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Gold Price Conspiracy?

by: Michael Fitzsimmons August 20, 2008 | about stocks: GLD / IAU    

Michael Fitzsimmons

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Have you ever compared websites to see which supplier currently has the best prices for precious metals? I just got done with such an experiment and I noticed something very interesting. On Kitco.com, there is a bold message (printed in red) saying:

IMPORTANT NEW NOTICE: Demand for bullion products has increased significantly in recent days. As a result, we may experience delays in supply and possibly delays in processing and shipping by our vaults. We apologize for this inconvenience and will do everything in our power to service your orders as quickly as possible. While cancellation fees still apply, prices are guaranteed regardless of the length of the delay. We remain committed to providing you the best service no matter what market conditions prevail.

At the same time, on the APMEX.com website (American Precious Metals Exchange) there was this notice:

News Alert: US Mint Suspends Sales Of Gold American Eagles

So, my questions are: why is gold trading at $810 and change if the demand is so strong? If gold is so expensive, then why is the US mint not selling all they can at the current price?

My suspicion is that there is a tremendous unwinding of leverage in the gold market causing a short term price drop that is neither fundamental nor warranted. When was the last time a confrontation between Russia and the US caused the price of gold to drop? When was the last time rising inflation numbers caused gold to drop?

The current environment for gold and oil investments are similar. This is a wonderful opportunity to buy gold (and energy) investment vehicles.

Disclosure: Long gold and precious metals.

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This article has 27 comments:

  •  
    Aug 20 01:07 PM
    Hi conspiracy guy,I like you for not being brain washed as most of 180,000,000 Americans.
    Maybe you are right (I didn't read your article) but I have no idea were gold is heading,still it didn't stoped me from pocketing 7000$ today morning from trading on NYMEX,CME products that offer such a liquidity.One who tries to find top/bottom in anything will be broke one day,trade ranges guys and you will survive.
    Who is smarter,investors with gold/silver/palladium stock that helds biggest reserves on earth and Mars of metals or one who finished trading for today pocketing profits and going easy.
    My advise to petty Americans ( I love to make money on your markets),wear Paul&Shark shirts,check time on your gold watch,drive Mercedes and relax.
    Reply
  •  
    Aug 20 01:36 PM
    I don't know what the above is about but I did read the article, and just have to say Kitco is treading into a very dangerous place. They will take orders at a guaranteed price but they do not have to gold currently and will deliver at a future price.

    So if we buy gold now at $800 (and silver, which I am doing) what happens if Kitco has to fill my order when the price is $900, $1000, or $2000. Kitco has a choice, take a hosing, or start raiding their pools.

    Now there is a chance that gold will go down, but that is very unlikely. When India, China, and the middle east get a whiff of this supply crunch, they'll shoot gold to the moon, and the resulting short covering rally will send it to Pluto.

    I was always suspecting big things from China to happen after the olympics. Now I understand what it will be. Buy physical metal while you can because pretty soon everyone is going to see just how much paper is worth really worth compared to gold

    Remember Bird in the Hand is worth much more than 2 in the bush.
    Reply
  •  
    Aug 20 01:55 PM
    Shark: jeez, the article wasn't that long!

    FoxV: especially better than the 2nd bush

    Here is a much better and deeper SA article along these same lines by someone who obviously knows more about the gold market than I ever will:
    seekingalpha.com/artic...
    Reply
  •  
    Aug 20 02:46 PM
    FoxV,
    Where are you storing your gold? At home? I have money in the GLD and DGP etfs and feel comfortable about them, yet I keep hearing that physical is the route to go. My thought is that when the public becomes aware of gold (like tech in late 90's and real estate a few years ago) they will go for the etfs versus buying actual gold and having to store it. GLD holds enough gold (10% of commitments) to cover any trader or investor that wishes to sell. Thoughts as I'm just trying to get this right...
    Reply
  •  
    Aug 20 03:30 PM
    as a construct of JPMorgan I would not trust GLD. I'm also Canadian, so dabbling in US equities gives me a currency risk (and if you think that's small potatoes, Keep in mind the CND did 20% against the USD in 6 months last year)

    The problem with physical etfs and certificates is that at the end of the day all you have is a piece of paper who's only worth is your belief that it can be exchanged for something of value. If that's fine for you, then might as well hold currency. Its the same thing.

    If you believe in gold then you probably have an inherent disbelief in the Paper debt train (wreck?) we live with. In which case, the only way to know that what you have is really worth what it is, is to have it in your hands. And this current shortage of physical metal during a price crash demonstrates that something is definitely up with the system

    As for storage, I have it at home. Perhaps not the wisest thing to do, but I don't have much and its certainly not worth the risk to life and limb it would cost should somebody "activate" my 300psi, 42 tooth security system ;)

    at the end of the day, just don't tell anybody you have it. When people break into a home they're looking for electronics and jewelry, not bullion

    P.S.: so nobody tell anyone I keep my bars at home
    Reply
  •  
    Aug 20 03:41 PM
    Isn't it so ironic that Kitco's very own John Nadler was denying any shortage of metals not long ago?

    John Nadler said on March 31st 2008:
    www.kitco.com/ind/Nadl...
    "Depositories are practically choking on 1,000 ounce silver bars crowding their floor space."

    Something really stinks about this market and the negative lease rates for gold and silver. It does smell of heavy manipulation by the heavy hand og governemt(s) and thei nearly all-powerful cronies. All in the name of profits of course and not the public interest, whatever that is nowadays.

    I think we are close to some kind of serious financial crisis/meltdown. I have read that M1/M2/M3 rates of growth have plummeted recently but that in itself maybe a manipulation to create a deflation scare before central banks inflate like never before. On the other hand, it may predict real upcoming deflation due to massive imminent defaults and bank failures.

    I don't know whether it is lierally safe to hold gold at these times or a good idea. I would want to hold it in several countries and certainly not in the US or UK. I don't trust those regimes. However, the USA is beginning to get a little of its old role back as Russia pursues a new cold war and the ultra-tarnished US reputation may shine again a little in comparison. Perhaps.

    To me, the gold rationing recently by the US mint and bullion dealers looks like the start of a precious metal confiscation process initiated by the bankrupt US and UK, in preparation for preventing the public from protecting themselves from the consequences of the fiat currency meltdown.

    As for China, once the Olympics are over, they can afford to stop being so nice to people. no-one boycotted their Olympics and no-one can after next week when they finish, so then China can do anything it wants with impunity. Especially since they hold 1 trillion $ of US paper assets. The paper doesn't matter - what matters is China has the means of production. Now it has that, it can choose when to pursue its real aims, sooner or later, when the opportunities arise.





    Reply
  •  
    Aug 20 04:04 PM
    All I can do is remember when the price of oil began rising above $3.00 (three dollars) a barrel back in the early 1970s and the only place the oil producers had to place all their new found wealth was in GOLD. After Pres. Nixon took us off the gold standard (at $35.00 an ounce), the price started rising until it peaked at around $800 or so back in 1987 or so and maybe before that.

    Now, wealthy investors (b-ball players, Tiger Woods, Michael Phelps when he starts receiving his, et al) have gold, oil, Abu Dhabi real estate and some other places to have their millions placed. Gold will still be the last resort for inflation/risk hedging once oil, real estate, et al lose their attraction due to lousy economic conditions.

    As said by others, it's fun making money buying gold low and selling it high repeatedly during this period.
    Reply
  •  
    Aug 20 04:14 PM
    Ya know, I too have been waiting for something big to happen after the Olympics. China has yet to flex it's muscles, and I find it hard to believe that their cool with the shenanigans in the US markets.

    I kept waiting to see some posts about what 'something big' might be, but I never did.
    Reply
  •  
    Aug 20 04:25 PM
    Thanks FoxV. I'm assuming kitco is as good as anyplace for purchasing bullion?.
    Reply
  •  
    Aug 20 04:44 PM
    JBP Kitco is not the best place for bullion. They're shipping and insurance is high.

    however as part of the over all theme of "YOU MUST NOT OWN GOLD" we pay provincial sales tax if we buy physical bullion in Ontario and you don't if you buy it in Quebec. That and Kitco is not far from me so if I ever find the shipping too much (are want to scream at them about delaying my order) I can always drive down and visit them. Montreal is a great city and they're right downtown.

    btw, if you buy a Gold certificate from the bank, you do not have to pay the tax. Go figure
    Reply
  •  
    Aug 20 05:55 PM
    Does anyone know the tax consequences in US for bullion sold after holding for 1 year? Will Kitco or whomever report the sale to IRS?
    Reply
  •  
    Aug 20 06:15 PM
    FoxV, Kitco obviously places its own order at a fixed price the minute it takes your order.

    Jon Nadler has his own view of things; he's not a gold bug. I simply think that's his personality.
    Reply
  •  
    Aug 20 06:43 PM
    I think honestly gold is going to tumble. I mean along with the $

    it seems people don't understand the magnitude of deflation

    no one will have any cash NO ONE.
    producers will go bankrupt with products to sell because there will be no cash.
    I don't have enough gold to cover my living expenses completly fo extended periods and I work for one of the former bug three auto companies I'm toast
    Reply
  •  
    Aug 20 09:03 PM
    "I think honestly gold is going to tumble. I mean along with the $

    it seems people don't understand the magnitude of deflation"

    The magnitude of the deflationary pressure is what engenders the magnitude of the inflationary response.
    Reply
  •  
    Aug 20 09:53 PM
    100goldblogs: how is it a conspiracy of the US and UK to confiscate gold by keeping the price *down*? there is still gold available on the market, and its cheaper now. my piece was about why gold's price is down, when there are so many reasons for it to be high(er). i tend to buy the explanation given by the article i referred to in my first comment to this post. also, you say it is not "safe" to hold gold?? i think it's dangerous NOT to have some gold. too much debt, too much inflation, too many printing presses on overtime...

    JBP: try American Precious Metals Exchange APMEX.com. also, i believe gold is treated taxwise as a collectable.

    gollwoods22: gold to tumble? hard for me to buy inflation with energy & food raging. that said, when it comes to housing, you have a good point. that's what we are in: energy driven inflation, and weak economic deflation. stagflation. we go back and forth. that said, with the oil crisis we're facing, a weak currency, a huge fiscal deficit, and bernanke running the printing presses full-time in order to pay-off all the wall streeters...i'll keep some of my hard earned dollars in gold. "some". certainly not all. sorry about your job situation. i have no idea why the american big 3 auto companies went SUV when it was clear there was an oil crisis coming. short term profits over long term strategy. of course, the management still walks away mutli-millionaires. what a country.
    Reply
  •  
    Aug 20 11:20 PM
    JBP - To elaborate on Fitz's answer. Gold is treated as a collectible and therefore gains are subject to a maximum 28% tax rate. So, it's taxed at your tax bracket rate, or 28% (whichever is lower), regardless of holding period. Most stocks etc. are subject to a 15% max when held more than one year. IRS link for better explanation:

    www.irs.gov/publicatio...

    The precious metals ETF's are subject to the same tax treatment as physical metals. I have no idea how strictly this is enforced.

    I have been told that LEAPS contracts are eligible for the 15% max (regardless of the underlying asset), if held more than 1 year. So you could buy a LEAPS on GLD.

    The tax treatment of precious metals tells me that the government wants to discourage people from owning them (which makes me want them more).
    Reply
  •  
    Aug 21 08:18 AM
    I'd suggest that you read James Conrad's SeekingAlpha article of a few days ago at: seekingalpha.com/artic...
    Reply
  •  
    Aug 21 09:45 AM
    Fox V: Good for you! Keeping it at home. Where else, right? Just have a nice safe and have a Ruger LCP .380 in your pocket.

    JBP: Go to your local coin dealers. Them, or eBay. Those LARGE brokers just get into your pocket and you have to WAIT to get your bullion...IF you ever get it!

    Something to think about: If you want PROFITS, buy SILVER. It will OUTDISTANCE gold by multiples. Its bulkier to store, but you will smile later down the road....
    Reply
  •  
    Aug 21 10:06 AM
    Its easy to find buth Silver & Gold Coins,but you will pay out the yang, to get it! But there is ways to past that crap, search Flea Markets, those that bought at the bottom years back, will sell you 1/10 to 1/2 oz AGEs at Spot! They make a big profit, these old boys had it planned out right,sell some at $1000.00, but sell more when folks can afford to buy more,at todays Spot! The 1986 AGE has the same amount of Gold as the 2008 & they have lots of them to sell. No wonder they can afford to drive & live in a fancy moterhome!!
    They sell the ASEs for $22 ea, or 20 for $420, not bad, just have to wait in line,because when the word got out,lines formed, these country Folks in TN knows what real money is, so week ends are flea Markets fun!
    Reply
  •  
    Aug 21 11:14 AM
    EXCELLENT article, as I was just reading the Kitco disclaimer myself and thinking, thank goodness I never bought unallocated metals!! Because they do not have the physical metal to back up all the paper/pools they have sold. Nope. If you are someone that has pool/paper/unallocated metal, collect it NOW......if you can. It will take a LONG time to collect- if you ever get it.
    Reply
  •  
    Aug 21 11:17 AM
    Why is it that Gold and Conspiracy have to be mentioned so often in the same sentence?

    www.rapidtrends.com/bl.../
    Reply
  •  
    Aug 21 01:27 PM
    POET1--

    look at CEF[closed end fund] for tradeoff of concerns. US and Toronto listed.
    Reply
  •  
    Aug 21 01:46 PM
    from a cyberfriend on the "gold shortage":

    "Hi ---x,

    Just thought you would be interested to know that my business (I do crown and bridge work for different dentists) uses precious metals every day. After reading all the hysterics on the 'Net' yesterday about shortages I decided to call my supplier to see if they were having any problems. Nick at **** said he had not even heard a whisper about a problem. They also sell various types of gold coins and bullion. There is no shortage in these either.

    Seems to me that someone is stirring up rumors. Gold should bottom around the $690-$750 area as near as I can tell. No need for panic."
    Reply
  •  
    Aug 21 01:52 PM
    fran:

    for US-based investors CEF is a "passive foreign investment company" (PFIC) and is legally taxed fairly heavily at the federal level. ASA which is also a PFCI published this informative pdf file on the whole issue of PFIC taxation:

    www.asaltd.com/Tools/L...
    Reply
  •  
    Aug 21 05:10 PM
    After reading James Conrad's post on gold a few days go, I would be afraid to buy a "certificate"... indicating I owned any precious metal. That story about Morgan Stanley allegedly creating a "silver depository" and charging "storage fees" on silver that, allegedly, never existed makes me unwilling to trust ANY Wall Street name. I have junk silver in a safe deposit box and I am planning to sequester more.
    Reply
  •  
    Aug 21 05:14 PM
    I tip my hat to our northern neighbor FoxV. He is a prudent and realistic person. May his tribe increase!
    Reply
  •  
    Sep 10 01:28 PM
    Has anybody here looked at the dollar index lately? the drop in gold prices is the dollar. the drive for the dollar is the worldwide economic slowdown? eventually it will catch up with us and send America into a full blown recession or dare i say "depression"... either way you're on the right track...buy gold; it will return in price tenfold.
    Reply
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