Tuesday, August 30, 2011

More On The Gold "Bubble" And Why It Isn't

I wanted to share a comment from a reader who happens to be a gold dealer.  The other day I opined that the ratio of public sellers to buyers was about 9 to 1.  This person says in his business the seller/buyer ratio is 10 to1.  He also refutes the notion that just because gold dealers are advertising their business, it doesn't signify that it's a bubble indicator.  I refuted this idea proposed by another blogger by explaining that grocery stores advertise aggressively everyday - is food in a bubble?  Finally, he agrees with me that Glenn Beck is jack-ass.  Here's his commentary: 
As a professional numismatist of 24 years, we have been buying huge amounts of scrap alongside some serious coin collections. Last Wednesday, our New York office spent $250,000 buying. More than half of it from one client selling gold coins.

As for a bubble, definitely not. In London I have 10 sellers for one buyer.  That will not reverse until the economy picks up and people start making money again.  Then they will return and buy the coins they sold to buy food or pay the mortgage or meet their payrolls.

But what I really want to say is the amount of people we have saved from ruin. It is all well and good being high and mighty about us misleading people to sell, but you do not sit in front of the people whose houses, and business we saved, using my savings, my children’s inheritance. Are we not allowed to make a profit?
I personally had a lady last week with eyes brimming with tears selling literally everything she had to pay bills. We worked on the thinnest of margins to help her out, about $2 a gram profit. I AM LOSING MONEY ALREADY.  Money that is my family's, my children’s future and everything I worked to save. Ten years ago we couldn’t give gold away at $250 an ounce, now everybody is an expert and we are parasites.
According to 24Hourgold the premium on silver is 30% above spot, yet it will never ever be bought for such a premium, so fools are listening to idiots like Glenn Beck and just giving money away. When they sell, and I give 10- 20% below spot I am again called a parasite and Beck is the hero.

Gold and rare coins are financial insurance. Quality, physical assets that provide emergency funding when you need it most. The market is functioning exactly as it should, and we are providing liquidity-for-a-profit to people who need it most.
I also wanted to highlight a very significant factor driving up the price of gold - Indian and Asian buying.  The Central Banks and populations of these countries are loaded down with paper currency and they are aggressively converting it into gold.  Given that these civilizations have been around and doing this for a couple thousand years, as opposed to the meager 240 years of U.S. civilization, I have to believe that they are on to something.  Here's two excerpts from the "JBGJ" report, which can be sourced in the nightly "Midas" report at www.lemetropolecafe.com:
(this one is from a London-based bullion bank) “Our sales to India were more than twice the average daily volume, but then again at higher prices we'd seen good demand this week overall. Indeed, even if India didn't buy anything today, this would be the best week for Indian physical sales since May. Yesterday was also a holiday in India, and this likely depressed demand; we expect a stronger buying response today.”
(And this one is JB's comment with regard to the very high premiums being observed right now in Asia, which is indicative of huge demand) Possibly the Chinese public is more enthusiastic than others about the recent gold pull back being a buying opportunity. But JBGJ cannot forget that the unprecedented appearance of double digit premiums last year heralded the huge Chinese gold import binge at the end of the year. That seemed to be associated with an inflation scare in China. This concern seems to be picking up momentum again – see today’s Reuters story China plans to mop up bank liquidity to battle inflation . The world has little experience of China as a major gold importer – until last year, imports although much hyped were quite modest.
And finally, two more Fed Governors have announced that they are not opposed to more Quantitative Easing by the Fed, including one - Kocherlakota - who had been one of the three dissenters at the most recent FOMC policy meeting.  Here's the news links:  QE3; And More QE3

The fundamentals and news keep piling up in favor of my view that there is a very high probability that we will get a big move in gold between now and year-end.  Again, this won't come without opposition from the banking establishment, which means big moves in both directions.  Furthermore, just as Bernanke has his "tools" to stimulate growth, the CME still has its tool - margin hikes - to try and temporarily suppress the move higher in gold.  If you trade this market, tread carefully.  If you are simply converting fiat monopoly paper into physical gold and silver, just buy now and buy more on every price smack.  If you think you own gold because your brilliant financial advisor has some small part of your investments in GLD and SLV - you don't - you own fiat monopoly paper and eventually those two "trusts" will be "Enronized."


  1. I guess I'm confused, Beck is saying buy gold, and telling people to get out of debt and prepare for the worst. How does that make gold dealers parasites?

  2. Jim Cramer was talking up having a small position in gold as an insurance policy. He recommended
    etf like gld, or for very wealthy people ownership of bullion held elsewhere in a vault, but the worst way to own gold was in your hand like coins buried in your back yard.