As we've been pointing out for some time, there's a difference between buying gold and silver bullion – the physical metals – for prudence, and speculating on related stocks.
As the metals may continue fluctuating like a plucked string on a musical instrument for some time and stock investors hate such volatility, there's good reason to look for even lower stock prices for many great companies. To mitigate this risk, we’re looking into options for making new “gold insurance” trades – more on that when we have something to recommend.
But for bullion itself, that's not something we speculate on; we want to accumulate as much of it as we can for prudence, given the worsening economic conditions we see ahead.
This being the case, and there being a significant chance the gold market could recover before premiums on physical metals come down, it makes sense to buy bullion now.
But not if you're already "all in," of course. If you are still building your physical gold position – buying some gold every month, like Doug Casey – there is no question in our minds that the current correction is an excellent buying opportunity.
Senior Metals Investment Strategist
|Rock & Stock Stats||
One Month Ago
One Year Ago
|Gold Producers (GDX)||29.46||37.38||46.25|
|Gold Junior Stocks (GDXJ)||12.50||16.71||22.82|
|Silver Stocks (SIL)||14.67||18.11||21.26|
|TSX (Toronto Stock Exchange)||12,220.20||12,706.38||12,145.85|
You've undoubtedly read about the dramatic increase in demand for gold and silver bullion products since the big correction two weeks ago. Supply has gotten tight, premiums are rising, and inventory is hard to come by, especially for certain silver products.
But it's worse than you may know. Many of these reports come from the retail side of the business, including those from sovereign mints. This information is indicative, but more important is the activity among the wholesalers. It's possible the retail trade is just experiencing a giant bottleneck, which would come with a different set of conclusions than if behind the scenes the wholesale industry is seeing net sales.
So we decided to talk to the wholesalers directly: the bullion banks, traders, and refiners. These entities typically deal in wholesale trades only, exclusively in large amounts, and solely with major entities that include dealers and investment funds.
There was a catch, however. In speaking with these entities, we realized one thing: they won't publicly reveal themselves. So we can't tell you who they are, and in fact, they wouldn't speak by phone, only in person. This means you have to take our report on trust – or not – as you wish; we simply don't have permission to reveal names (we did ask). We can say this, though: we spoke with almost all the major ones.
Here's a summary of what they told us occurred during the week of April 15-19 (the 15th was gold's 9.3% selloff)…
What we learned from these big players is that no one was a net seller. There was across-the-board purchasing, and on significantly increased volumes. We heard more than once that "We've never seen anything like this." And that includes the 2008-2009 period.
While some of this may sound familiar to what we've heard on the retail side, keep in mind that these are the entities that supply your local dealer. So if your favorite shop found it difficult to access product last week, their woes are unlikely to let up.
What we conclude from this research is that the availability of bullion is likely to get worse before it gets better. If so, it also means premiums will continue to rise. Remember that in early 2009, at the peak of the last big supply deficit, premiums for silver Eagles reached as high as 90-100% before coming back down. In that light, a 25% premium for a silver Eagle today doesn't look so bad.
The disconnect between the paper price of gold and the demand for physical metal is so great that we want to bring this to your attention so that you can make an informed decision about whether or not to buy gold now. You should know that supply among wholesalers is as every bit as tight as the retail side, that dealers will probably continue having difficulty meeting demand, that premiums will likely continue to rise, and that delivery times aren't going to shorten right away. If you're a bullion buyer, purchasing now could save you some money and hassle over waiting.
The catch is, where do you go? Delays are commonplace; we're hearing five to six weeks from some dealers, and a few websites show certain products are "out of stock." Further, premiums are still climbing, in some cases daily.
Because of its extensive network, bullion is still available at the Hard Assets Alliance for a reasonable premium with minimal delays. Access to a greater number of dealers has increased the Alliance's ability to continue accessing metal (when one dealer is low it can turn to another one) as well as maintain low premiums, since there's competition for your order. You can check out premiums by opening an account, which only takes about five minutes. You'll probably be pleasantly surprised.
HAA is seeing record demand, too, but so far, it's been able to meet it. As of Friday, orders are being filled in about a week, and about two weeks on the more popular products. Premiums remain among the lowest in the industry. Note that some dealers are using the supply crunch to raise their fees, so be careful of anyone who's charging more than the rest of the industry. I can tell you that HAA's markup is from the wholesaler only. And news flash: HAA lowered the minimum to $5,000 (from $10,000) for US vaults or delivery.
The important thing is to realize that if gold and silver were to see another leg down, we fully expect buying physical metals to get more difficult and expensive, not easier. At this point, there is no evidence that supply is easing up. Even – or perhaps especially – at lower spot "paper gold" prices, it could become very difficult to get your hands on bullion. And you'll pay even higher premiums on items with the tightest supply. We don't care to predict how long delivery times could get.
Don't be fooled by what happened in the futures market. The retreat is a buying opportunity for physical metal. If you wish you'd bought tech stocks in 1990 or real estate in 2000, you now have a moment like that in gold.
So yes, we are buying right now, and recommend it to our readers, too.
We also recommend storing some of your gold and other assets outside of your home country. To help you get started, Casey Research has produced Internationalizing Your Assets, a timely web-based investors' summit that features Doug Casey, Peter Schiff, and other experts in international diversification. The event premiers tomorrow – April 30 – at 2 p.m. Eastern time. Registration is free. For more information, please visit this web page.
The US Mint ran out of its smallest American Eagle gold coin after demand surged following the biggest decline in the futures price in three decades.
A slump in the gold price triggered a particularly strong interest in tenth-ounce coins, so much so that sales were eventually suspended after demand more than doubled in 2013 from a year earlier.
The phenomenon was mirrored around the world, as shoppers from India to China to Japan rallied to buy jewelry and coins after prices slumped 13% in the two trading days ending April 15.
The desire to own gold, either for investment or in jewelry form, has made itself felt in the physical market in India and in Dubai, where shoppers appeared to be snapping up all the gold bars and coins they could get their hands on. Premiums surged accordingly.
"To cash in on the investor frenzy, gold dealers in Dubai have raised their premiums to 750%, given the prevailing uncertainties over the global economy," reported Mineweb.
We see lower prices as a buying opportunity, but don't get carried away; if the net price is not lower, it's not an opportunity.
CGSE Seeks More Gold to Meet Demand (Bullion Street)
A surge in gold transactions in China and Hong Kong has forced the Chinese Gold & Silver Exchange Society to order more gold. The Society's analysts assert that the recent drop in prices spurred the massive demand, with daily total transactions multiplying to 160 billion Hong Kong dollars ($20.6 billion). The Society reported it had to order four times its usual amount of gold bars from Switzerland and London to meet the increased demand.
"The International Monetary Fund has reported that the central banks of Russia, Turkey, and South Korea all beefed up their bullion holdings in February and March," writes Mining.com. Central banks as a group were loading up on gold just prior to the massive $225 drop in gold prices from April 12-15.
If they were buying that much bullion before the sale, how much are they buying now?
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