[heading animation=”” type=2 border=”no” weight=”bold”]Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it. -Alan Greenspan[/heading]
This past week and the month of July for that matter has seen some major developments in the gold and silver markets. As has been the case for the last two years, these developments are apparently contradictory and have been a source of some investor confusion. There have been some major short selling events of enormous volume in the gold futures market timed to coincide with slow market conditions. One may be excused for thinking that there is a near term coordinated effort to drive down gold prices. Who benefits? Well, who is buying?
The most recent example of this coordinated selling is a $2.7 billion futures sell order (the equivalent of 57 metric tonnes of gold) entered on a Sunday night in Asia, at the slowest and lowest volume time period for the COMEX. This caused a drop in the spot price of $50 within minutes and gold closed down over $35 on the day. The fact is however, that demand for physical gold is up significantly despite the selloff of paper gold contracts. Let’s review:
As of this writing, the US Mint July sales of Gold Eagles are the highest in two years. According to Reuters, so far in July the US Mint has sold 118,000 one ounce Gold Eagles. Compare this to June sales of 76,000 ounces and May sales of Gold Eagles at 21,000 ounces. Remember also that the US Mint ran out of Silver Eagles earlier this month The Wall Street Journal reports that bullion dealers in China, India, Australia and Europe are experiencing demand spikes and that premiums paid for physical gold have doubled. History has shown that this disconnect between futures prices and physical metals cannot last.
In normal, rational market conditions, demand for any product of limited or finite supply will drive prices up, yet spot gold prices continue to languish as demand for the physical metal continues to rise. There is, however; a segment of the gold market with finite supply that has shown significant price appreciation this year, even as spot gold has declined. Call us for more information on this appreciating market segment.
Mainstream Media Is Bashing Gold
Last Saturday, Jason Zweig of the Wall Street Journal wrote of gold under the headline, “Let’s get real about gold: it’s a pet rock.” He wrote that owning gold is an “act of faith”. Ask yourself which of these options is an act of faith, 1. Owning a fiat currency or, 2. Owning gold. Or, ask a Greek who cannot access his bank account or his safe deposit box. What do we here in the USA have in common with the Greek financial mess? Both governments are burdened with a level of debt that cannot ever be repaid. What form of currency do you want to hold as insurance against a loss of faith?
In 1999, The New York Times ran a piece entitled “Who Needs Gold When We Have Greenspan?” His thesis was that the dollar had replaced gold as the world’s store of value. Bear in mind, in 1999 US government debt was $5.7 Trillion. Today US debt is $19 Trillion. Let’s look at what happened the last time the mainstream media attacked the wisdom of owning gold as insurance against declining fiat money. (Gold ran up 650%.)
If gold is indeed a “pet rock” or a “barbarous relic”, why then to the world’s central banks own 90% of the gold ever mined?
I wrote above, as demand for physical gold is increasing, there is a market segment in gold that has appreciated significantly this year, despite a lower spot gold price. Call one of our experts for more information….