Once again, gold and silver set new record prices on October 5, with gold reaching another all-time high and silver posting its highest price since March 1980 (all ignoring the impact of inflation, of course).
There are several threads having an impact on prices so far this week. Yesterday, US President Obama admitted that the US government is in an “untenable fiscal situation.” In doing so, he is basically admitting that the US dollar is overvalued.
About midnight Eastern time this morning, the government of Japan announced a plan to devalue the yen. At first, the yen dropped against the US dollar, but ended up in US markets actually appreciating against the dollar! The best interpretation of this result is that investors believe that the US federal government will be even more successful at driving down the value of the dollar in the near term than the Japanese will accomplish with the yen.
Then there were three major articles that appeared. A report on Reuters yesterday described how the super-rich are aggressively purchasing gold, including physical forms. Then today, Max Keiser posted an interview with gold analyst James Turk where Turk speculates that the German central bank has already disposed of at least half of its stated gold reserves and possibly almost all of it! The last article by Alix Steel and posted today on thestreet.com was a major discussion as to whether the gold and silver exchange traded funds (ETFs) have sufficient physical metals to meet their investor obligations. Although Steel did not flat out say they did not, she pointed out how the operations of these ETFs allow for multiple ownership claims on the same physical metal.
Of lesser importance was a statement September 30 by John Kanas, the chief executive officer of BankUnited at the Bloomberg Dealmakers Summit in New York. When considering that the Federal Deposit Insurance Corporation is currently insuring deposits at 7,830 financial institutions, Kanas said, “Most of us in the business think we probably need 5,000 and think we are on our way to 5,000 as this cycle, if this is a cycle, unfolds. We simply chartered too many banks.” Kanas apparently did not state how many of the allegedly surplus 2,830 banks would simply fail.
The prices of gold and silver started to take off at 3AM Eastern time, when the London market opened, but really accelerated in the US markets during the afternoon. As of late US trading today, the price of silver was up 31% thus far in 2010.
I also saw some grumbling about COMEX silver contracts being settled for cash rather than for the contracted metal. The terms of COMEX contracts allow this practice, although the contract owners almost certainly consider the failure to receive metal as a default. I cannot yet tell if this is a sign of a growing trend, so I will keep a close eye for developments.
Almost unnoticed among all the other news was a statement by the US Mint yesterday that it will be producing 2010 Proof Silver Eagles, to be released in mid-November at a price of $45.95 per coin.
The above-mentioned developments are right in line with what I have been expecting. They do not signal that we are anywhere near a market peak, especially with President Obama virtually saying flat out that the value of the US dollar is going to go down in the near future.
In our store today, we almost completely exhausted our supplies of gold coins and bars for immediate delivery. By the afternoon, we served several customers who looked at the nearly empty display trays and simply bought whatever we have available that they could take with them, no matter how high the premium. This is similar to the buying frenzy we experienced in late 2008.
Sales of silver have surged, but not to the same degree. On the other side, we did experience a growing number of customers coming to our stores to sell so far this week, where it was not unusual for them to have to wait up to 15 minutes for one of our employees (we have a staff of 17) to be free to serve them.
Times are starting to get interesting. Do you already have custody of your physical gold and silver?
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.