Almost everyone hates gold; Is it time to buy?

[Ad Orientem]

This guy says yes.
http://finance.yahoo.com/blogs/breakout ... .html?vp=1

Happily I don't need to guess which way it's going. But for those who want to speculate he makes some interesting points.

[MediumTex]

The time to buy bonds was the spring of 2008 when everyone hated them.

The time to buy stocks was the spring of 2009 when everyone hated them.

In recent years, when have people hated gold the most?

[smurff]

There's physical gold, and there's paper gold.  They are regarded differently by investors, but officially the prices are the same for both.  Paper gold is traded for profit, but right now seems "hated" and is undergoing a correction.  Physical gold, however, is not so much traded as acquired, so it is still in much demand. 

Unfortunately there's no politically acceptable way to have official prices for both markets running separately to reflect reality.  One market is at parity, the other uses uses a fractional reserve ratio of at least 100:1, but official prices have them set the same.  My understanding is that during this last crash, many physical dealers had no inventory to sell even though customers were lined up online.(Buying/selling panics and bank runs now take place electronically and not while queuing around the block.)  Those who had inventory probably took it off the market. 

Who's going to sell gold at $1350 an ounce during a time when various experienced observers (whether rightly or wrongly) indicate there is massive manipulation in the PM market and the price should range from $2400 to $8000 during QE?

[Bean]

There's physical gold, and there's paper gold.  They are regarded differently by investors, but officially the prices are the same for both.  Paper gold is traded for profit, but right now seems "hated" and is undergoing a correction.  Physical gold, however, is not so much traded as acquired, so it is still in much demand. 

Unfortunately there's no politically acceptable way to have official prices for both markets running separately to reflect reality.  One market is at parity, the other uses uses a fractional reserve ratio of at least 100:1, but official prices have them set the same.  My understanding is that during this last crash, many physical dealers had no inventory to sell even though customers were lined up online.(Buying/selling panics and bank runs now take place electronically and not while queuing around the block.)  Those who had inventory probably took it off the market. 

Who's going to sell gold at $1350 an ounce during a time when various experienced observers (whether rightly or wrongly) indicate there is massive manipulation in the PM market and the price should range from $2400 to $8000 during QE?

This is one of the succinct posts I have ever read on the physical vs. paper gold paradox.

[Reub]

From one of the most succinct posters!

[smurff]

One day I will run all my posts through a Twitter template and see if the meaning stays the same.

But not yet.

In my succinct-ness, I forgot to mention that the shortage of physical inventory in a normal market should send prices higher, then higher, and at some point some of those who had acquired physical gold decide the price was juicy enough to unleash some of it into the market, take some profit (like, enough to buy a new car)  and pay steep collectibles taxes (in the USA).  The price would go up steeply until that point is reached, and the shortage would ease.

Instead, all we saw was a steep decline in the gold price, because of the goings-on in the paper gold market.  During this time I checked out about five or six popular PM  dealers who sell online, and NONE of them had bullion inventory. (A few had a scattering of MS-69 St Gaudens and other numismatic PMs, whose value is not as dependent on daily London Fix prices.)

When GATA and various traders talk about manipulation in the gold and silver markets, this price divergence is just one visible outcome. I would not be surprised if there was a 50% spread by now.  It has me wondering at times whether certain gold/silver ETF models were approved because TPTB knew they could be used to facilitate such manipulation whenever they wanted, which they can't do so easily with physical gold.

[Tortoise]

Why don't bullion coin dealers just set their coin prices based on supply and demand?

If I'm a coin dealer and I find that I can't keep inventory on my shelf, I'm going to raise my coin prices--regardless of what the London fix says. It's not rocket science.

Yet I continually read articles and hear anecdotes about bullion coin dealers running out of inventory. What gives? Is someone tying the dealers' hands and forcing them to base their coin prices on the paper gold market rather than on local supply and demand?

[Ad Orientem]

Too many folks don't grasp that the so called "spot" price for gold refers to 400 oz. bars. Most retail investors can't afford to buy a 400 oz bar so they go with smaller sized bars or coins. Hence the disconnect. There is no "physical shortage." Coins and small bars are just in higher demand relative to supply than the Fort Knox type bricks. Just like with everything else it is indeed the law of supply and demand. If you want to buy a 400 oz. brick you will be able to get it for pretty close to spot.

[Tortoise]

That still doesn't answer my question.

There is indeed a "physical shortage" if coin dealers can't manage to keep inventory on their shelves, which is what smurff is asserting.

Usually, shortages exist only when prices are forced artificially low by government mandate. In this case, I'm not aware of any such law capping the gold price.

So again, I ask: If the coin dealers are having trouble keeping inventory on the shelf, why don't they simply raise the price of the coins until they stop running out of inventory?

[Pointedstick]

My guess is that coin dealers aren't charging $500 premiums on coins because they know that customers will balk and find another merchant who charges less but is almost always out of stock. That's what I do with Goldmart, as a matter of fact. They always have the lowest premiums so just buy the lowest-prices coins they do have in stock. If they're out of Krugs and Maples, for example, I just buy Austrian Philharmonics--which are beautiful, BTW.

[rickb]

That still doesn't answer my question.

There is indeed a "physical shortage" if coin dealers can't manage to keep inventory on their shelves, which is what smurff is asserting.

Usually, shortages exist only when prices are forced artificially low by government mandate. In this case, I'm not aware of any such law capping the gold price.

So again, I ask: If the coin dealers are having trouble keeping inventory on the shelf, why don't they simply raise the price of the coins until they stop running out of inventory?

The dealers generally quote a spot+premium price, so the price floats with spot (presumably reflecting their costs).  When supply is down, the quoted premium does indeed generally increase - but they're in competition with lots of other dealers so they can't raise their premium without limit.  What seems to happen when the spot is down is that the dealers run out of supply before they can (in the aggregate) manage to raise the premiums enough to balance increased demand.  Based on recent ebay prices, it seems they could currently charge about a $200 premium.

The notion that 1 oz gold coins are worth about $1600 but that gold in 400oz bars is worth only $1400/oz seems patently ridiculous.  The fabrication costs (per coin) are nowhere near $200 a coin.

[Ad Orientem]

The notion that 1 oz gold coins are worth about $1600 but that gold in 400oz bars is worth only $1400/oz seems patently ridiculous.  The fabrication costs (per coin) are nowhere near $200 a coin.

This is true. But one must remember that most of the sought after coins are minted by sovereign governments in limited quantities. So it really does come down to supply and demand. Personally I agree that premiums have moved into the realm of the ridiculous. Why not just buy small gold bars? Why spend more for the same amount of gold? Paying premiums of more than 5% is very hard to justify in my mind.

[bronsuchecki]

The dealers aren't increasing their premiums because people won't pay them and would rather go without. I don't hear of people outbidding each other to buy what is left in a dealer's inventory. If people are so desperate, why aren't they offerring to pay $100 premium, then another guy says $200, then another say no I'll pay $300. That is not happening, so it is the investors who are "accepting" the spot price as a base and some large premium above it, but not going crazy.

[smurff]

Silver Scarcity and Delays Continue as Physical Buyers Outpace Sellers 50 to 1

AUSTIN, Texas--(BUSINESS WIRE)--May 07, 2013--
Austin Rare Coins and Bullion, a leading provider of physical gold, silver and rare coins, announced today that despite a recent drop in gold and silver prices, demand for physical precious metals continues to outpace supply. Since January, silver prices have fallen from $30 to $24 an ounce today, a 20% correction.

Given the recent price correction, logic would dictate that demand is down and supplies are abundant. In reality, there are industry-wide delays across numerous mainstay products. The U.S. Mint is being forced to allocate Silver American Eagles, limiting how many can be purchased each week per dealer. Even though the Mint is on pace to produce nearly 60 million Silver American Eagles this year - an all-time record - it is still unable to keep up with demand. In fact, the United States Mint produced more coins in the first quarter of 2013, than it did in the entire years of 1996, 1997, and 1998 combined.

"Silver ETFs and other precious metals paper may have been sold off in large numbers recently, but buyers of physical silver and gold outnumber sellers by a 50:1 margin," said Ryan Denby, president and CEO of Austin Rare Coins and Bullion. "Our clients are certainly not selling and other companies are expressing the same scenario to me -- there just isn't enough to go around at these levels and premiums have risen as a direct result."

From a press release by Austin Rare Coins:
http://online.wsj.com/article/PR-CO-201 ... lenews_wsj

Also, "Coin sales surge despite drop in metals prices"

SYDNEY—Sales of gold and silver coins are soaring despite the sudden plunge in the price of precious metals, benefiting mints around the world and driving the cost of the collector items to well above the value of the metal they are made of.

Coins account for about a fifth of all gold purchases for investment and are often favored by retail investors because they are far cheaper than the larger bars bigger investors buy.

in the Wall Street Journal:
http://online.wsj.com/article/SB1000142 ... 74800.html

I don't know whether the federal gov has direct restrictions on retail premiums for gold and silver but they might be able to indirectly influence premiums demanded by retailers as they allocate scarce supply.  There are state laws against price gouging, but these tend to apply only during civil emergencies and for necessities of life (food, water, fuel, hotel rooms, etc).  Gold and silver don't count.

The US Mint, does, however, sell platinum coins to dealers at a high (+ $400) premium to the market price:

But if one considers, for example, the 2012 American platinum eagle, which contains one ounce of the white metal, the peculiarity of the new pricing mechanism is abundantly clear. Platinum prices recently declined below the $1600 level, hitting $1575 on February 28, but the platinum eagle coin price was raised to $2,000 the day before.

http://www.coinweek.com/bullion-report/ ... s-decline/

[WildAboutHarry]

My purely anecdotal, non-scientific observation about gold and silver coins is that demand has remained relatively high.

I buy silver coins (and occasional gold coins) on the Bay.  For silver I use a consistent (patent-pending!) bid strategy.  It appears to me that when silver prices were higher I won more lots than now.

[Bean]

My purely anecdotal, non-scientific observation about gold and silver coins is that demand has remained relatively high.

I buy silver coins (and occasional gold coins) on the Bay.  For silver I use a consistent (patent-pending!) bid strategy.  It appears to me that when silver prices were higher I won more lots than now.

I troll slabbed ASE on eBay and almost never see a deal

[annieB]

So, the ETF is a steal,No?

[WildAboutHarry]

I troll slabbed ASE on eBay and almost never see a deal

Silver and gold eagle pricing is a mystery to me.  Add a slab and it gets even more opaque.

[smurff]

http://www.youtube.com/watch?v=Osq1yxSFVG0

That's the full Grant Williams lecture in Singapore.  It's all interesting, but the relevant part of the discussion comes at around the 30 minute mark (it's a 48 min video), after he talks about France and the potential for them to join other financially strapped  Euro countries, transforming them into FIGS (instead of PIIGS or PIGS). 

He talks about how the "gold price" is not the same as the "price of gold."  One is paper futures contracts, the other is physical metal.  The physical price of gold has had sometimes upwards of 500% premiums in some non-Western countries during corrections to the London Fix gold price.  And I guess people still do line up around the street block in those places to buy it-- it is, after all, a physical item.

[smurff]

So, the ETF is a steal,No?

It could very well be.