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Back In the Saddle and Ready to Go!
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(August 13, 2012) Back from our annual summer week off, we find gold up twenty bucks or so, and London's Olympics now over with US athletes bringing home quite a bit of gold themselves. And for this fall's competition, the selection of Paul Ryan means lineup cards are now completely filled out for the upcoming presidential race.
For this summer, United States gold bullion sales are just not what they were during the height of the financial crisis/great recession/asset shuffle of 2007-2011. For all gold’s seeming volatility, gold has remained within a price range of $1530 to $1900 since July of 2011. As old time traders will tell you, if something stays in a fixed price range long enough, eventually everyone who wanted to buy or sell gets taken care of. Which is our excuse for having less to report.

For confirmation of this lessened demand, we check the US Mint’s website and find gold Eagle production down some 43% compared to last year, putting 2012 on track to total the lowest gold Eagle sales since 2007.

On the other hand, demand for silver is relatively strong, with the US Mint’s sales of silver Eagles so far this year down only some 20% from last year’s record mintage. We fill a steady stream of orders from those who are accumulating the white metal while prices are down some 35% from last year’s peak. As with gold, premiums have come down, and supply of the popular bullion products is good.

Platinum has also been a good seller, as it continues to trade at a significant discount to gold, despite being some twenty times scarcer, and geologically much less universally found on this planet than is gold. The gloom in platinum prices reflects continuing concerns about the world economy, and offers a rare opportunity to pick up a rare metal on the cheap. Product availability is good, with sales leaders being Canadian Maple Leafs, 1-ounce bars, and Australia’s Platypus bullion coin.

One advantage of a calm market is that customers enjoy smaller mark-ups and deliveries are swift. It might be said that there is excess sales and delivery infrastructure in the bullion business at this time, making it a buyer’s market.

On the other hand, sales of gold bullion to us by investors and other secondary-market suppliers has tapered off quite a bit. Our supply of new/old material for our Specials page has been rather thin, which is to be expected as precious metals lately have traded close to the bottom end of the price ranges they have traded in since summer of 2011. Usually it takes higher prices to bring more material ‘out of the woodwork.’ We stay in touch with other dealers both locally and over national dealer networks, and we bid aggressively for product that looks like a good deal in today’s market.

Over the past few months, we have had customers asking about the availability of rhodium in bullion form. Rhodium is a platinum group metal with a number of industrial and jewelry uses. But it has never been a popular trading metal - the costs of ownership are high, and its true market is elusive. First off, there is a $100 spread between ‘bid’ and ‘ask’ in rhodium, and that’s before any commissions or fabricating costs are considered. Also, the resale market for rhodium is pretty thin, with only a small percentage of bullion dealers trading it.

We will not be carrying rhodium at this time. Our philosophy in dealing with precious metals has always been to only offer material that will be easy for our customers to re-sell in the future. At this time, the liquidity for rhodium is virtually nonexistent, with very few dealers supporting the market. Until that changes, we will stick with gold, silver, platinum, and palladium – precious metals that are widely traded in a variety of liquid markets all over the world.

With precious metals prices in the doldrums, it’s good to hear some choice words about how future events might play out. After all, asset allocation is based on expectations about the future. Stephanie Pomboy, founder of MicroMavens, was interviewed by Leslie P. Norton in the 7/23/12 issue of Barron’s, and we lift a couple of her questions here:

Barron’s: You recently wrote an entire piece about the importance of the Bank of Kazakhstan. Why?

Pomboy: "Economics is so dull! You have to inject a little levity when you can. We know that the Bank of China, India, and major emerging-market economies have been slowly diversifying out of their dollar reserves into hard assets. When you get to the point that the Bank of Kazakhstan is thinking: “We really need to figure out a way to diversify out of dollars,” it is a pretty profound statement about the quality of the dollar. Here in the U.S., it doesn’t seem like any investor is concerned about the risk of the demise of fiat money. I’m sure most people think I should be fitted for a straitjacket.”

I’m sure that most of our our readers would say that it’s not Ms Pomboy who deserves a straitjacket – likely such garment would better fit our designated guardians of the dollar at Treasury and the Federal Reserve.

Barron’s further asks Ms Pomboy: “What don’t investors anticipate today?”

Pomboy: “That the Fed will be a presence in the Treasury market for a long, long, long time. Some believe that, with another round of quantitative easing, we move forward, emerge from the morass, and the need for further intervention will dissipate. But the Fed is really the only natural buyer of Treasuries anymore. It will have to continue to monetize Treasury issuances at the same time all the other major developed economies – from the Bank of Japan to the Bank of England to the European Central bank – are doing the same. Pursue that to its natural conclusion, and you see the inevitable demise of fiat money. To look at our policies and not be concerned about the risks to our currency would be dangerously naïve.”

-Richard Smith, July 25, 2012

 

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