Bullion Shortage and Spot Prices Tell Two Different Stories

Monday, October 13, 2008

Having blogged earlier on a physical silver shortage and the drying up of gold bullion purchases, recent events in the precious metals markets justify an update that again arrives at the conclusion that last Friday's silver and gold price plunge on COMEX has pretty little to do with the actual physical investment demand for gold and silver. Tim Iacono had a good post with the headline "Gold prices getting fishier and fishier," that does away with the myth that the US mint faces unprecedented demand. I stumbled across several more reports that show the ongoing dichotomy between official spot or futures prices and premiums actually paid by investors, if they can get their coins or bars at all.

The British Evening Standard ran a story over the weekend that said, demand in Germany had grown 10-fold and dealers were not taking any more orders:
German gold dealers say demand has skyrocketed this past week to 10 times normal so no more orders can be taken for the foreseeable future.
"The demand exceeds our capacities by a great deal," said Heiko Ganss, head of precious metal company Pro Aurum.
"The requests cannot be satisfied right now," a dealer from the Düsseldorf WGZ Bank confirmed.
"Demand for gold as a conservative investment has risen dramatically," said stephan Henkel. "right now the demand is about 10 times as high as in normal times."
Gold deliveries now take between four and six weeks.
This was confirmed by the Berlin daily "Tagesspiegel," which reported in a very insightful article that German gold dealer Pro Aurum has closed its mail-order business due to demand never seen before. One reportedly has to wait four weeks to take delivery of one kilo gold bars.
Physically backed gold ETCs (Exchange Traded Commodities) see heydays as well, according to a story at investegate.
Physically-backed gold ETCs saw $93m of net inflows, equivalent to 106,000 ounces of gold, in the six business days up to October 6, the largest weekly increase during the past 10 weeks, while silver also saw net inflows.
Despite a fall in gold prices last week, the ETCs' total assets reached $4.5bn, equivalent to 5,340,000 ounces. So far this year the products have seen $992m in inflows, equivalent to 1,530,000 ounces, an increase of 30%.
ETFS Physical Silver experienced a net inflow over the six-day period of USD7m, an increase of 4% or 1,194,729 ounces. Over the past six weeks, the product's volume of silver has increased by 25% to 12.8 million ounces, the highest level since January 30, and its total assets to $141m.
The new gold rush has also taken grip of Dubai's gold market. According to a report from ameinfo,
We have a similar rush in the souks of Dubai. Gold coins are selling at the highest premiums to spot gold price in 30 years, and stocks are running out.
In silver the premium paid for bullion bars is up to 50% above the spot price as dealers are running low and demand remains very strong.
Vietnam saw gold rising strongly last Saturday too. From Vietnam News:
Domestic gold prices increased strongly here yesterday, rising by VND50,000 to between VND17.90 million and VND18.10 million a tael yesterday as the world share situation became more chaotic.
Nguyen Huu Dang, head of the business department of the Ha Noi-based Bao Tin Minh Chau Jewellery Co, said his shop was full of sellers because of the big profits.
Bloomberg fills in the gaps on the world map, reporting excessively strong demand in more places. In Australia,
The Perth Mint, producer of 10 percent of the world's bullion, doubled output in the past six months, joining a global push to boost production as investors seek protection from the credit crisis.
Perth Mint sold so-called Kangaroo and Nugget coins weighing a total of 62,630 ounces in the three months to Sept. 30, compared with 154,501 ounces for the 12 months to June 30, senior manager Bron Suchecki said in an interview from Perth, Australia yesterday, adding there's been a surge in "moms and dads'' buying over the counter in the past three months.
"It's reflecting a real breakdown in trust in financial products,'' Suchecki said at the mint. "People aren't thinking how do I grow my wealth' but 'how do I protect it."
The shortages don't stop there, reported Bloomberg. In Austria, Muenze Osterreich, producer of gold and silver philharmonics has added a third shift.
Muenze Oesterreich, which makes the world's second highest- selling gold coin, increased output of the Philharmonic almost fourfold and doubled production of gold bars in the past year, Vienna-based Marketing Director Kerry Tattersall said yesterday. The 800-year-old mint, located in a former Habsburg palace, has also added a third work shift to press more coins.
The US Mint announced already a week ago that it would expand its production after gold coins have been suspended from sale quite many times since one year.
Now can someone tell me why gold is always falling ahead of the US trading session? Dan Norcini offers daily insights, alleging gold price manipulation for quite some time. Check out his daily commentary at jsmineset.com.


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