Editor’s Note: This article was written Tuesday, April 27, 2010.
Today was the first of two consecutive days of gold and silver options expirations. After rising as high as $18.40 during the day, silver tumbled going into the US market close. It settled just over $18.10. Although this price technically meant that a large number of option contracts with a strike price at $18.00 were “in the money” if they were exercised for delivery, the costs of taking delivery would pretty much wipe out these profits. So, even though the US government and its trading partners were unable to knock the price of silver under $18.00 at the close, they did manage to get it close enough to prevent a run on COMEX silver inventories today. The US silver aftermarket saw the price quickly jump more than ten cents. Still, I would not be surprised to see a similar restrained price at the close tomorrow when more contracts expire.
See last week’s commentary: Gold and Silver Prices Will Be Held Down Through Next Wednesday
Gold told a different story in the US market today. Despite everything done to push the price of gold close to or below $1,150, gold came back to close in the US above the $1,160 level, its highest close so far in 2010!
In fact, gold set all time record prices as measured in the Swiss franc and the Euro. In Brazil, at the close of trading gold was going for more than US $1,230!
Even though there will be more of an effort to suppress gold’s ascent tomorrow, my previous prediction that gold could set a new all-time record high price as measured in the US dollar by the end of this week has a significant chance of being on target.
The financial news today was gruesome for those who proclaim that an economic recovery is under way. Standard & Poors knocked down the credit rating for Portugal’s long and short term debt. When I last checked yesterday, at least four shareholder suits had been filed against Goldman Sachs seeking damages for the company’s practices that resulted in the Securities and Exchange Commission filing civil fraud charges against the financial behemoth. The US government is showing signs of not being able to borrow sufficient funds to pay for huge continuing budget deficits. The feds have turned up the heat to press the corporate welfare recipients who received Troubled Asset Relief Program (TARP) loans to repay them quickly, even if (as may be the circumstance with General Motors) it is only symbolic because the US government quietly restores the loan disguised under another program.
While actual statistics are impossible to tabulate on a global basis, more stories continue to reach me about significant investors in paper gold and silver contracts who are converting their paper into physical metals. They are often removing them from the custody of the London Bullion Market Association, exchange traded funds such as SLV, and the COMEX.
An experienced vault operator explained to me that allocated metals storage accounts really could still involve commingled assets, such as a 1,000 ounce silver bar in storage being partly owned by several investors. In his judgment a segregated account, which involves the exact merchandise that the storage company receives on behalf of the customer, is more secure for owner of the metal. That is, it is more likely to be available for quick delivery upon demand than might occur with allocated storage. I find his explanation sensible.
The gold and silver markets are due for turbulent times in the coming weeks. I expect that the ultimate form of safety will turn out to be physical gold and silver in the custody of the owners or in segregated storage. It would not surprise me one bit if becomes so strong that it becomes difficult to acquire physical precious metals by the end of May.
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 periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.