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Precious Metals Rebound - Order is Restored
(February 12, 2011) Silver leads the way again, much as it did for most of 2010. After prices dropped to below $27 on January 25th, silver rallied 10% to close over the $30 level on 2/11/11. Gold followed also, after its correction of nearly $100 in the first three weeks of 2011.
Americans have discovered silver in a big way, and US investment demand is key to the surge in silver prices. Silver rose nearly 80% in 2010, and after touching down at below $27 on January 25th, silver prices have surged more than 10% in the past 2 ˝ weeks.

Talk of silver shortages is in the air, and in fact demand for bullion silver is strong with not enough sellers at the $30 level to satisfy demand for the popular bullion products in 1-ounce, ten-ounce, and 100-ounce sizes. The US Mint has done its part on the production front: silver Eagle sales for 2010 were a whopping 34,662,500 coins (over a billion dollars worth, at today’s prices), topping 2009’s record production of 28,766,500. This year, as of 2/11/11, the Mint shows 7,359,000 silver Eagles having been sold, setting a pace to put nearly 60,000,000 coins on the market this year if present demand continues.

The Johnson Matthey Company continues to pour .999 pure silver bars in the 100-ounce size, but this new product is delayed up to four weeks for delivery. Dealers are therefore raising their bids for physical bullion product, as the only way to obtain stock is to aggressively compete for the small bit of silver bullion that comes onto the market from the public.

In the meantime, the US Mint picks up the slack, drawing customers to its silver Eagle product by supplying enough coins to meet demand. The Royal Canadian Mint likewise has kept its silver Maple Leafs viable by cranking out sufficient supply to satisfy demand. In contrast to the markets of 2008 and 2009, private refiners have come up short, while government mints have come to be the reliable volume suppliers.

On the gold front, demand for physical has slacked off a bit through much of January. Redemptions outgunned sales of the exchange-traded gold fund GLD by some $2 billion in January, reflecting both a stronger dollar and US equities market. On the physical front, both government mint and private refiner bullion production have been adequate to keep premiums at basal levels, resulting in product being freely available in all sizes of gold bullion.

The 1099 issue continues in the news, as the Senate on February 4th passed, by an 81-17 margin, legislation doing away with this provision of the Healthcare Act, chiefly as a reaction to protests from the business community which would have to shoulder the burden of additional paperwork required beginning January 1, 2012.

In a House hearing on the bill February 10th, House Small Business Chairman Sam Graves, a Republican from Missouri, stated that the provision would force more than 36 million businesses and other entities to file an avalanche of 1099 forms.

“At a time when we should be making it easier to create jobs, promote growth and invest in our economy, small firms don’t need yet another costly and burdensome mandate,” Rep. Graves said .

The precious metals community was particularly concerned over the expansion of 1099 reporting to include transactions as small as $600 in a calendar year. This would place the reporting burden on the dealer/broker for a multitude of transaction as small as half of an ounce of gold, or twenty ounces of silver. The sheer paperwork and recordkeeping burden, including having to safeguard the Social Security numbers of virtually every customer who sells coins or bullion to a dealer, has been hard fought by the dealer community through ICTA (the Industry Council on Tangible Assets) and other organizations across the whole spectrum of businesses that would have been effected.

The hope now is for a swift passage through the House. President Obama’s spoke out against the 1099 provision in his State of the Union address, so a presidential signing would no doubt follow immediately after House passage.

Monday February 14th marks the 99th anniversary of statehood being granted to the Territory of Arizona. In 1912, Arizona Territory was recognized as a mining source for copper, silver, and gold; an excellent open space for dude ranches, golf courses, and the already constructed Grand Canyon; and a dry climate well suited for those suffering the ravages of tuberculosis.

Sure it was (and is) hot and dry for most of the year, comprised of not very good farmland, and barely habitable by humans (most of the natives left around the year 1300), but a fuss was raised by the Anglo settlers scattered across the Territory, that somehow Arizona should become a state.

And since statehood had been granted to New Mexico in January of that year, the map of the United States was going to have one big gap in it unless something was done to color in the blank space right above Mexico. So, Arizona became, after much wrangling, the 48th state of the Union.

So, while the rest of the country celebrates St. Valentine’s Day, on Monday, we in Arizona celebrate our entrance into the Union. Hooray – and long live the Arizona Experiment!


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