happy go lucky coin collector in all of us there is this bad boy. I call it "the whopper!" Man..a 2.2 pound coin, that's one hell of a wallet you would be needing to pack that around Galt's Gulch.

http://www.mint.ca/store/coin/fine-gold-1kilogram-coin-robert-bateman-moose-mintage-30-2012-prod1400005#.UXz7xWS9Kc0

Post 3

Sunday, April 28, 2013 - 8:29am

Yes, the US Mint is also reporting brisk sales, perhaps record-breakers. The key concept here, however, is "aurem non olet" - gold does not smell: cash leaves no traces. If you are afraid that the government will come for your gold, to buy it from them would be to negate your goals.

You can, apparently, walk into any branch of Scotiabank and buy two ounces of gold for cash ($3000 limit) and live happily ever after in Canada. Come across the border might not be too bad. If they search you and find your undeclared gold, you could be charged with money laundering, a Patriot Act violation.

Coin dealers here, also, have had very many seminars in Patriot Act compliance. Just so you know.

Importing anything into and out of the USA is hard enough - but Canada is even worse. I wrote an article about their embargo of TNN, the Nashville Network. To boost the market for "Country and Northern" they prevent the importing of American C & W music.

Books, of course, have always been banned. When I worked for Loompanics, it was easier to get their unusual books into US prisons than into Canada.

I cited the WSJ story above because it comes from Australia and reports shortages in Singapore and other cities in Asia. Have you tried buying across the counter at a coin store?

http://news.coinupdate.com/us-mint-sales-report-proof-gold-eagles-debut-1943/

And then there is the problem with gold versus silver if you intend to spend it when FRNs are no longer accepted. A single silver dime is a retail transaction; an ounce of gold is not.
When those dimes last circulated bread was 19 cents a loaf and gasoline was 18 cents a gallon. You have to think in those terms to understand why retail silver seems to have dried up. Of course, also, it is possible to exchange $7.35 in mixed silver coins, whereas that ounce of gold has to be cut. I have a bunch of really small silvers, curios really, but indicative of the nature of daily commerce for most people in most times and places: Honduras 5 centavos (1.25 grams @ .835), Netherlands 5 cents (1.4 grams @ .640), Swiss half franc (2.5 grams @.835) ... all smaller than a US Dime (2.5 grams @ .900).

With a silver dime, I can stop into any bar in the Unoccupied States of America and get a beer and two hard-boiled eggs. (And yes, I have large coppers from Mexico and the UK for leaving a tip.)

Copper, indeed, is important to watch. Copper traders call it "Dr. Copper" because it has a Ph.D.in economics: copper is the best indicator of the economy.

(Edited by Michael E. Marotta on 4/28, 8:34am)

Post 4

Sunday, April 28, 2013 - 8:36am

Steve, I agree with everything you said.
(Everyone bookmark this.)

See my comments above about silver. This time seems different. It is hard for me to accept conceptually, that worldwide inventories of common silver coins are all being held by the folks whom in retail they call the ultimate consumers, but it seems to be true.

(Edited by Michael E. Marotta on 4/28, 8:43am)

Post 5

Sunday, April 28, 2013 - 7:24pm