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Dichotomy in W. European Gold and Silver Prices

by: The Prudent Investor September 03, 2008 | about stocks: DBP / GLD / IAU / SLV    
The Prudent Investor

The Prudent Investor

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Having read a growing number of reports on a physical silver shortage - and now gold too - with dealers unable to guarantee delivery time, here come some additional observations from the German language area in Europe. The dichotomy between the so called global spot price for the two precious metals and prices paid on eBay Germany has never been wider than it is these days. 

A lot of 100 one oz. silver Maple Leafs were sold for €1,267 or $18.25/oz Tuesday evening. This is a markup of 40% to the then current spot price of $13.10. It appears that there is a seller's strike as there are hardly any sizable silver lots on offer.

The gold market shows the same: Offers have dropped to mere 100 gram (3.21 oz) bars which are sporting minimum bids of €2,100 or $ 3,045 which translates into $948/oz. This is a markup of 17% to the so called global spot price.

A desirable 50 gram (1.6 oz) Rothschild gold bar - which are not produced anymore - is listed for another 6 days and has already drawn a bid of €895 or $1,298; this is 10% above spot.

Having read reports that South Africa's biggest refinery has been unable to fill a 5,000 oz. order, I can only arrive at the conclusion that these so called global spot prices which are derived from COMEX paper prices have nothing to do with the world of truly physical deals. Come on, that's a $4 million purchase - and now they are finished. Has eBay already established itself as a competitor to precious metals exchanges? 

The loud uproar in the gold and silver investing community about falling futures - while demand is still up - seems to be a correct alert to market authorities that appear to sit on their hands with closed eyes.

The fundamentals for the metals could not be better. Western central banks continue to shower more fiat money on their economies while betraying the public with false statements about their vigilance on inflation. Inflation is here and it will not go away for geopolitical reasons. Russia is the strong man that controls the biggest part of energy supplies to Europe. Rumors have it that Putin will raise natural gas prices by 20% later this year. Prices at European gas pumps have not come down with crude oil prices, suggesting the market is still tight, despite what is  being said officially.

Both gold and silver will see another formidable fall season where "official" prices will soon catch up with actual prices paid by investors. Silver is especially poised for a meltup, considering the COMEX shorts. And don't give too much credence to short term charts these days. As the market is manipulated, charts lose any power of predictability.

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This article has 9 comments:

  •  
    Sep 03 06:33 PM
    Manipulation? Losers always think the world is against them
    Reply
  •  
    Sep 03 07:12 PM
    The gold and silver markets are made by large dealers in 100 ounce bars (gold) and 1000 ounce bars (silver). The bars have to meet standards for weight and purity. A comex contract for gold is 100 ounces. For silver it's 5000 ounces. There is no shortage in these markets. Anyone can buy a contract and take delivery.

    The retail market for things like eagles or krugerrand depends on fabricators taking delivery of bullion and then turning it into the k-rands or eagles or bars. A shortage at the local coin store or on ebay is not the same thing as a shortage at the comex. It just means that the retail demand has temporarily outstripped the ability of the fabricators and they have a business opportunity to ramp up their operations.

    EBAY by itself is not evidence of anything. EBAY USA has plenty of gold and silver at high prices.

    The comex has over 8 million ounces of gold and 138 million ounces of silver on the books as of yesterday.

    When you can verify that the comex refuses to deliver gold or silver against a contract, then you have a shortage.
    Reply
  •  
    Sep 04 06:51 AM
    NO CLH,
    Losers make sure they're first to post on articles when they have nothing to say. Good luck with your strong dollar!

    When the investing public can buy bullion near spot, all this talk will stop, but that is simply not happening.
    Reply
  •  
    Sep 04 05:11 PM
    I've been buying bullion for perhaps 4 or 5 years. About a month or so ago I put in an order with a company that I've been buying from week after week since I began (online).

    These guys have always had good prices, great shipping, and super-fast delivery. I would say on average it takes 4-5 days for my stuff to get to me. But I digress...

    This last order that I placed was very, VERY small. How small? It was a total of TWO coins: a 10th ounce (1/10 oz.) Gold Eagle, and a single 2008 Silver Eagle. Compared to almost every order I've placed in the last several years, this was a non-issue, small order just for the sake of ordering.

    It took me almost 4 weeks to get my order.

    Look - I don't know what's going on. I don't know if it's a simply a matter of fabrication delays, or if there really is a shortage. I do know that the amount of physical silver in the COMEX warehouses is peanuts compared to the amount of buy/sell contracts in the silver futures market, likewise with gold. Very few people that trade in those markets have any intention of actually touching any metal, ever.

    The only thing that I do know is that something isn't right. If fabrication isn't keeping up with demand, the price of the metal should bid up enough to convince more people to bring their already fabricated products back to the marketplace, and that clearly isn't happening. Everyone is buying new silver and gold becuase there is no old product around, which is unusual.
    I
    Reply
  •  
    Sep 04 05:33 PM
    Los Pepes, let me suggest another possibility. Dealers were buying silver at 17.50 at the end of July. Then the price cratered very quickly. Nobody with inventory wants to sell it for 13 bucks. So they are waiting for a bounce. The large dealers will find sources of supply and begin selling again. Tulving, Apmex, and others are selling again today. The smaller local guys have to buy at these new lows before they will sell again.
    Reply
  •  
    Sep 04 06:31 PM
    “In times of universal deceit, telling the truth is a revolutionary act” – George Orwell.
    Reply
  •  
    Sep 04 10:12 PM
    In August, a few futures traders shorted an awful lot of silver and gold futures, and I for one, would like to see an audit to see if there really was any of the real metal behind the futures. I think they should have to "stand and deliver"! If they can't then they should face the consequences and the question of is there really a shortage of silver and gold would be moot!
    Reply
  •  
    Sep 05 10:23 AM
    gigem - That sounds reasonable. Like I said, I really don't know what to think. The dealers are probably scared s***less to buy ahead because they're getting whipsawed all over the place.

    I do think that it's in the best interest of central banks to have low gold and silver prices... but I'm not entirely convinced of their ability to collude and control those markets.

    The "proof in the pudding," so to speak, will occur when a lot of people begin to take delivery on their COMEX contracts, and force the shorts to actually produce the metal at a low price (providing that physical metal is actually more expensive).

    As for me, my metals are a savings account. I just wanted to keep money in a form that I wouldn't blow, and also protect me from a declining currency. The increase in value over the past few years (or rather the decrease in dollar value) has been great, but it's not my prime motivator.
    Reply
  •  
    Sep 07 06:51 AM
    gigem, apparently you don't realize how difficult it is to take delivery. Most brokerages won't let you do this. The fact that you have to buy 5000 ounces for silver and 100 ounces for gold knocks most people out of this market.

    Also, dealers don't keep stock other than small amounts. You'd know this if you ever bought gold or silver. When you go to a dealer to purchase a metal, they immediately call a broker, and make a deal with them for delivery.

    I'd also like to point out that if every American just bought 1 ounce of silver in a year, that would be the entire years production of silver on the entire planet. It's an extremely rare metal, and people are starting to realize this.
    Reply
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