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A 21st Century Gold Rush
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(October 3, 2008) Three weeks of unprecedented demand for gold bullion coins and bars have left the shelves of mints, refiners, distributors, and dealers virtually empty. There simply is not enough refining and production capacity to keep up with crisis-level demand.
The idea of gold bullion shortages just seems impossible.

In all our years of dealing in gold, the one constant inviolable principle has been: If you have the money, you can get the gold. As gold dealers, we have bought and sold hundreds of millions of dollars of gold, always delivering on time, always paying on time, always adhering to our word as traders in the world. All it took was a phone call and our word.

This week, things changed. Gold, in many of the forms that we deal in, simply could not be bought.

We have built a substantial business, a loyal group of repeat customers, and a reputation among dealers and the distributors of mints and refinery products as a reliable trading partner, one whose word and money are good. Keeping an inventory of gold bullion products has been the basis of our success. We have always been willing to pay for and stock a substantial position in a variety of gold bullion products.

It is a shock when money won’t buy gold.

Our business model since the launch of our website in 1999 has always been to offer the widest variety possible of gold bullion coins and bars. Why? Because choice is important to consumers. People want gold, of course, which has a certain utility and beauty of its own, no matter what form it comes in. But because each different form of gold bullion, especially coins, has a charm of its own, we have always offered a wide range of gold bullion choices to our customers.

Recent events have put a damper on our business model of eight years, and reduced our available choices considerably over the past few weeks.

Our first surprise, some months ago, was the absence of Austrian Philharmonics from our distributors’ inventories. Last month, the US Mint suspended production of the .9999 fine gold Buffalo which had been introduced with much fanfare in 2006.

Of course, we experienced (and wrote about, in an exchange that went around the world) the infamous suspension of 1-ounce gold Eagle production for a few days in August. But by September the Mint was back to turning out about 20,000 1-ounce coins per week. Three weeks ago, it seemed that normalcy had returned to the gold Eagle supply chain.

Now it’s possible that 1-ounce gold Eagles won’t be freely available until the 2009 coin release in January.

Our ‘black swan’ event currently is the spiraling credit and banking crisis, which started making headlines about three weeks ago. All of a sudden, physical gold started to fly off our shelves as people abandoned financial instruments and institutional promises for the more solid comfort of the heavy, shiny, yellow metal which is our stock in trade.

As the sales pace picked up, we began to re-order from distributors not just once a day, but several times a day. Soon we were re- ordering every hour or so. And we weren’t alone in experiencing this surge in demand for gold bullion products.

For instance, the U.S. Mint produced more gold Eagles in August and September of this year (171,000 coins) than they turned out in all of 2007 (147,500 coins).

At this point, our usual sources have simply started to run out of product. First of course it was the 1-ounce gold Eagles. Then on Tuesday the U.S Mint ran out of tenth-ounce gold Eagles. Yesterday, they ran out of half-ounce gold Eagles.

As of this week, although we have hundreds of coins on their way to us, the Royal Canadian Mint is running about three weeks behind on gold Maple Leaf production. And although we have supplies coming, the Perth Mint no longer has 1-ounce gold Mouses available for immediate shipment.

This morning we confirmed a purchase of new 1-ounce Krugerrands that will come to us as soon as the South Africa Mint can produce them.

Our waiting time to receive those coins: approximately three weeks.

Gold mints and refiners, most of which are running at full capacity, are simply not able to keep up with today’s tremendous demand. About a week ago, it started to become evident that the run on gold was not just an American phenomena, but something that was going on worldwide.

Demand Surges for Gold Investors Can Hold” was the headline in a front-page article in the Financial Times of 10/1/08. Written by Javier Blas from Kyoto, it began,

“Investors in gold are demanding ‘unprecedented’ physical levels of bullion bars and coins and moving them into their own vaults as fears about the global financial system deepen. Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unforeseen and driven by the very rich.”

“”There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career,” said Jeremy Charles, chairman of the LBMA. “The gold refineries cannot produce enough bars.”

Mr Blas went on to quote Philip Clewes-Garner of the precious metals division at HSBC, “It is a flight into gold because it is a physical asset.”

As a sign of the time, the above-quoted edition of the FT ran three separate articles on the growing demand for gold bullion. Mr. Blas even went so far as to address that monetary monster that our society has long kept locked in the attic, the very concept of fiat currency itself.

“”Fiat money, in extremis, is accepted by nobody,” Alan Greenspan, the former chairman of the US Federal Reserve, told lawmakers in Washington almost as decade ago. “Gold is always accepted,” he added."

“The ‘in extremis’ scenario was for years only a possibility in the mind of die-hard gold bugs, but the financial crisis is leading regular investors – from the ultra-rich to middle-class savers – to believe that the environment in which Mr. Greenspan said fiat money would be worthless is now around the corner.”

Maybe things are that bad, and maybe they’re not, depending on how you read the current situation.

A few weeks ago, the argument was whether the US is in a recession or not. Today the question seems to be whether we are replaying 1929, or possibly 1932, all over again.

And although buying gold is not as easy as it once was, please give us a call for current availability.

-Richard Smith

 

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In addition to gold, silver, platinum, and palladium in coin and bullion form, we also purchase a wide range of numismatic coins and currency for our retail business. Feel free to call us for quotes or price indications on anything in coins, bullion, and paper money.

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