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The Worst Week Ever, and Gold Sleeps Through It
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(October 12, 2008) It sure was a terrible week, with trillions of dollars of losses for the stock markets of the world, financial lockups and meltdowns everywhere, bailouts, takeovers, fretting, panic, and a general wailing and gnashing of teeth. Meanwhile, gold doesn't seem to be paying attention. What's up with that?
So why, in the middle of the most gut-wrenching financial crises in our lifetimes, did gold go down in price? It was just this past March, when the world for the most part did not know how much trouble it was in, that gold traded for over the $1,000 mark for a few days. Now that we have a universal consensus that the financial world has truly spun out of control, why did gold close Friday at only $855?

For that matter, with demand for gold in bullion forms at record levels the world over, how could the price go down at all?

The world of gold prices is a big one. Central banks, miners, currency values, and trends in world trade all affect gold’s value. But so does good old supply and demand, for gold in many forms.

What is sometimes forgotten is that the biggest use of gold is in jewelry. And today, jewelry sales are terrible. U.S. jewelry sales during 2007’s fall and holiday season were down considerably. And in a recessionary environment, jewelry sales in 2008 are almost certainly going to be even worse.

Gold also has many industrial uses which consume a percentage of the world’s supply. Again, a recession inevitably cuts that demand also. Even though investment off-take of bullion and coins is likely to double this year, if not more, there is considerable offset from the lessened jewelry and industrial consumption of gold.

Gold is also the ultimate recyclable material. Gold scrap recovery in the US is at an all-time high, as any refinery will testify. The combination of higher gold prices, hard economic times, and the proliferation of new ways for Americans to sell off their unwanted gold jewelry (Ebay, gold buying parties, nationally advertised mail- us-your-gold-jewelry enticements, etc) has increased gold recycling, at least in the US, by a tremendous amount.

Our Phoenix operation has for decades been a scrap gold recycling center for many local jewelers and pawn shops. Until early 2007, we mailed off little packages of gold to be refined maybe twice a week. But the gold scrap business has increased so much that we now have an armored car stop by to pick up one or two very weighty packages every week.

Our strong bullion business means that we are still net sellers of gold, but some weeks our gold scrap refining totals as much as half of our sales of bullion to investors. And this trend is nation-wide.

But we are in the bullion selling business, primarily, so let’s touch on what’s happening there. We have experienced long delays in obtaining supply lately, and although things have improved slightly up the supply line, we are barely seeing any light at the end of the tunnel. Demand continues to outpace refining and coining capacity by quite a bit.

We are doing all we can to capture some bullion to offer here on this website. Unfortunately, premiums on bullion coins and bars are rising, and there’s no cure for that except an increase of supply over demand. And that just doesn't doesn’t seem to be in the cards anytime soon.

-Richard Smith

October 12, 2008

 

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