|“One man’s ceiling is another man’s floor,” a poet once sang,
and on Friday, other songs were being sung to mark gold’s third trip to an 18-month low price.
The Wall Street Journal on 4/5/13 documented the gloom around gold in their commodities
column, titled “Golden Moment Wanes for Investors.” They found Suki Cooper, a precious metals
analyst at Barclays saying, “The sentiment around gold is particularly negative at the moment.
There’s a real lack of investor conviction.” Also one Michael Shaoul, CEO of Marketfield Asset
Management, who contended that “People who looked to match the price of gold to central-bank
activity have been very, very disappointed over the past 18 months.” According to the WSJ,
his fund has been ‘holding a bearish bet on gold and silver through a physical–metal back
“The fast money is selling,“ the article quotes Stephen Klein, portfolio manager at AT Global
Capital. Presumably, since fast money tends to seek out momentum trades, some of this cash
is now going to US equities, with the stock market having been on a tear for months now.
We should mention that, if the pattern of the last 18 months hold, the plunge in gold prices
may already be over. Gold traded down to $1539 on Thursday 4/4/13, and by Friday afternoon
had recovered to over $1580 in post-Comex trading. The $1540 level, for the third time in
the past 18 months, was pure catnip to gold buyers, and physical buying overwhelmed all the
prevailing negative sentiment, sending gold some $40 higher by the end of the week.
So, until we see a definitive and sustained break in gold prices below the $1540 ‘floor’
that gold has bounced off of repeatedly, the long-term secular bull market in gold appears
to remain in place.
In the market for gold bullion in it's most popular form, 1-ounce coins, we are seeing a
strong shift in demand towards Canadian Maple Leafs, and to a lesser extent, to Australia
Kangaroos. This shift is due the lower price premium that the Royal Canadian Mint and Perth
Mint now charge, which makes the price of these 99.99% pure gold coins almost 2% less than
the price of our usually most-popular 1-ounce bullion choice, the US gold Eagle.
A quick look at the US Mint’s website show that production of 1-ounce gold Eagles in March
was an anemic 54,000 coins. In the past, we have used US Mint Eagle mintages as a rough proxy
for domestic US gold bullion sales, but with the surging popularity of now lower-cost bullion
alternatives, particularly Canada’s gold Maple Leaf, that correlation has lost all validity.
This March was one of the busiest months in the US physical gold bullion business in a long
time, yet the fact that the Mint could only sell 108 boxes of gold Eagles shows that they
are losing market share at a rapid rate.
Of course, there are plenty of different gold bullion choices out there, with Krugerrands
and gold ingot bars being major sellers for us, along with Pandas, Philharmonics and Australian
Lunar Series issues. But our #1 seller for decades has been gold Eagles, which have accounted
for over 75% of our sales of newly-struck 1-ounce gold bullion coins. But now, a price war
is taking place that the US Mint's bullion division has so far chosen to ignore, and things
have changed. A review of our gold sales for March shows that, for the first time ever, we
shipped more Maple Leafs and Kangaroos in total than we did Eagles. And at prices about $30
lower than Eagles, is it any wonder?
As for silver, demand for physical silver in the popular 1-ounce coin form has increased
tremendously as silver has fallen nearly 10% in price this year so far. And prices for the
pre-1965 US silver coins (sometimes referred to as 'junk silver') have gone from virtually
no premium to nearly 10% over melt value at the retail level.
We are now starting to see some delays in silver coin deliveries, and for the silver-buying
public, this inevitably brings up the question: If silver prices are going down, implying
that there are more sellers than buyers, then why is it getting harder to find silver coins?
After all, gold has also gone down, but there aren't any delays in getting 1-ounce gold coins.
So what’s up with silver?
We've seen this scenario many times before, and the short answer is that government bullion
mints and private refiners have a fixed capacity to strike coins, much as a factory can only
produce so many widgets per day.
To illustrate, here’s what inevitably happens when the price of silver takes a sharp drop
in the futures markets, aka 'paper markets':
There is always a large group of people who are constantly watching silver prices, so they
can buy whenever prices take a dip. They usually buy the most convenient forms of silver,
which are 1-ounce silver Eagles, Maple Leafs, or other .999 coins or rounds. So when the price
drops, silver dealers quickly get cleaned out of their stock on hand (you'd be amazed how
fast that happens), so they tap their distributors, who also have only so much stock on hand,
which quickly gets depleted. The distributors then contact Mints and refiners to place orders,
and find themselves in the same boat with other distributors who also have large new silver
coin orders in hand. Everyone has to wait, since there is only so much capacity available
to strike coins. It's not like a mint can go out and borrow additional 30-ton presses whenever
they get a little backed up.
The supply of silver in 1-ounce size coins is particularly susceptible to this phenomenon.
Just think about the process involved in making them - it starts with refining and rolling
the metal into sheets. Then to actually produce the coins for distribution, blanks have to
be cut, weighed, cleaned and prepared, and coins are then struck, counted, and packaged. To
produce enough silver coins to fill a million-dollar order, this process has to repeated about
However, to produce a million dollars in gold 1-ounce coins only requires that those same
steps be done some 625 times.
In short, producing a certain dollar amount worth of 1-ounce coins silver is 58 times more
labor-intensive (that is, involves more factory time) than producing the same dollar amount
of gold coins. Which is why shortages of 1-ounce silver coins happen in volatile markets,
but not very often for gold coins.
If you have a large order for silver in mind, be advised that as of this week we encountered
some delays, up to a two to three weeks for some silver coin products. If you are ordering
an amount that we cannot ship immediately, you can always place your order at today’s price
and ‘lock in’ with a 20% deposit. We will take orders on a first-come, first served basis,
and give you a time-of-delivery estimate when you place your order. We will notify you when
your silver is here and ready to ship, at which time you pay the balance due.