Podcast

Robert Mish: Front-Line Observations from a Seasoned Gold & Silver Bullion Dealer

The game is finally changing
Saturday, April 27, 2013, 12:48 PM

Spikes and plunges in the U.S. dollar price of gold; this is not new. It goes back to the early 1970s. We remember that for most of the past 40 years, physical gold and silver investors, particularly in the U.S., tended to chase big rallies and buy late, while too often selling after plunges or after long periods of price erosion. Gold was sold then primarily as an inflation hedge. When it was working, speculators bought much more. When it stopped working as an inflation hedge, they first became puzzled and frustrated, then fearful, and they sold out at bottoms.

So, fast-forward to this month, and today’s gold community starts to look a bit different as the breakdown below previous gold and silver price support levels began, and especially last week, with gold going below $1400. Physical buyers were outnumbering sellers in our store by at least 5 to 1. And some of the unfortunate sellers had not changed their thinking about gold long-term; they just needed fast liquidity, which is another benefit of gold.

80 – 90% of the people who have bought gold from us in the last two weeks on the drop were already gold owners, already gold savers.

Their attitude is, gold is on sale 

Robert Mish kindly took a break from operations at his bullion dealership to return for another conversation with Chris about what he's been observing on the front lines this week, transacting with both retail and wholesale customers.

Gold

Gold is a little bit backlogged. The premiums are slightly elevated. Products commonly traded, such as gold maple leafs, American eagles, and refiner one-ounce bars are 2-3 weeks out. And for some of my colleagues further away in the supply chain, 4-6 weeks out. The premiums are up to maybe $5 to $15 dollars an ounce over normal.

Silver

Silver is another story. The demand for silver has completely overwhelmed existing inventories and the ability of the mints and their refiners to produce more product.  The other big mystery is: how much more silver is there to make product out of? Will the buyers be able to keep the pressure on until the price of [physical] silver and paper silver have to move up just to return the market’s equilibrium? Right now, 100-ounce silver bars, which a few months ago were trading dealer-to-dealer around melt or a little over, are now 75 cents to a $1 an ounce not retail, our cost and 4 to 8 weeks out.  1-ounce and 10-ounce refiner product used to be 30, 40, 50 cents. Now it’s  $1.10-$1.25, our cost, 2-4 weeks out. Silver maple leafs, our cost from the prime American distributor of the Canadian Royal Mint today: $3.75. It was $1.70 a month ago. 3-4 weeks out. Silver eagles, normally a little over $2, they are $5 if you want them live; $4 if you want them in 4-6 weeks. 

These premiums are the physical market saying, we are willing to pay this for real silver right now. Whether the suppliers can meet this demand and bring the premium down, we’ll see weeks from now. It is much different this time than it was in the past, in that the drop in price is bringing in buyers rather than sellers. It used to be that a rally would bring in the buyers. So we have had an important change.

The Big Picture

The powers-that-be guided a lot of that potential demand into paper gold and exchanged traded products of various forms. Then they slaughter those products, and I’m sure in their mind hopefully discouraged those people for a long time. But in time, changing cultures and the prosperity of people internationally in cultures which understand gold, I think is going to take its toll on the shorting game. And the shorting game will end badly. And that doesn’t mean that those who have the other side of the equation necessarily will profit, because they will find a corrupt way to burn them.

What we have now is a game of chicken between the physical buyers and the paper shorters. It is like, who will quit first? We have a shortage of physical product. But we are told by the mint distributors and the refiners Oh, don’t worry. In two, three, four, five weeks your orders will arrive. If the buying continues at the pace it’s going, or begins to expand to a greater percent of the population in this country and worldwide, eventually, by asking for delivery, the physical buyers will change the game. It is a poker game of both real cards and bluffing. Are the shorts bluffing? Yeah. But they get away with it over and over again. This time when the longs fold as they have in the past, the shorts, they sandbag the river. But the flood of fiat currency keeps rising. If buyers would stick to their guns and develop habits and understand why they buy gold and silver, the shorts will run out of sand.

Robert also shares details on the buying activity of his Asian clients. There is much for the West to emulate, particularly if it does not want to wake up one day realizing it has dis-hoarded the bulk of its bullion overseas.

Click the play button below to listen to Chris' interview with Robert Mish (41m:34s):

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am Chris Martenson, your host. And today I am with Robert Mish of Mish International Monetary Incorporated (not related at all to the other Mish we regularly talk to).

Robert’s business is located in Menlo Park, California, and he knows as much about the coin market and precious metals markets as anybody you could ever talk to. He has been on the front lines of the precious metals business; selling, dealing, and buying rare coins, numismatic coins, gold, silver, bars; you name it. And with that front-line view, he has an extraordinary perspective, because he gets to see who is coming in, who is buying, who is selling. And there are some really interesting stories that we are going to cover, especially in light of the recent plunge in gold and silver prices.

But as well, and this is really important, he has been in business the precious metals business, to be precise for 50 years. So, he was there and he saw it back in 1980, during the frenzy of that last gold bull and silver bull. Robert, I’m very happy to have you back, because there has been a lot of speculation. There have been a lot of rumors. There is a lot of smoke, and we need to understand where the fire is. So, welcome back.

Robert Mish: Thank you, Chris, and as you said, greetings from the front lines of the gold coin and bullion business. I bring you and our listeners an eyewitness report as to how the gold community reacted with their cash to the price shakeout of the past two weeks.

Chris Martenson: Excellent; I love actions more than words. That’s the kind of guy I am. So, did I leave anything out of the intro that will help people understand just how deep you’ve been in this business?

Robert Mish: Well, let me first explain our point of observation. It’s a different one than Internet and institutional bullion sellers might have. As you noted, we are 51 years in business, 32 at the same location in Menlo Park, California. It’s adjacent to Stanford University in the heart of the Silicon Valley. We have a retail show room. Our experiences, perspectives, and observations come from grassroots buyers and from colleagues who come to us for re-supply when needed quickly. We do not sell from an Internet site, nor eBay listings or auctions. We do sell paper gold, gold for custody, or for third-party storage.

We meet and get to know most every one of our customers in our showroom. Much of our business is by referral by introduction from existing clients, fund managers, and financial advisors, as well as other coin dealers. This puts us in an interesting and sometimes fascinating position to observe the temperament of gold and silver buyers and sellers, from small but consistent buyers to major investors, so preferring real metal, they will carry out impressive values and secure it themselves.

Chris Martenson: Well, I really can’t wait to dive into who is doing the buying and selling from your perspective, but I want to set the stage, so let’s rewind here. Here we are. It’s last Friday; huge plunge. It’s Monday; the plunge continues. Really, it is a historic drop. You have to go back 30 years to find an equivalent drop in dollar terms for gold. And from your perspective, we had a similar although not quite as large drop in 2008. We had another one in 2011. What was different or the same for you in how people reacted to a historic price plunge in both gold and silver?

Robert Mish: Whether or not there is something different about the Great Gold Shakeout of April 2013, it’s a common topic we discuss with both our clients and dealer colleagues. That is one of the reasons I’m on the phone sometimes until midnight. Spikes and plunges in the U.S. dollar price of gold; this is not new. It goes back to the early 1970s. We remember that for most of the past 40 years, physical gold and silver investors, particularly in the U.S., tended to chase big rallies and buy late, while too often selling after plunges or after long periods of price erosion. Gold was sold then primarily as an inflation hitch. When it was working, speculators bought much more. When it stopped working as an inflation hitch, they first became puzzled and frustrated, then fearful, and they sold out at bottoms.

So, fast-forward to this month, and today’s gold community starts to look a bit different, as the breakdown below previous gold and silver price support levels began, and especially last week, with gold below $1400. Physical buyers were outnumbering sellers in our store by at least five to one. And some of the unfortunate sellers had not changed their thinking about gold long-term; they just needed fast liquidity, which is another benefit of gold. We had one, who got caught being very long, leveraged gold COMEX contracts, and another very leveraged with gold stocks he had loaded up with too soon. He had deep regrets, but he had to sell a large quantity of Krugerrands to settle his account.

Yeah, well, we accommodated just a few sellers, mostly newer buyers since 2011 who bought for the wrong reasons. they bought because gold is going up. Well, their timing was not ideal. I mean, gold eroded for two years. They grew impatient, and when the banks through a media, anti-gold propaganda campaign turned up the heat in late February through early April, and the price broke below perceived support and they were told in advance when that would happen they panicked and sold. Many of them didn’t need the money. They were worried gold was going to $1000 or lower.

These are really just a few folks, and they were new faces to us. Maybe they bought on the Internet but got a quick lesson that you need a local relationship when urgency manifests, or they were recent buyers who did not read and digest the articles we forward regularly to our customers. They were not saving in gold; they were gambling. They don’t read Chris Martenson, or Zero Hedge, or Dollar Vigilantly, Jim Willy or Lou Rockwell. But again, unlike every major gold price drop, the physical gold and silver owners were really selling little.

Chris Martenson: And this 5:1 buyers-to-sellers you mentioned, that’s on a dollar basis?

Robert Mish: It’s on a numerical basis. We had good response from regular buyers who were not afraid of dips, so-called “corrections,” in the long-term gold market. Their attitude is, gold is on sale or I’m selling my way-overpriced Palo Alto house, said one. But the majority of people who have crowded our showroom daily are price-savvy working people and families.

Chris Martenson: Interesting.

Robert Mish: Particularly Silicon Valley tech workers from India. They are small buyers, but the gold community could learn a lot from them. They buy fully-paid, no leverage. They take immediate physical possession. If you don’t got it, they’re not going to wait. They may buy one, two, three ounces a month or more, accelerated on price drops. Those in the gold community who rightfully complain about collusion and manipulation by the bullion banks and their gold-short clients and government factors while they themselves are long paper gold are really losing the game playing in the banksters home court. Instead, I think gold bulls should best reexamine why they own gold, and treat gold as a storehouse of value, a savings, as liquidity out of the system.

They should be like the Chinese and Indians. Keep taking delivery of physicals. In a legitimate market, this will end the paper shorting, and more physical gold from the banksters back to the people. Or at least publicize, and sooner help bring down the corrupt paper market with snowballing events of failure to deliver, like what happened in late March when the giant Dutch bank ABN AMRO inverted their client’s physical gold accounts to paper price settlement only.

So, Chris, all those gold investors who allow the banksters to store their gold are vulnerable to what may be the banksters’ ultimate exit path when they declare an emergency force majeure, pardon my French. A failure to deliver with a conversion of the undelivered, non-existent gold to depreciated cash settlement bases their paper gold market, with the cash being created by the banksters and governments themselves in an emergency financial bailout. If I was a bankster, that is what I would do if I were trapped in a gold and silver short carry trade.

Chris Martenson: Yeah, they are just doing what they always do, which is, they are just making money. Two things that I really trust: One is that I trust actions more than words. And the second thing is that I think a bird in the hand is worth two in the bush. So, here is where I’m going with that: It feels to me like in the endgame of all of this, when the dust finally settles, there will be some moment when currencies have their final moment in the bonfire. At that moment, there will be two classes of people: (1) those in institutions and those that actually have physical possession of precious metals, and (2) those who don’t. And in that process, after the dust has settled, we will discover that the people who have the physical precious metals have a tremendous amount of wealth, and the people who don’t have lost a tremendous amount. It will be a rough transfer. And this is what the system excels at.

So I am really interested in who the buyers are. I understand the sellers; there are a lot of sellers. I heard stories that are rather tragic to me. I was talking with another dealer that runs IRA accounts and physical bullion deals as well, and they said almost all of their sellers were people who had paper gold and silver, in the sense that they had not taken physical possession. They had gold in 401K and silver in some sort of custodial accounts, and they hadn’t touched it. So, they were the quickest to part with it, because they just it’s ones and zeros.

Robert Mish: They have no relationship to it.

Chris Martenson: No relationship to it. The buyers, though, let’s talk about them for a minute, because here is a theory I’m working on. Everybody I know who is in the business had a tremendous sales volume. There are obviously some shortages in some certain key products. My theory is that this shortage has happened almost completely with just a little bit of uptick in interest among those who predominantly already own gold or silver, or have already been in the market. That is, the market didn’t suddenly grow five times larger, meaning we have five times as many new entrants who have never bought gold and silver showing up for the first time, because the price signal sent them in. I am wondering if that is true or not. What would you say about that theory in terms of those people who showed up?

Robert Mish: Absolutely! I didn’t take statistics, but just thinking back on it, 80 – 90% of the people who have bought gold from us in the last two weeks on the drop were already gold owners, already gold savers.

Chris Martenson: And so with this high repeat customer base, how many people would you estimate in the population percentage wise, who have money that they invest how many of those people actually own physical gold or silver?

Robert Mish: Less than 5%, maybe; 1%, 2%, 3% at the most.

Chris Martenson: Yeah, in my neck of the woods, I peg it at about 1%. I could go to a party with 100 people in it and I would be lucky, I think, to actually find one other person who actually had physical gold. I might find somebody who had GLD or something like that.

But here is the thing. I want to talk now about the supply constraints that have shown up and whether you have experienced them, because what I have experienced looking at all of these other dealers, both at what I will call kind of a “retail level,” and I have talked to institutional dealers, particularly on the silver side, where there is just an absolute shortage of product. And that happened because the 80 to 90% of the people who were already involved in buying silvers just showed up and decided to do a little more of that, or gold. And so, that observation needs to be coupled to stage two of this bull market, which is when broad public participation where 10% or 20% of the population wants gold or silver, your perception on what would happen to the supply chain.

Robert Mish: Exactly. The powers that be guided a lot of that potential demand into paper gold and exchanged traded products of various forms. Then they slaughter those products, and I’m sure in their mind hopefully discouraged those people for a long time. But in time, changing cultures and the prosperity of people internationally in cultures which understand gold, I think is going to take its toll on the shorting game. And the shorting game will end badly, and that doesn’t mean that those who have the other side of the equation necessarily will profit, because they will find a corrupt way to burn them.

What we have now is like a game of chicken between the physical buyers and the paper shorters. It is like, who will quit first? We have a shortage of physical product, which I will explain in more detail. But we are told by the mint distributors and the refiners that oh, don’t worry. Two, three, four, five weeks your orders will arrive. If the buying continues at the pace it’s going, or begins to expand to a great percent of the population in this country and worldwide, eventually, by asking for delivery, the physical buyers will change the game. It is a poker game of both real cards and bluffing. Are the shorts bluffing? Yeah. But they get away with it over and over again. This time with the long fold as they have in the past, the shorts, they sandbag the river, but the flood of fees currency keeps rising. If buyers would stick to their guns and develop habits and understand why they buy gold and silver, the shorts will run out of sand.

Chris Martenson: Excellent. So let’s talk about the supply, then. What are you seeing from your end? I know that every time I have been to your store, you seem to have a remarkable amount of supply, and obviously you’ve got a very deep network, so you have been in business a long time. So you probably have as deep a set of supply chains as anybody could ever hope for in your business.

Robert Mish: Yes, that is one of the blessings of being in business long enough. You build up your own inventory and relationships, so when things get difficult, you are in a better position than many of your colleagues to service your customers. But I still can’t get immediate delivery of a lot of product.

I will start with gold. Gold is a little bit backlogged. The premiums are slightly elevated. Products commonly traded, such as gold maple leafs, American eagles, and refiner one-ounce bars are two, three weeks out. And for some of my colleagues further away in the supply chain, four, five, six weeks out. The premiums are up to maybe $5 to $15 dollars an ounce over normal, and I don’t blame the distributors for that. They are getting rationed. So they have to make more money on fewer ounces to pay their expenses, and it’s simply a matter of supply and demand. So the question is, what is it going to be like four weeks from now? Are we going to be caught up, or are we still going to be four weeks out? We will see.

Silver is another story. The demand for silver has completely overwhelmed existing inventories and the ability of the mints and their refiners to produce more product. The other big mystery is how much more silver is there to make product out of? Will the buyers be able to keep the pressure on until the price of silver and paper silver have to move up just to return the market’s equilibrium? Right now, 100-ounce silver bars, which were a few months ago were trading dealer-to-dealer around melt or a little over, are now 75 cents to a $1 an ounce not retail, our cost and four to eight weeks out. One-ounce and ten-ounce refiner product used to be 30, 40, 50 cents. Now it’s $1.10 to $1.25, our cost, two, three, four weeks out. Silver maple leafs, our cost from the prime American distributor of the Canadian Royal Mint today, $3.75. It was $1.70 a month ago, three to four weeks out. Silver eagles, normally a little over $2, they are $5 if you want them live; $4 if you want them in four to six weeks.

These premiums are the physical market saying, we are willing to pay this for real silver right now. Whether the suppliers can meet this demand and bring the premium down, we’ll see weeks from now. It is much different this time than it was in the past, in that the drop in price is bringing in buyers rather than sellers. It used to be that a rally would bring in the buyers. So we have had a change, and it’s not just in the United States, Chris. When I was in China and Hong Kong in early April, when gold first started testing support at $1540, demand was already heavy then. I was at the Hong Kong International Coin Convention, an event I have gone to since 1983, and dealers, investors from China, cleaned us out of Chinese gold panda coins, both bullion-related and premium dates and that’s with gold at $1540 to $1580. We were getting $1700 to $1900 an ounce for common coins. Then ten days later, with gold in the $1300s and $1400s, the Chinese public cleaned out most every shopkeeper and bank bullion department of all their coins and bars. A few days ago, I talked to three of my English-speaking colleagues in China, and they say you can’t get anything anywhere. They wanted me to reship pandas back to them.

Chris Martenson: So, you've been going to this coin show since 1983, and what day did you get there, and how long does it last, and did you sell out by the end of the show, or at the beginning? How long did it take to sell out?

Robert Mish: Well, the show was Friday, Saturday, Sunday. I got there the Sunday night before, because there's an auction, and I have a lot of private business and clients that I see outside the show. And I could already see that I had to decide who my better friends were, because they all want the same thing, but by the show it was so packed there that if we were in America, the fire marshal would have closed it down. It's the same thing in India, Thailand, Dubai, China. Gold buyers are willing to pay 15% - 20% premium and take the gold as jewelry if that's all there is. And in Hong Kong, the cash-physical market, even for larger bars, which are always available cheaply there, was several dollars higher than the paper price.

In Taiwan, even today, gold is trading at a $60/ounce premium, because the central bank there controls the flow of gold in and out of Taiwan, but they still are willing to pay $60/ounce premium. In Central Europe, the common trade coin that they trade in Eastern Europe, they like the old circulating coins, for example, the Hungarian 10 kroner, they used to be available near melt. They're running 20% over melt. The common Czar Nicholas Russian 10 ruble coins which are very common; it's the basic trade coin of Russia at the time they must melt for a little over $350 today. They're actually trading at $550, and the 5 ruble, which melts under $180, they're trading at $250, and similarly all over. So if you got a tradeable product, a medium of exchange, something that is trusted other than paper, the market says gold is higher, silver is higher.

Chris Martenson: Pardon my ignorance. I need to back up around this idea of silver being four to six weeks out. I might be completely ignorant about this, but I'm wondering, is there a risk in here of somebody placing an order, and their silver is supposed to come four to six weeks out, and tell me if this is an insulting question, or if this might possibly happen depending on the dealer you're with but what happens if I place an order, and they say, oh, took your order, and six weeks from now, we'll have your eagles, and the price of silver, I don’t know, doubles, triples, does something? Is there any danger of that deal being broken?

Robert Mish: No, because the dealers get their price basis locked in at the time they make the sale, if they're smart. When we sell bullion beyond what we have in physical stock in fact, even when we sell what we have, and we just want to replace the position, rather than sell down our position our distributors and mints will guarantee your price. It's just the delivery lag time. If there was a default, it would come either from a major refiner (I won't name any names. I hope it never happens) or from one of the world mints that commonly make the product.

Chris Martenson: So, the risk, such as it is, exists all the way at the back end of the chain, down at the refiner or mint level?

Robert Mish: Yes.

Chris Martenson: All right; just wondering. I had always wondered about that. So, given that there's not a lot of risk in that as you see it, why is the premium for near silver so much higher? Why is the demand that much stronger now?

Robert Mish: Because certain buyers want it now, and they don't trust the delay, or they think that if they come back in four to eight weeks, silver will be a lot higher, and they're not willing to leave their money out. There are buyers like that. Others just don't want to; sometimes it's a matter of trust/faith; other times it's just a matter of finishing the transaction. Everyone has a different reason that they're willing to pay more, but with even the distributors charging more, it's a real market.

Chris Martenson: Yes. So, what I'm interested in, here, is I'm sort of triangulating in on this idea you've described it; the sellers seemed a little bit forced, but the buyers, such as it were, really are mainly established customers at this point. And yet, there's still something different in the idea that we had this really big price drop, and what that did was just ignite, literally, a frenzy of buying worldwide. It wasn't just in a local market. It wasn't in the U.S. It's pretty much everywhere. Every country you could talk about.

So, what I wanted to get at here is, you mentioned that there's this game being played, and it's a question of who blinks. There's going be the paper sellers and the physical buyers. You and I you much longer than I and a lot of other people in the precious metals market are waiting for that moment when the paper people finally have to blink. And it might be actually disappointing to everybody who is on the other side of the paper trade, because they might find themselves, if they're on the longer side, getting Hunt Brothered, or whatever.

Robert Mish: Or, getting MF Globaled.

Chris Martenson: Or whatever happens. They'll change the rules to benefit the people who are entrenched, and that's just how the game goes. I'm wondering if there's anything in what you're seeing in these buyers and how they have behaved that tells us anything about when that day of reckoning might arrive?

Robert Mish: I think the hardest thing for Americans is the downturn and dis-allocations in the economy which have put a lot of people out of work, has caused families where both the wife and the husband have to work; has eroded the discretionary income above necessity income. I think there is a limit as to what new capital we can get from a good part of the population until such time as the Great Inflation begins, as a response to an inflationary scare as has happened in Japan.

I'm in an island here in the Silicon Valley where everybody is still very prosperous; there's a lot of discretionary income. But I hear from colleagues around the country that all day long, they get people in selling their jewelry, selling their watches, selling their parents’ coin collection, selling their own. They need money, and this has been the source need of a lot of the metal that has come onto the market through scraping and refining, but even that's finite. Too many Americans are broke and really can't participate, either as suppliers of metal or buyers of metal. But this is an international market, and you have the rising economies, and gold savvy cultures, and the rest of the world, and I think that's going to be the driving force.

Chris Martenson: Well, maybe I'm making too much of it, but it feels to me like part of what I took from the gold-buying spree that happened was that there were stronger hands entering this market than in any time I've ever seen, because in past times, the weak hands would have won the day. And you would've been swamped with stories of more selling than buying, but the opposite has happened. So it's those strong hands that make me think that if that day of reckoning really comes where the paper boys and girls have to really blink, and just exit all their positions, and get down to a normal trading volume in real commodities, then what I'm waiting for is real price discovery to actually happen, because my hypothesis is that the actual real value of gold and silver is much higher than the currently articulated spot price that we're seeing. And the entrance of strong buyers means we get closer to that day when pushing the paper price down works against you; maybe there's some relationship between price, and supply and demand.

Robert Mish: Well, exactly! I'm sure that what shorts was hoping to happen was that, by crashing the paper price of gold in addition to forcing paper longs to exit, they would cause a snowball effect where Americans and people around the world would exit, but the opposite happened. So if saving and gold, becomes more and more part of our culture, and the ability to save in gold with the prospering emerging economies continues, eventually the paper-short game will be over, but for now we don't know where we're at. We could be months away, or we can be years away, because no one shows their cards. There's a lot of bluffing.

Chris Martenson: A lot of bluffing, and I'm interested in that bluffing, because one of the stories I've been tracking is and I can only do it anecdotally, as unfortunately, the gold market is about as opaque as anything I've ever run into. I have to sniff around the edges, and look at smoke, and distorted mirrors, and try, and figure things out like everybody. I haven't found anybody who can really say what's going on an important point here is that the COMEX market, which drives so much, when the price crashed, that happened on the COMEX Market. As I've learned, the over-the-counter market for gold is much, much larger, and it's very, very private and it's very opaque, and it's not reported at all, and so nobody has good aggregated data. And so I don't really know what's happening there.

And yet, we wander over into the newspapers, and we find out that gold demand in China has been through the roof, and that India is just going bonkers at these prices, and that Thailand the flow of gold from West to East seems more pronounced, now, than it's been in a long time, and it's going at a very, very fast rate. And someday, my hypothesis would be, the West is going to have to figure out how to prevent that from happening, and they can only do it one of two ways. They can raise the price so the East decides they don't want to buy it anymore, or they can shut the markets down. I think that's all that's really available as remedies, here, but what are you seeing in terms of that flow?

Robert Mish: Well, you did a nice article last week titled, Where is the Gold? And you worked with some statistics, and found a deficit as to more gold leaving the U.S. than reported, and I looked at that, and I said, yes. Why don't you add to that all the gold that leaves the U.S. that's unreported; all the Chinese flying over here and taking it, all the gold we export in the form of coin? And all that's hand-carried and couriered out. It's a lot more. You mentioned transactions that occur in the over-the-counter market. I don't know of any firsthand, but I am net-worthed enough to have heard more than once, secondhand, thirdhand that whenever a large transaction is needed, but it really can't go on the market, because it will affect the price too much, or there are too many unknowns in trying to source it, those over-the-counter trades will often occur at considerably higher prices than what we see in trading, just so they can clear that quantity quietly.

Chris Martenson: Right. So, there's an official price, and then a real price, and then, of course, we already see the real price at, sort of, the retail level, if I can place myself there. So, if I wanted to pick up the phone and get my hands on silver eagles tonight, you're telling me I'm going to have to spend at least $5 over spot, right?

Robert Mish: Yes. Sure, and a lot of that is dealer-to-dealer. We shipped out 5,000 pieces late yesterday to a major online seller at $4.80, and they're going to be getting $7.

Chris Martenson: Yes. All right, so, this price drop that happened you've been watching the market for a long time, and I'm really interested in something you started with way back in the beginning of this podcast, which was that when we go back to the 1970s, I remember, gold was at $35/ounce, and it was held there. It was held there. Gold window gets slammed, then gold gets opened again for private citizens to hold, and it climbs all the way up to, I forget the number, but a little over $200. And then, oh, it got crushed. It went all the way back to $100; had a 50% price drop. So, that would be like going from $1,900 to $950.

Robert Mish: That was August of 1976 when it went to $102.

Chris Martenson: $102. And so tell me about what was happening, then, and what it felt like, and how people were responding?

Robert Mish: Well, the bullion business was pretty small in America. I can remember a lot of my colleagues saying that it was over, and of course, that's what makes bottoms; it wasn't like today. There wasn't great buying. It was kind of quiet, and people didn't know whether to buy, or sell, or just to go about their business, 1988 was something else.

Gold climbed a Wall of Worry that did not get participation until it went to $250 - $300, and then it started to get volatile, again.

Chris Martenson: Volatile meaning, it's up and down whole increments?

Robert Mish: Weeks where it would go up or down 10% - 20%, yes.

Chris Martenson: Ten – twenty percent? And so, it goes from $100 to what'd it top out at, about $850 on that intra-day?

Robert Mish: I think I don’t have a chart with me it ran up to a little over $300 or a little over $300, and then, dropped to the mid $200's. And then, began to climb the Wall of Worry where there were very few participants until late 1979, where it was newsworthy and everybody who should never buy gold started buying gold.

Chris Martenson: And so, ultimately, from $102 to over $800, so, an eightfold climb in that Wall of Worry?

Robert Mish: Yes. , it dropped overnight from a high in the mid $800's to mid-$600's. Talk about a one-day drop.

Chris Martenson: Overnight, huh?

Robert Mish: Yes. It was either overnight or a day and a half. It was really quick. It got down in the low $600s, I recall, and then rallied to the low $700s, and then began to erode.

Chris Martenson: Right, and of course, you had an opportunity, at that moment, if you chose to wander over into 30-year Treasury bonds, a little over 14%. Yes, that'd be a pretty good deal, today, or other things. So, there are a variety of conditions that happened, and of course the Hunt Brothers, I believe, are taken down first in that sequence, so actually silver got hit first. And if you're in the gold pit, and you see that the CFDC has just said, we're doing liquidation only on silver, you have to wonder if that's coming to gold too soon, so talk about the ultimate margin hike putting that sort of a thought in people's minds.

Robert Mish: A hundred percent over night.

Chris Martenson: So, of course, it dropped, and lots of conditions are different today to then, but what's not different is the whole idea that you have to climb a Wall of Worry, that the job of bull markets is to shake as many participants off them as possible. And it's also to hide their early moves from as many people as possible, and so here we are. So once again, gold and silver painted in my press in The United States is a rather reviled thing. The anti-gold bugs, if they can call themselves that, have been gloating. That's been fun.

Robert Mish: Before they take ugly and corrupt political action, they have to demonize the victims first, so the public goes, oh, well, they deserved it. They demonized The Hunt Brothers.

Chris Martenson: Yes.

Robert Mish: Yes, so I'm sure they're going to demonize us gold bugs when push comes to shove.

Chris Martenson: Possibly, and of course, they'll have to. But this is the great game, and really, what's at stake here is going to be one of the largest wealth transfers that's ever happened, only because of the scale. There have been magnificent wealth transfers where the parties that win and the classes that lose never seem to change. Whether it's the Argentinian middle class in 2000, or it's the German middle class in 2003 to 2008, it doesn't matter. Anytime you look at what's happened during over-printing periods, it turns out that the wealth transfer has invariably crushed the middle class on down, but not everybody loses in that story, always, and it's a wash-rinse-repeat, Lucy-holding-the-football kind of a thing. It's happened so many times.

Robert Mish: Yes.

Chris Martenson: In your mind is it just happening again, or is there something different we need to know about this time?

Robert Mish: Well, it's a dull conversation among us dealers that “this time is different,” and the joke is, “it's never different, but maybe this time it's different.”

You know what I think is going to happen if we allow it? I think that all the banksters who are short gold, they're going to wind up owning all the gold, all the gold mines, bankrupt them, kill their stocks, take over. The American public, they're going to wind up owning all the debt that the banks are used to owning. It's going to be a switch of positions, if they get their way, if we allow. But if we save in gold, and we change our culture to match that in Asia, and persevere, I think the shorts will lose.

Chris Martenson: Well, that'll be a day which I will personally come out, and we will crack a bottle of wine, and have a barbecue or something, something to commemorate that, because that'll be quite the day. The difficult part for me is that I'm very clear that a lot of people are going to have their lives pretty well up-ended, disrupted if not ruined, because they're going lose their wealth, because they don't see what's coming, or how this is going to transpire.

Robert Mish: And they haven't established themselves with skills as part of a community. That's going to hurt a lot of people, whether they have gold or not.

Chris Martenson: Yes, and so all of that is happening, and I know bankers and I call them banksters sometimes the kindest I can be is to say it's amoral, meaning no morals are actually involved. It's just about money, and making money, and some people win, and some lose, and ever has it always been so. But at the same time, it's really clear what's happening, that this is happening again, and you can't print your way to prosperity in all of that. So, for the people who are listening, who maybe have not fully established their position, or maybe haven't begun to establish their position in precious metals, what would you say to them at this point?

Robert Mish: Start saving in gold, and make it a habit.

Chris Martenson: A habit, weekly habit, monthly habit, whatever works out for you?

Robert Mish: Whatever works, whatever they're comfortable with, and whatever falls within the hierarchy of their values of lifestyle.

Chris Martenson: So, gold needs to be, and silver saving is a regular part of your life.

Robert Mish: Yes, stop playing the paper game, and the paper world. It's not your home court. It'll butcher you every time, yes.

Chris Martenson: Oh, they're very good at what they do.

Robert Mish: Chris when you've done pod casts in the past, has gold always rallied while you've been on the phone?

Chris Martenson: No, I haven't noticed that, because I can't keep multiple screens open when I have my recording device running.

Robert Mish: Ever since you've been talking, gold has rallied $7.

Chris Martenson: Well, okay. Let's keep going, then. I got all night.

Robert Mish: It's a good job.

Chris Martenson: Well, listen, Robert, what I really love is that you've been overseas, you have these deep networks, you've been watching this for a long time, 51 years. Congratulations it's just amazing what you've seen! You've been through all of the cycles that exist, and it's tempting to say it's never different, but this is something interesting. There's an endgame, yes.

Robert Mish: Or, the endgame. Yes, that's what's different. When we reach the endgame, it's going to turn out differently, and we may be there.

Chris Martenson: We may be there.

Robert Mish: The end game of debt-based money.

Chris Martenson: Yes, and that's going to be quite an interesting time, and what's fascinating to me, and a little bit disappointing, is that my country seems to be ambivalent as to whether real wealth, which is gold and silver, flows to The East. And when the dust settles, if currencies go into a bonfire, what we'll find is that the wealth is not here anymore. It's somewhere else, and that'll be disappointing, because we'll need that wealth to rebuild, and keep moving, again.

Robert Mish: Unless they're so bold and amoral as they are that if you're going to be bailed out, you can do anything you want, and gamble with your last dollar on long odds to win. If you're going to be bailed out, if you're going to renege on all the bonds, let them have a little gold and silver. In the political world, there are things that go on that we don't know, and might make sense of a lot of things that puzzle us.

Chris Martenson: Well with that, we've been talking with Robert Mish of Mish International Monetary Incorporated, located in Menlo Park, California. And if you want to, if you're out in the area, or if you want to get in touch with somebody who certainly has a lot of knowledge, who has very deep supply connections and would be more than willing to help find a way to help you get started in, or build your position in, gold and silver, I can't recommend Robert highly enough. He's just fantastic at what he does, a wealth of knowledge. So Robert, thanks a lot, and how would people get in touch with you if they wanted to?

Robert Mish: You've been so kind. If they're anywhere in Northern California, they can drop by our showroom. We do take calls at (650) 324-9110, and would be happy to help any of Chris Martenson's listeners by phone, and we do ship.

Chris Martenson: Fantastic. So, thanks again, and I want to stay in touch, because I'll be interested to know if the market it loosening up, tightening back up, spreads are going, or what's happening, because the front lines are where I think we're going to get our best information. Because goodness sakes, I don't think the big boys and girls are going to be very forthcoming in what's actually happening on their end of the story. So we do what we can here, and track the tea leaves, and make the most of it. This is certainly very interesting times!

Robert Mish: Thank you, Chris.

Chris Martenson: My pleasure. Good talking to you.

Robert Mish: Good night.

About the guest

Robert Mish

Robert Mish is the proprietor of Mish International Monetary Inc. in Menlo Park, California. He has served as a major dealer in bullion and numismatics for clients worldwide for 51 years.

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58 Comments

wroth5's picture
wroth5
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Transcend's picture
Transcend
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Burning questions

If the G8 are all printing and going deeper into debt, wouldn't it make sense the USD still remains the reserve currency since it's all relative? Especially IF they hold the most gold (clearly this is a big "if" as shown, but it's speculation one way or another so I think saying they have the gold is equal to saying they don't have it). 

Lots of talk about the West to East movement, but again, China is doing the same the US did. Credit is soaring and they are creating bubbles of their own. Are they really capable of having a reserve currency?  It seems they are still many years away. 

Although I've been saving in PMs and decreasing cash, I would still like a better understanding of these two arguments that reoccur so often.  

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westcoastjan
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smile of the day

Robert Mish: Chris when you've done pod casts in the past, has gold always rallied while you've been on the phone?

Chris Martenson: No, I haven't noticed that, because I can't keep multiple screens open when I have my recording device running.

Robert Mish: Ever since you've been talking, gold has rallied $7.

Chris Martenson: Well, okay. Let's keep going, then. I got all night.

LOL Chris, too funny!

Jan

Arthur Robey's picture
Arthur Robey
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Skydiving.

Lets say that some executives at the big banks are amoral. (Just floating the idea. A stretch, I know.)

Could they enthusiasticaly be driving the price of gold down so that they personally, not the organization they represent, benefit?

Perhaps we judge their motives too highly.

Sort of "I'm OK Jack. My parachute is open."

Not very patriotic at all. But if this is what is happening it might change our prognosis.

If that were the case we might anticipate executive sized purchases now. How many private purchases have been made in $1 million tranches? 

Mots's picture
Mots
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skydiving

I agree with you.  I always suspected this because its all about  (personal) profit, although we will never know this unde the present system of secrecy in money transactions. 

One possible attribute of a new, competing currency after the reset would be public access to all transactions.  Although many prefer secrecy, much if not all ethics problems would disappear if a currency system provided transparency to all transactions.  In fact, we could probably even throw out ethics rules and regulations as unncessary if we had a transparent currency system that allows everyone to see the transactions......  This can be done.  (any good science fiction stories on this topic?)

Petey1's picture
Petey1
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Video about shortage

A interesting video about silver and gold shortage. http://dont-tread-on.me/?p=29468

FreeNL's picture
FreeNL
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Why do i get the feeling that

Why do i get the feeling that gold and silver is a trap. They have most of the gold already, theres no reason to depress the prices, other than to get you to buy it. That seems to be working.

Why would the banks sell their gold at all, since it wouldnt make sense that if a currency collapse was iminent, they would know about it (and be the cause of it). They wouldnt sell you anything if they didnt believe they would profit from it. Profit is their religion, but control is their god.

You have to worry a little when they want you to have it. The trapdoor will open at some point.

ScottT's picture
ScottT
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FreeNL wrote: You have to

FreeNL wrote:

You have to worry a little when they want you to have it. The trapdoor will open at some point.

I would think that the banks do not want us to have it.  Let's say one makes a $100,000 purchase (cash) and takes physical delivery of the gold and stores it under a mattress.  Such a transaction channels your funds from your bank account to beneath the mattress.  That's now $100,000 (times a multiple of say 30 because of the fractional reserve construct of the banking system) less they can loan out to someone else.  Am I seeing this correctly?

Jim H's picture
Jim H
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ScottT

I don't think your representation of the way money works is quite right.. though I thoroughly agree with your point that the bankers, and TPTB, don't want you and I to be buying Gold.  By buying Gold, the money you spend is not being destroyed.. just moving around.  The dealer takes your money and puts in their bank account.. pays of their dealer.. pays off the refiner.. pays off the miners.. etc. 

There are two things at work here;

1)  Bankers hate deflation.  As Chris teaches in the crash course, our monetary system is only healthy when it is expanding.. when more and more folks and entities are taking out bigger and bigger loans (money is debt).  Your description of money being destroyed is really deflation.. as loans are paid off and new ones don't replace them, the amount of money in the system contracts.. this would be deflation.. and this is what you are describing (though again, your example transaction is not paying off a loan, just moving money around)... we have not had more than a few tiny bursts of it in the last 60 years.  See here;  http://www.advisorperspectives.com/dshort/updates/Inflation-Since-1872.php

2)  Bankers know that Gold is an alternative currency, and they don't want you losing faith in their faith-based fiat money, and gaining faith in Gold, because they cannot print Gold.  Ponzi schemes collapse when faith collapses.  They want Gold scary... they want you to see that Gold can lose 10% of it's value in the blink of an eye... and they certainly don't want you wondering why central banks around the world have been net buyers of Gold for the last 4-5 years.  They want you to take the easy way out, and just stay in dollars.  Don't worry about them not having enough reserves to loan out more dollars (if the demand is there).. nothing you can or will do will impede their ability to make more loans... no, that's not their motivation for fearing Gold at all.            

FreeNL's picture
FreeNL
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so your essentially saying

so your essentially saying that they intentionally tanked the price of gold with the non physical investments to scare people away, but that dropped the price and instead made gold more attractive than ever.

The problem is that i dont believe that the bankers are that dumb but i do believe they are that evil.. They want you buying it. Theres a trick, a catch, another trapdoor. Theres something missing here and i believe the question is "what are THEY buying up?" Farmland? Water? Something we dont know about....

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All of the above

Hi FreeNL,

I personally think the 'bankers' [whoever they are] are fully aware of the coming crisis. We are talking about people here worth multiples of millions here, who are already well diversified into all the things you mention. A good stash of PM's, plenty of land and property in different countries and jurisdictions. Here in the UK the London property market is raising and awash with money from all over the world buying houses in the £Millions. Russians, Bulgarians, you name it, they are here. They will also be doing the same elsewhere. Just like most people on this site - they understand the end game is just a matter of time. It's how best to prepare.

I think 'their' biggest concern isn't war, poverty, countries going banktrupt and children starving. It would be the break down in law and order that would see then lose their title deeds, safety and 'wealth'. Hence they diversify. We are perhaps talking about a thousand or a few hundred people who really direct the World and its economies.

It is a real threat to the purse strings and wealth of the 'rulers' and international elites. I don't think gold personally is a threat to them - they will have a good stash well places all over the world. Rather, it threatens their ability to control people, markets, and economies. that is what is at stake - just in IMHO.

Jim H's picture
Jim H
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FreeNL

I do believe that the bullion bankers trashed the market, thinking that it would have the effect of stifling demand.  The effect has been quite the opposite. 

I don't believe that there are trapdoors that are not already in the dialogue... could governments try to confiscate Gold.. could they try to tax the hell out of Gold profits..could they put capital controls in place in an attempt to restrict its movement...  who knows for sure.  I don't.  Am I advocating putting all your money into Gold and not minding all the other aspects of resiliency.. heck no. 

Calm47's picture
Calm47
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In an increasingly systemic

In an increasingly systemic crisis, gold can not be a means of hedging or "safe harbor" ( http://crisismir.com/analiticheskie-materialy/ekonomika/13-mirovoj-ekono... ). The recent collapse in the price of gold this fact confirms

FreeNL's picture
FreeNL
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but that "collapse" is by

but that "collapse" is by design.

is it not to much to think that the buying frenzy is also by design.....

or am i giving them too much credit? They have managed to subvert the entire world....

JP111's picture
JP111
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Larry Parks: Everything You Ever Wanted to Know About Money Meta
This is an excellent, but long, discussion of money and politics and how to get back to a honest money regime. 
================
Sunday, April 28, 2013

 

Larry Parks: Everything You Ever Wanted to Know About Money Metals

Dr. Lawrence Parks

The Daily Bell is pleased to present this exclusive interview with Dr. Lawrence Parks.

Introduction: Lawrence Parks holds a Ph.D. in Operations Research from the Polytechnic Institute of New York University and is the Executive Director of the Foundation for the Advancement of Monetary Education (FAME). Dr. Parks was a student of free-market economist Murray Rothbard and has studied monetary issues for more than 30 years. He is the author of What Does Mr. Greenspan Really Think?, a popular book on the workings of the US monetary system. He has authored and produced more than 200 videos on topics dealing with the US monetary system, more than 50 of which are posted to www.LarryParks.com. His writings have appeared in Pensions & Investments, The Economist, Washington Times, The Freeman, American Outlook and National Review.

http://www.thedailybell.com/29044/Anthony-Wile-Larry-Parks-Everything-You-Ever-Wanted-to-Know-About-Money-Metals

Arthur Robey's picture
Arthur Robey
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Popcorn.

Money is the great abstraction and distraction.

It is abstract in that it does not exist in whatever passes for "Reality" in your neck of the woods. (See the Measurement Problem, Quantum physics)

It is a distraction from the task of getting on with the task of Living.

Relax, get enough beauty sleep, sit back and watch the show. The Reality show. It is a laugh a miniut.

Popcorn anyone?

gillbilly's picture
gillbilly
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Posts: 414
Salt

Any future evolution is based on the state the system was discovered to be in when the measurement was made, meaning that the measurement "did something" to the process under examination. Whatever that "something" may be does not appear to be explained by the basic theory.

Only faith can solve the paradox. It is what lies beyond. Keep the faith and you won't need the abstraction or the distraction.

Nate's picture
Nate
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Mish II

Robert Mish wrote:

And the shorting game will end badly. And that doesn’t mean that those who have the other side of the equation necessarily will profit, because they will find a corrupt way to burn them.

My concern is that individuals smart enought to invest in PM's will get hosed in the end.  Smart enough to profit, but corruption will burn us in the end.

Bastards.

Nate's picture
Nate
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Arthur

Arthur Robey wrote:

Relax, get enough beauty sleep....

For old guys like me, their ain't enough time to get the beauty sleep we need.........

Jim H's picture
Jim H
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Nate

You are beautiful to me.... man  : )

Woodman's picture
Woodman
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future gold buying

Thanks for the interview.  There seems to be a general expectation that some time the tiny public interest in precious metals today will increase substantially in the future when faith in our fiat currency is lost, perhaps sending gold prices soaring (in terms of dollars).  But can there be a scenario where that doesn't happen?  If there just isnt' close to enough gold for everyone, wouldn't that discourage interest?  Or what if  no one has extra money to put into gold, due to needing all ones income to pay for immediate necessities?

davefairtex's picture
davefairtex
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are we past "peak early adopters" in gold?

Something occurred to me - more along the lines of "what caused the gold crash" - and I'm thinking now that this is a normal thing that happens in cycles.  This is not something I can prove, just an idle thought I had when reading through the comments.

In product adoption cycles, people are broken into groups:

http://en.wikipedia.org/wiki/Technology_adoption_lifecycle

Innovators 

Early Adopters

Early Majority

and so on.

Gold currently is held by a small fraction of the US public - even ETF gold is relatively rare in portfolios.    Perhaps 2001-2007, buyers of gold were the equivalent of tech "innovators", and the next phase of "early adopters" came in after the crash and were motivated by money printing, etc - and that wave rose during 2009, crested 2011, and broke 2013.

In other words, simply repeating the words "money printing" and the introduction of QE55 may not move us to the next level of adoption.  It might have to be something new.

As my only evidence - in the interview with Robert Mish, he said that the vast majority of people buying gold at his shop had already bought gold before.  I've heard that from the KWN group as well.

But from another perspective, once the next group starts joining, it should be quite the party.

wroth5's picture
wroth5
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Jim H's picture
Jim H
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next viral doubling of Gold buyers

In my anecdotal world, the latest PM metals price smash has brought about a viral doubling of new, first time Gold and Silver buyers.  Before the smash, I had two friends who were buyers.  I now have four.  

I didn't convince these folks to buy Gold, though they certainly had been hearing about the entire argument from me for years.  No.. .there were different straws that broke the camel's back in each case;  One friend is on Wall Street in a regulatory capacity... he also has a relative that is ex-investment banker, dedicated prepper.  The smash helped this guy finally get off his butt and buy Gold. Second friend had his final epiphany some weeks before the smash when a friend of his who is a police officer unloaded on him about his disgust over being trained to shoot citizens.  Yes, you read that right.. and this is not a conspiracy website.  

treebeard's picture
treebeard
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Confiscation

There are things that no one can confiscate, that is the love in your heart and the knowledge in your head.  The most powerful thing that you can do is share your love and knowledge with your community by producing something useful, beautiful and prodcutive. Do it in a way that no financial entity is involved, unless it is a small local community bank.

If we are talking about the abstract and evil "they", the one thing that "they" want, it is you in their system. "They" want a cut of your daily activity to support their lifestyle.  They want to monetize you.  If you are playing in the "financial" world you are playing in their game. Gold and silver (beyond their industrial uses) are money, and the money game is what they play at best.  We know that the rules are for us, not for "them".  If working the price of gold through the paper markets doesn't work to serve "their" ends and confiscation is the last thing that will work, then confiscation is what it will be.  FreeNL said it well:

Profit is their religion, but control is their god.

I don't think the dystopian game is part of anybodies plan, though some may be preparing for it.  To many uncertaintes, not very profitable.  The most important thing is to maintain a belief in the "system" so that the majority will participate willingly.  Totalitarian states use force to maintain control, capitalist states use propaganda (although happy to use force outside their boarders).  Propaganda is so much more efficient than force, hence our success.

Propoganda has the unintended advantage of evolving with society because the propaganda needs to stay with evolution of cultural thought to be effective. Change always comes from the edge to center as davefairtex observed to some degree is his mention of early adopters.  Hence the .0001% have less control than we (some of us) and they believe, we are all being dragged along by forces larger than all of us.

I live near an area where many of the .01% live (many work on wall street).  Many are starting or buying local organic farms, dining at locally focused organic restaurants, hey they know what and where the good stuff is. Someone I knew babysat for the president of Coca Cola (this was some time ago), he would never let his own kids drink the stuff.

Things are always more complicated and messy than we would sometimes like to believe.  My crystal ball doesn't work any better than anybody else's, maybe holding physical PM's will help to bring back the rule of law and sanity to the system, I don't know for sure. But I am cautioned by "where your treasure is, there the desires of your heart will also be".  For now I am investing in other things.

One of the most important things to is the believe in our own ability to change things, this is more true than I think we know.  Be the change that we all want to see.

Jim H's picture
Jim H
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Where would we be without Bron to calm us down!

Thanks to Bron, we can all rest assured that there is, and always will be, plenty of infinitely mineable Gold available to supply the market, no matter how insatiable the demand gets.  How silly of me and others to worry that there could come a time when you can't even buy a Gold coin for anywhere near the "spot" price.  That only happens to less rare metals like Silver, with about 10X the yearly mined supply as compared to Gold, right?  That all makes perfect sense, right?   

These guys must be wrong too... just like all the other "stories" that Bron debunked in his piece linked to by Wroth5;

http://www.zerohedge.com/contributed/2013-04-29/gold-and-silver-coin-and...

Premiums for gold and silver bars have jumped higher all over the world. They have surged to multi-year highs in Asia. Reuters reports overnight that premiums are surging due to "strong demand from the physical market, which has led to a shortage in gold bars, coins, nuggets and other products."

Shortages of gold and particular silver coins and bars is not confined to the small coin and bar market and there are also supply issues in the larger bar market with kilo bars being increasingly difficult to secure.

Swiss refineries are struggling to meet global demand for refined gold bars.  They have been cleared out of their stock of kilo gold bars – the preferred form of gold bullion amongst many store of wealth, affluent buyers in Europe and Asia. Buyers have been told that they will have to wait until late May prior to receiving delivery on paid for product.

Shortages are most prevalent in the silver coin and bar market where premiums have surged. 

Silver coins and bars can now not be bought from the largest bullion dealers in the U.S. who have been cleared out of stock in recent days. Unlike after Lehman Brothers where there were shortages and delays of 3 to 4 weeks, there is no guidance being given as to when certain gold and silver coins and bars will be available again.

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bowskill
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Bron Suchecki

The link pointed out by wroth5 is interesting. The article was originally posted on Brons blog where there is now another equally interesting article. Erik Townsend recorded a good interview with Bron sometime last year on the mechanism for setting the spot price, but I cant remember where it was posted (maybe Financial Sense). It sort of debunked some of the more extreme market manipulation theories. Also worth checking out the post by Mish. He seems to have a different view from Chris on the recent shenanigans (take down) in the pm market. That difference was not apparent in the latest "Off the Cuff".

But the big picture doesn't change. Regardless of the real reasons for the short term volatility, I recently bought my first pm because as Mish says he likes his chances in the long run. I don't think any of them would disagree on that.

Jim H's picture
Jim H
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thank you Treebeard

Always interesting and thought provoking posts.  You said,

Be the change that we all want to see.

I want to see an end to fiat money that is controlled by bankers.. .banks should just be utilities.  The power inherent in the ability to create money corrupts too much, and leads the corruption of our entire political system.  I will convert my fiat currency to other forms of money and be the change I want to see.

  http://detlevschlichter.com/2013/04/could-bitcoin-be-the-money-of-the-future/

The Decline and Fall of Capitalist Money

The 20th century was, broadly speaking, a period of almost constant monetary decay. At around 1900 most economists, politicians and bankers would have correctly stated that global capitalism – an international market economy facilitating the free exchange of goods and services across political borders and thus allowing extensive human cooperation through trade – required an international, apolitical, and hard form of money. Such money was gold. It was the basis of the capitalist economy and it imposed strict discipline on all market participants. Crucially, that included governments and banks. Governments had to operate pretty much like private businesses. They had to balance their books, i.e. live within the means provided by taxation, and if they borrowed money in the marketplace their lenders were at full risk of default as no government could print money (gold) to repay loans or even meet interest payments on loans. Banks, of course, issued banknotes or bank-deposits that were not backed by gold but still used by the public as if they were money proper – these were and still are ‘money-derivatives’ – but again they did so at full risk of default as nobody could ‘print’ bank-reserves (gold again) to bail out the banks in case the public tired of the ‘derivatives’ and wanted to hold gold instead.

Over the course of the 20th century – or to be precise, from 1914 to 1971 – the monetary system was completely changed as a consequence of a number of entirely political maneuvers, all of them undermining the quality of money. Today, hard, international and apolitical money has everywhere been replaced with entirely elastic, national and politicized money, with money that central banks issue under a territorial monopoly at no cost and with no meaningful constraints on issuance, and that the central bankers use to ‘manage’ the ‘national’ economy (itself increasingly an out-of-date-concept), and to fund the state and grow the domestic banks (which, under the protection of a lender-of-last-and-first-resort, now issue unprecedented amounts of money derivatives).

Today the global monetary map resembles a patchwork of local, “nationalistic” paper monies, each of which is a political tool, often openly manipulated in an attempt to benefit the local export industry at the expense of foreign competitors or to ‘stimulate’ the ethereal concept of ‘aggregate demand’. Not surprisingly, the global economy is drowning in debt (increasingly public sector debt), suffers from a bloated financial sector and international trade tensions, and stumbles from one crisis to another, each one worse than its predecessor.

Bizarrely – but not entirely surprisingly – politicians, bankers and modern ‘enlightened’ economists now tell us that this unhinged financial system is to our benefit, really, just trust us.

Truth be told, the present monetary system is a hindrance to free trade, properly functioning markets and human cooperation across borders, and it might already be on its last leg. Yet a powerful but entirely misguided, consensus seems to have taken hold of public opinion, namely that ‘elastic’ money could be beneficial if money’s supply was only managed astutely by some clever monetary central planners.

I wrote Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown to challenge that consensus, to show that ‘elasticity’ of supply is always a negative for money. Elastic money is not needed. It is entirely superfluous. Moreover, elastic money is always disruptive. A monetary system based on an inherently elastic and constantly expanding supply of money is unstable and ultimately unsustainable. The reason why gold made such good money for thousands of years is precisely its essentially inelastic supply.

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More questions for Bron...

Maybe Bron can help us understand what is happening to the inventory of the GLD Gold ETF.. where is it going, and why?  From Turd this morning;

The only other item I have time to discuss this morning is the continued draining of the GLD. It shed another 7.22 metric tonnes on Friday. This brings the total gold in "inventory" down to 1,083.05 metric tonnes, down from 1,349.92 back on January 2. This is a drop of 19.77%. So, for all intents and purposes, the GLD now "holds" 4 bars for every 5 it had back at the first of the year. Friday's withdrawal alone is almost exactly three of these pallets.

In stark contrast, the SLV held 10,084.96 metric tonnes of silver in "inventory" on 1/2/13. As of Friday, it held 10,349.42. UP 2.5%. 

Hmmmm.....So were supposed to believe that "investors" are "liquidating precious metal investments" and "re-allocating elsewhere". OK. Well, then, let me ask you this, Bob Pissonme: Why are "investors" only liquidating gold and not silver? Got an answer for that one, big boy?

When this is all said and done, one of the things we'll look back at is this extraordinary draining of the GLD...happening right before our eyes...and so many pundits will express amazement at how they could have missed such a clear warning sign.

Here is my interpretation.. my "story"... hopefully Bron can step in and debunk it so as to calm down my incessent Gold buying;  Remember how after the fact, it became apparent that the smart money had come in and out of the Cyprus prior to the officially announced banking haircut crisis?  

  http://www.zerohedge.com/news/2013-04-10/cyprus-suspends-probe-who-withd...

http://www.zerohedge.com/news/2013-03-31/cyprus-presidents-family-transferred-tens-millions-london-days-deposit-haircuts

http://www.zerohedge.com/news/2013-03-28/so-who-knew-february-cyprus-deposit-outflows-soared-three-year-high

and who could forget this great piece, with a little help from Davefairtex;

http://www.zerohedge.com/news/2013-04-08/guest-post-real-cyprus-template-one-youre-not-supposed-notice

Well.. that is what is happening right now, in front of your eyes, with the GLD.  The big, smart money knows that GLD is fractionally reserved.. and they know that if they wait until the end of this game.. the point at which fractionally reserved Gold breaks down and the emperor is exposed as having no clothes... why, then they will only get pennies on the dollar in the form of cash settlements, in an environment where real, physical Gold in hand suddendly becomes worth many times more.  Smart money is pulling their physical out of GLD by cashing in their shares.. leaving the smaller, dumb money shareholders holding the "paper" bag.  Anyone else care to take a stab at why the GLD has been bleeding physical metal so heavily, while SLV has not?  Bron?  Anybody?   

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400 ounce

What, you can't afford 400 ounce gold bars?  You're just not in the real market.laugh

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Those 25 pound bars make my pockets sag too much....

I hate walking around with those Comex bars in my pockets... so I do in fact avoid them... but that's the only reason          : )    

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searesponse
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Good points.

FreeNL

You're right. There is something missing from the goldbug community. Even decent, intelligent guys like Chris have been sucked into the hysterical nonsense of silver peddlars like Maloney and McLoed. They don't see that the next international monetary system has already been designed, and  neither the Fed or BoE has been consulted. 

First, 'the bankers' are not all doing the same thing. The Euro/ECB/BIS are on the opposite side of an economic war against the Dollar/FED/IMF. They are trying to allow the collapse of the dollar with the minimum of destruction. 

This is what the Euro is for. 

The Fed/IMF want gold far in the background (seen as a commodity). A high price of gold damages pereception of the dollar -- so gold cannot be allowed to rise too quickly or will accelerate dollar collapse.  Plus, Americans do not like buying things that aren't rising in value, so a little volatility helps the moronic media scare citizens away. Paper gold is the instrument used to manage the price of gold. 

The ECB marks it's gold reserves to market prices. After dollar collapse, the Euro needs people to own gold as the Euro will be strengthened by a wide dispersement of gold AND a high free market price for gold. The unusual structure of the Euro has not been noticed in the English speaking world. However the Chinese and oil states have noticed - and they support the Euro as it will allow gold to take it's rightful place as final payment in international settlement.

Global support means that the Euro will survive (and expand) despite what Shedlock, McLeod and every other English speaking news source tells you. 

Silver's future role is in industry, fancy candlesticks etc. and a very low price will eventually show that. The only people who beleive in silver are Western. 

Edit; if you're in NL you can thank a few of your countrymen (long dead) for their foresight in planning for the inevitable winding down of the dollar, decades ahead of time. 

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More from Robert Mish

Robert contacted us to clarify his response to the question Chris asked him regarding the risk of delivery default to retail gold/silver investors. Here are his further thoughts:

For the individual buyer, there is little risk presupposing they are dealing with an established "brick & mortar" store or one of the established internet / phone order bullion dealers. In the case of the latter, for additional security it is a plus if they are owned by a veteran member of the hard money community and/or have been vetted by organizations such as Peak Prosperity. It is another risk-reducer if the dealer floors his own inventory, thus gold & silver due him from the distribution chain are replacements to his own, rather than brokerage.   If a dealer has no inventory, whether live or in route & paid for, he may be well meaning but he is a broker risking your money as we approach the day of reckoning. The longtime veterans of this profession are among the most honorable people I know, and they take care of their customers and obligations whether it is at a profit or at a loss to themselves. They know that their reputation is their most valuable asset.

As for default, the Big Risk will come from the top, when physical delivery demand reaches critical mass. The risk will come when we reach the end game of naked shorting.   In that event, the banksters and associated governments will turn on themselves.   Major failures to deliver will unmask empty storage, empty treasuries, and perhaps some defaults of institutional obligatons resolvable only in part by price or penalty.   It is less likely that a national mint or well managed private minter will be a victim of or perpetrator of default.  The Perth Mint, for example, sources gold from their own parent Gold Corporation, a direct miner-producer. The U.S. Mint & Royal Canadian Mint will not renege on their confirmed orders.   Mexico mint also sources from domestic mines. For the time being, nobody, including the short bullion banks and collaborating governments want there to be any question of confidence in the system. Confirmations of price and ounces will continue to flow down to the small investor. 

One last caution: whenever an investment category becomes noticed and opportunistic, it brings into that industry the inevitable sharks and crooks who prey upon investors. In the 1970's & 1980's, we had to compete with instant but highly advertised bullion houses who were "selling", for example, 1 oz krugerrands at under market cost. Of course these boilerrooms would disappear along with their customer's money, but in the interim we legitimate dealers took some flak now and then for being "too high" or "too small to be competitive". Another maneuver to be aware of is a company establishing a relationship with you by being the best deal on bullion, but then moving you into coin collectibles (which you are not familiar with) at prices far above market. Rare coins are a great hobby and sometimes a good investment, but these outfits can get very bold in their mark-ups.   If you are going to add rare coins to your bullion position, learn what you are doing and work with established numismatic dealers. 

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searesponse
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ZH

ZeroHedge is an appaling source of infomation. 

Some ZH contributors PAY to have their articles posted and hey presto all of them have newsletters, or coins etc. to sell. It's called advertising and preaching to the choir/gullible is very lucrative. 

There may be ocassional shortages of silver coins and bars, but NO shortage of the metal itself. Mints/refineries have not invested in new plant / coin presses etc. 

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searesponse wrote: ZeroHedge

searesponse wrote:

ZeroHedge is an appaling source of infomation.

as opposed to what, Marketwatch?  You may not like ZH, that's fair, but your accusations aren't backed by anything other then your opinion at this point.  How else do you expect a free website to pay for their business, donations? They do a very good job IMO of doing research and connecting the dots in a quick, thoughtful manner.  

to say that people who read ZH are "gullible" is a bit naive.  Most ZH'ers have figured out the farce that our system is and made every effort to fight it.  That includes buying bullion on a regualr basis and taking money out of the banking system.  

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Coins are not metal

You seem to be very confused about the difference between availability of coins and availability of raw gold and silver. Supply of coins is constrained by production bottlenecks. This says nothing about the underlying supply of monetary metals available.

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Wroth5

Wroth... you are correct in saying that the refining and minting processes are bottlenecks in the supply chain that don't necessarily tell the story of the rest of the supply chain from mines -- > refiners.. that is not a source of confusion at all..  BUT;

How do you know for sure that there is not stress below in the supply as well?  You are just telling us so, but you are not citing any data, sources, etc.  I talked above about the drain on the GLD, and I interpret that as a sign of extreme stress in the large bar market.  I also would cite Germany's failure to get their bars repatriated from NY until seven years out as another sign of stress in the stores of actual metal.  Where is your data?  

And, by the way.. coins are metal... and while they don't tell the whole story.. shortages there do place some degree of stress on the supply chain below.  So while I agree with you that coin shortages don't necessarily tell the whole story on a short term supply basis.. in the end, if investor demand continues at a high level for coins, this will eventually pass through down to the mines..... unless of course price is allowed to solve the supply vs. demand imbalance and more Gold comes out of hiding   : )       

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I just honestly think that

I just honestly think that the fact that people are buying as much as they are now represents the lack of faith in the "system" that currently is playing out in the world, especially in the USA.

-D

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Dave from Denver disagrees with Wroth.. and he has data

http://truthingold.blogspot.com/2013/04/the-global-fractional-paper-bull...

 

The Global "Fractional" Paper Bullion Market Is Collapsing

I wrote last week that there was a scramble going on globally by entities seeking to take physical possession of the gold on which they have a legal claim, most of which is sitting either in alleged "allocated" big bank bullion vaults or in alleged "allocated" accounts in Comex custodial warehouse vaults. 

I also demonstrated mathematically, using the reported numbers on the CME website for precious metals futures open interest and warehouse gold/silver stocks, that the amount of gold represented by Comex futures open interest far exceeds the amount of deliverable gold on the Comex (the analysis is even more extreme for silver).  In fact, if less than just 10% of the buyers of June gold contracts demand delivery, the Comex won't have enough gold to cover the legal claims.  For silver (July silver) it's even more extreme.

This is a global problem and not just endemic to the Comex.  Globally, the legal claim of ownership on physical gold far exceeds the amount of gold represented by paper futures, LMBA forward contracts, leased gold and vault receipts.  The latter - vault receipts - is where the big banks in London have the most severe problem, as gold this is supposed to be sitting in "allocated" accounts under the name of the legal owner who bought and paid for those bars has been largely leased out.  I'll get to that in a minute.

First, I received this comment from John Brimelow's "Gold Jottings" report, which comes from Gerhard Schubert, head of Precious Metals at Emirates NBD, the largest banking group in the Middle East.  Keep in mind that Middle Eastern buyers demand physical delivery of their gold.  Here's the quote from his latest weekly report:

I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…

I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.

The price hit of two weeks ago has triggered a serious scramble for physical gold and silver.  Reports like the above comment have been flooding from Europe, the Comex has had about 30% of its gold bars literally drained from the customer accounts of the Comex bank custodian vaults and the U.S. mint is running way behind on demand for silver eagles and some weights of gold eagles.  Ditto for the Canadian mint.

And then I get a call from a close friend in NYC last Friday.   His career has been in private wealth management in the private bank department of the Too Big To Fail banks.  He's been looking for work and chats with old colleagues all the time.  He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.

This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact.  He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment.  The Bundesbank/Fed and the ABN/Amro situations triggered this move.  He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts.  He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors.  His wording was "these people are putting a gun to the heads of private banks and demanding their gold."

I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.

Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes.  After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years.  To this day, the time required for that shipment has never been explained.  Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.

And regarding the ABN/Amro situation.  ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out.  About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption. 

I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway. 

In fact, what we are now seeing is the final stages of the paper gold/silver bullion market, which has grown at a parabolic rate over that last 13 years, and includes Comex futures, LMBA forward contracts, OTC derivatives - which is an even bigger paper market than the Comex - leased gold claims/contracts and warehouse receipts. 

At some point there will be an even bigger "run on the bank" by those looking for delivery of the physical gold/silver that they have been "assured" is sitting in their "trusty" bank custodian vault.  I know for myself that I have seen enough from the JPM's of the world to not trust anything they do or say.  I think a lot more people are finally coming to that same conclusion.  At some point there will be a complete collapse of trust in the paper monetary system and the price of gold/silver will really go parabolic, as the masses realize all at once - and far too late I might add - that everything that was rumored over the last 13 years about paper gold, gold leasing, etc is actually true.

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The only thing you're right

The only thing you're right about here is that some of the "Silver Peddlars" are to be taken with a grain of salt.

Fed/IMF/ECB are ALL controlled by the BIS.  Period...end of story.  Do your research.

I've found that some of the most brainwashed persons on this planet are from the Southern Hemisphere. They're bred on an island where most info comes from 2-3 sources, and they do mostly what their governments tell them to do.  They've been bred/culled into a specific "group think" paradigm.  There are some that have broken free for the most part (Arthur R....God love him!), but the majority have a very hard time thinking outside the box.

Do your research on the specific organizations that you brought forth.  Try to understand there's "man behind the curtain" that is controlling those organizations.  Go up to the search section and type Drkrbyluv, or Strabes, and become educated.

searesponse wrote:

FreeNL

You're right. There is something missing from the goldbug community. Even decent, intelligent guys like Chris have been sucked into the hysterical nonsense of silver peddlars like Maloney and McLoed. They don't see that the next international monetary system has already been designed, and  neither the Fed or BoE has been consulted. 

First, 'the bankers' are not all doing the same thing. The Euro/ECB/BIS are on the opposite side of an economic war against the Dollar/FED/IMF. They are trying to allow the collapse of the dollar with the minimum of destruction. 

This is what the Euro is for. 

The Fed/IMF want gold far in the background (seen as a commodity). A high price of gold damages pereception of the dollar -- so gold cannot be allowed to rise too quickly or will accelerate dollar collapse.  Plus, Americans do not like buying things that aren't rising in value, so a little volatility helps the moronic media scare citizens away. Paper gold is the instrument used to manage the price of gold. 

The ECB marks it's gold reserves to market prices. After dollar collapse, the Euro needs people to own gold as the Euro will be strengthened by a wide dispersement of gold AND a high free market price for gold. The unusual structure of the Euro has not been noticed in the English speaking world. However the Chinese and oil states have noticed - and they support the Euro as it will allow gold to take it's rightful place as final payment in international settlement.

Global support means that the Euro will survive (and expand) despite what Shedlock, McLeod and every other English speaking news source tells you. 

Silver's future role is in industry, fancy candlesticks etc. and a very low price will eventually show that. The only people who beleive in silver are Western. 

Edit; if you're in NL you can thank a few of your countrymen (long dead) for their foresight in planning for the inevitable winding down of the dollar, decades ahead of time. 

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shortages = premiums

One thing that's hard for me to rationalize with the escalating "shortage enthusiasm" stories are the continuing discounts to NAV of the couple of hard-asset ETFs that I watch.  Its only a couple of data points, but I'm seeing PSLV now trading back down to a discount of -0.18% to NAV (it was modestly at a premium a few days back) and CEF much worse at -1.82% to NAV.  CEF was trading at no premium a few days back as well.

Now both of these vehicles are much more thinly traded than the GLD/SLV pair - about 5-10% of the daily volume - but it does perplex me a bit.  If we're running out of good delivery bars, why isn't PSLV going into premium.

HAA quotes silver good delivery bars (1000 oz) at $0.63 over spot, which pencils out to a 2.5% premium.  That doesn't strike me as end-of-the-world premium levels.

HAA quotes gold kilo bars for a 2.3% premium.  Seems a trifle high.  Kilo bars are popular in asia - a moderately rich friend of mine has a small stack of them sitting in a vault.  They have kilo-sized futures contracts, and he took delivery and stuffed them into his safe deposit box.

Since I am long silver, I'd really like to see one of those commercial signal failures - or that COMEX default we're all expecting to happen Any Day Now, but right now shortages seem confined to retail.  All the stories about customers not getting their gold are definitely exciting, yet we're not seeing confirmation in the premiums at PSLV/CEF and the premiums at HAA seem modest.

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Extraordinary claims require extraordinary evidence

Jim H wrote:

How do you know for sure that there is not stress below in the supply as well? 

The major industrial users would complain.

Amyway, the onus is on those making claims of silver shortages to prove it. Extraordinary claims require extraordinary evidence. But they will not do that as a fake silver shortages are very profitable.

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Physical price

Maybe someone has already said this, but I wish someone would start taking a accurate reading of the phsyical price of silver and gold and publish it on a daily basis.  This actually wouldn't be that hard to do. For instance, if you wanted a reading of the coin shops (perhaps more than this), all you'd need do is create a sample frame of all the shops.  Then do a probabality sampling to select and  poll a small percentage of the shops.  The shops could post their current buy and sell price for key items like silver eagles or whatever at the end of each day.  Calculate the mean and put it up on a site with Kitco-like charts to boot. This would give you current physical price within a certain margin of statistical error.  This is what is needed to eliminate the hegemony of the spot price. If I had more time I might take that on. Maybe someone at PP would take this on?  That might really increase traffic to the site.  A lot of people would stop looking at the spot price I do believe.  Just a thought.

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An additional thought to that

You know, if someone did do the little project suggested above, you ultimately wouldn't even need the spot price and the "premium".  Just hey, what's the buy and sell.  At that point the physical would really disconnect from the paper.  That couldn't happen right away as things are too linked to that spot price, but that's the idea; and it may be a first step to undermining the paper market.

Also, in regard to probability sampling: you could publish the range, the mean, the median, and do all sorts of other things too. A stratified sampling of the dealers, for instance, might allow it to be broken out by region or country etc. 

Wouldn't the coin dealers (or whoever) be interested in this information - enough to participate anonymously?  I think maybe so.

I can tell you one thing, If I could see those numbers on a daily basis, I'd be looking at them - and I probably wouldn't be as moved by the relatively crazy BS in the paper markets.  Except as a guide to trading mining stocks, I'd probably stop looking at that spot price and the kitco chart altogether.  I'd look at the real physical price. I'm almost inspiring myself to do the project.

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Searesponse

Really, the only point of yours that I would argue with is that the idea of tightness in supply down to the mine level is somehow an extraordinary claim.  My own suggestion would be that, if the current level of investment demand, which was kicked off by the price dump, keeps up for any extended period of time.. that this will in fact lead to pressure on supply all the way down the chain.  Why do I say this?

You are correct to say that industrial demand is, by a large majority, the main source of demand for Silver (see Silver institute numbers here;    http://www.silverinstitute.org/site/supply-demand/

By this dataset, coin demand is 13.5% of overall demand.  For now, industrial demand is much greater than is demand for Silver as a monetary metal. 

But....  The Silverinstitute data also shows a supply:demand balance at present.. .which means that if one user (like coins) were to change dramatically, without another dropping by an offsetting amount.. then there is an overall supply problem in the markets, right?

What has happened to demand recently?  

In Mexico, Silver demand via coin sales tripled;  http://silverdoctors.com/physical-silver-demand-explodes-in-mexico-more-...

In general, coin demand seems to be 2x higher than normal.. the main question is, will this be sustained?  If it is sustained, it will represent a significant imbalance between supply and demand all the way down the supply chain.  

Finally, it is important to understand that things are not exactly wonderful on the mine supply side of the equation.  Aside from current pricing being at or near the breakeven level for most mines, which does not exactly engender more supply... A large landslide has taken out 16% of the US Silver production, possibly for years;

http://silverdoctors.com/10-of-us-annual-silver-supply-just-vaporized/#more-25002    

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Robert Fitzwilson thinks there is a global Gold bullion bank run

I wrote this yesterday;

Remember how after the fact, it became apparent that the smart money had come in and out of the Cyprus banks prior to the officially announced banking haircut crisis?  Well.. that is what is happening right now, in front of your eyes, with the GLD.  The big, smart money knows that GLD is fractionally reserved.. and they know that if they wait until the end of this game.. the point at which fractionally reserved Gold breaks down and the emperor is exposed as having no clothes... why, then they will only get pennies on the dollar in the form of cash settlements, in an environment where real, physical Gold in hand suddendly becomes worth many times more.  Smart money is pulling their physical out of GLD by cashing in their shares.. leaving the smaller, dumb money shareholders holding the "paper" bag.

http://www.peakprosperity.com/comment/151866#comment-151866

Fitzwilson is now saying the same thing

There is no question that a form of a bank run on gold is occurring all over the world....

If we are having a run on the gold and silver by the small percentage of investors at this point, what happens to availability and prices if even a small incremental addition from individuals and institutions occurs?  The bottom line is I believe we are about to find out the answer to that question shortly.”

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/30_World_Changing_Events_%26_The_Global_Run_On_Gold_And_Silver.html

You have been warned.  Technical analysis of charts will not tell this story. 

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Jim H
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Head of CME talks real Gold vs. his paper...

Mike Krieger thinks this is extraordinary... and a harbinger of the coming break between physical and paper. 

http://libertyblitzkrieg.com/2013/04/30/cme-president-on-gold-they-dont-...

Might the commercial signal failure be coming soon? 

Mike's comment;

- Terrence Duffy, President and Executive Chairman of CME Group Inc,. on Bloomberg TV yesterday (April 29, 2013)

I’m actually still in a state of shock that the head of the CME Group would make such an observation and in such blunt terms.  I mean the guy admits that volume on his exchanges suck, yet basically claims paper gold (one of their marquee products) is becoming irrelevant.  In my mind there are two likely explanations for this.  1) This is how he has started to feel personally and he is loading up on physical gold rather than his company’s paper products and would like some cover if that is ever unearthed. 2) This is what people close to the gold market are telling him and he’d rather make it clear he understands that paper is paper and gold is gold and that there is a big difference.  So “caveat emptor” if you are hanging around the COMEX.

His comments on gold come in at the 0:40 mark.  Simply stunning.

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davefairtex
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KWN, a world apart

Well, if KWN says a bank run on gold is going on all over the world, it must be true.  Let's see what else they are saying over there:

STUNNING GOLD SHORTAGES AS PONZI SCHEME COLLAPSES & MORE
LBMA DEFAULT, ENSUING PANIC, GOLD DELIVERIES, CHINA & MORE
CENTRAL PLANNERS RISKING ALL HELL BREAKING LOOSE, GOLD & MORE
INCREDIBLE GLOBAL GOLD & SILVER RUSH TRIGGERS KEY TARGETS & MORE
The people at KWN live in a somewhat different universe.  Now to be fair they were in on gold from the very beginning, so who am I to ding their little red wagon.  But up to now, there's been no good time to sell gold, and one guy (Jim Sinclair) has recently called for gold to reach $50,000/ounce.
 
Here's a thought experiment.  IF you believe gold is going to $50k/ounce, don't feel even a moment of stress about buying gold now.  Wait for that 50 day moving average to lift above the 200.  That's because if you buy here at $1470, or you wait for (perhaps) $1650, it will make no difference because your endpoint is so ridiculously high, and from a trader's viewpoint, buying the uptrend is safer (because the bottom is already in) rather than buying into a downtrend (catching the falling knife) which could go on for longer than you might imagine.
 
As I said, its just a thought experiment.
 
Right now price of PM is behaving pretty well so my sense is, its a decent opportunity to pick more up at a discount, assuming you don't pay outrageous premiums.  I've never dealt with HAA but they do seem to have decent premiums - although I am not sure what the rest of the fee structure might look like.  Again, you can get PSLV at a very slight premium right now - less than 1%.  When you feel like exchanging that for the real thing, sell the PSLV and buy your coins which (hopefully) will have reduced premiums as manufacturing catches up with demand.  And if an LBMA/COMEX default occurs, PSLV's premium should blow out enough to compensate you for not having the coins.
 
Gold/PM miners are also beginning to show signs of a bottom - signs, mind you, $HUI needs to break above 295 for a relatively high risk buy (stop around 260) and a lower risk buy might be after $HUI closes above that 50 MA (around 330) for a couple of days.  GDX looks similar.  I'll also feel better when the GDX:$GOLD ratio stops dropping, and the $GOLD:$SILVER ratio stops rising.  Right now miners are risky, because if gold starts to drop again, those miners will make another leg down.
 
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Jim H
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Posts: 2202
Davefairtex

Is that really your best argument against the idea that there is great underlying stress in the physical Gold market... it was on KWN so it must be bluster?  I realize that the "matrix", i.e. the market, is not telling you that physical Gold stocks are being raided via the recent price action... and I wouldn't expect it to until after the market breaks.. after the black swan has flown.  For now, we read the tea leaves. 

First off, I realize that Kingworldnews is all pump, all the time.  This does not mean that one can impugn every guest that is interviewed on the blog.  I especially figured that since Fitzwilson is a trusted past PP.com commentator and recommended porfolio advisor, and a Stanford MBA, that my quoting him, even from KWN, would not attract too much ridicule.  See here;     http://www.peakprosperity.com/search/apachesolr_search/fitzwilson

At the same time, you avoided offering any alternative interpretation of the issues I raised, namely that there appears to be a "run on the bank" going on in some of the physical stores that we can see (Comex inventory at 5-year lows, GLD continuously puking Gold since the beginning of the year.. another 2.14 tonnes today).  Aside from myself and Fitzwilson, Dave from Denver said this yesterday;

  In fact, what we are now seeing is the final stages of the paper gold/silver bullion market, which has grown at a parabolic rate over that last 13 years, and includes Comex futures, LMBA forward contracts, OTC derivatives - which is an even bigger paper market than the Comex - leased gold claims/contracts and warehouse receipts. 

At some point there will be an even bigger "run on the bank" by those looking for delivery of the physical gold/silver that they have been "assured" is sitting in their "trusty" bank custodian vault.  I know for myself that I have seen enough from the JPM's of the world to not trust anything they do or say.  I think a lot more people are finally coming to that same conclusion.  At some point there will be a complete collapse of trust in the paper monetary system and the price of gold/silver will really go parabolic, as the masses realize all at once - and far too late I might add - that everything that was rumored over the last 13 years about paper gold, gold leasing, etc is actually true.

link:  http://truthingold.blogspot.com/2013/04/the-global-fractional-paper-bull...

I believe the real arbitrage with Gold is not that it will go up another $100 or $200 or $300 dollars as more dollars and yen and pounds are printed.. but rather that it will go up a whole lot more when the fractionally reserved nature of the Gold stores, even many of those thought to allocated, are finally exposed.  Most of the Cyprus bank account holders never saw it coming.. but in retrospect, the smart money left their tracks (as you showed in the charts that accompanied CHS' piece on the subject) as they got out of the way of the coming storm.  One could certainly argue that I am wrong.. but I think I see the tracks of the smart money again here.. just as before... getting their physical out of the way before the Corzining begins.  

On the subject of PSLV/PHYS.. these would be fairly obvious places to grab physical once the market gets tight.  I have actually been tracking the PSLV and it has not lost shares in the last 10 days.. I will note the PHYS share count in my spreadsheet (don't know any data feed for this) and begin to track that as well.        

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davefairtex
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Joined: Sep 3 2008
Posts: 3671
comex/lbma default trade

Jim, I've heard about a COMEX default over there at KWN (I really do go there weekly to get my dose of All Gold All The Time) for the past 5 years.  Most of the guests over there say the same sort of thing.  They're all smart people.  They were right about the gold trade, but they've been wrong for a very long time about the imminent default.  Could the stopped clock be right this time?  Yes, it could.  Am I going to start hyperventillating at the imminent prospect?  Only when I see some actual evidence of it happening.

Believe me, if I saw evidence, I really would start hyperventillating!

If I were a retail coin dealer, and I had carefully hedged my inventory through short silver & gold contracts so that my inventory was neutral to the price of the underlying metal, this increase in premiums would be Christmas Come Early for me.  They'd be pure profit.  And the more excited my customers got over this event, the more money I'd make.  Do retail coin dealers hedge their inventory?  That, I don't know.  That's what I would do - so I could make sure to be able to pay the rent and not take a 20% loss if gold & silver happened to "take a dip."  As a "full disclosure" sort of thing, that's one question I would ask.

I don't think a default will be a lightning bolt from the clear blue sky, just like Cyprus wasn't such an event if you were really paying attention.  I'd pick HAA premiums as one of my measurements, and currently, they don't look very far out of alignment, especially given all the current fuss.

Likewise, a banking system Cyprus-style issue won't happen overnight either.  The pressure builds up slowly over time.  We'll have warning.  (Most likely candidate: Slovenia - smart money continues to flee).  Unless of course it happens because of some exogenous event like a massive solar event, or a nuclear (EMP) attack.

I really wish I had underlying raw timeseries of GLD share counts as well as COMEX inventory.  If you know where I could find them, I'd promptly come up with some charts.  My thesis is, the inventory aligns nicely with the price of gold so that rather than predicting an imminent default, they were simply predicting a lower metal price.  Then again, if the inventory continues down as the metal price bounces, that becomes more interesting.

But at the current rates of decline, we'll have time to see it all coming.

You see, I do agree that at some point such a default will occur.  The tracks of the smart money are out there, we just have to find them.  I believe premiums are one such track.  I don't think the big guys will start taking delivery from PSLV, they'll just buy the shares in preference to SLV and/or other PM vehicles, which will cause the premiums of PSLV/PHYS to rise.

Here's a trade that should work flawlessly if GLD/SLV actually end up defaulting and not having any gold or silver in them.  It's very simple.

Long PHYS / short GLD

Long PSLV / short SLV

Its basically a PSLV/PHYS premium trade, and you're hedging out any risk in the move of the metal itself.

The risk to this one is that Eric Sprott goes out and does a secondary offering and is actually able to get the underlying metal, which he has done repeatedly, which ends up hammering the premium back down to flat again.  Which is another reason I tend to look at this default talk with a decent amount of skepticism.  So far, the ones making money from the default talk are the people selling us our gold.

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