The Peculiar Crash in Precious Metals

I got an email the other day asking me why, if the price of gold and silver are crashing, is it so hard to find gold and silver coins to buy for delivery. It’s an excellent question.

Most “investors” see the money metals staggering around like drunken cowboys and think, “Well, I guess the gold bull is over.” Most investors are usually wrong. That’s not likely to change.

The guy who asked me that question has noticed a curious feature of this price decline that most people never will.

Falling prices mean more sellers than buyers. The deflating real estate bubble offers an excellent example of that market phenomenon. Gold and silver are falling in price. Theoretically, that means there are lots of people who don’t want gold or silver. Buyers should be able to pick and choose among eager sellers. But when you go into the market for real, tangible, I’ll-take-it-with-me, gold and silver, you find it is not to be had at the “official” price.

Ebay is a notorious bargain hunter’s paradise. But one ounce gold bullion coins are trading on Ebay right now for over $1000 each. In the past Ebay coin prices have closely followed official market prices. One ounce silver eagles, which generally carry a slight scarcity premium are trading for over $18 an ounce in lots of 500. This while the official price of silver is below $12. That amounts to a 50% premium over the melt value. It’s unheard of. Physical silver must be very scarce.

Even premiums at the large bullion dealers have doubled from the usual 2%-3% to over 5% on gold for physical delivery. The premiums on silver are at record highs despite the falling price. The people who actually have physical metal in hand are only willing to part with it at a considerable premium above the official price.

We have to look at that odd circumstance in light of the larger picture. I don’t like sounding like a conspiracy nut, but we have to consider that the unit in which we measure the value of gold, the official unit of the largest debtor on earth, is under the control of a private banking cartel. It is in the interest of that cartel, the Fed, and that debtor, the U.S. government, that people keep their faith in Federal Reserve Notes.

Those notes have been getting less and less desirable for quite some time now. The dollar actually declined against the laughable Costa Rican Colon briefly early this year. Imagine Barbie knocking out Mike Tyson. If the world stops accepting the Fed’s irredeemable chits, or will only take them in vast numbers, the end of the empire will be at hand.

Maybe it’s a coincidence that gold’s plunge and the simultaneous rise of the dollar are happening just as the U.S. government and the Fed are about to nationalize the American mortgage industry, and possibly bail out the entire banking industry as well. But then again, maybe it’s not.

The foreign holders of trillions of dollars worth of questionable Fanny Mae mortgage paper are going to be paid off in something. It will go better for the Fed and Uncle Sam if the holders of Fanny Mae paper remain willing to swap it for Federal Reserve paper. If they want something like gold, well, Katy bar the door, Uncle Sam might have to admit he’s broke.

Gold and silver offer truth about paper money that those in control of the paper would prefer you didn’t hear. Precious metals, in their own quiet way, are like conspiracy nuts ranting against official whoppers. Whoppers like the “surprise” attack on Pearl harbor, the impossible rifle shot that whacked JFK, the imaginary attack in the Gulf of Tonkin, and the mysterious collapse of WTC building 7 are the kinds of things those in power don’t want us to hear about. Having the price of gold above a thousand Federal Reserve Tokens is like having Jesse Ventura hollering about the Building 7 collapse at a 9/11 memorial service. Heretics must be driven from the temple.

In recent years the market for “paper gold” has expanded dramatically. There are now many more paper claims against gold and silver than there is deliverable gold and silver in the world. Exchange Traded Funds like GLD and SLV are operated by great friends of the Fed. Goldman Sachs, Morgan Chase, and other Wall Street big wigs are big players in the EFTs and commodity futures markets. It is a possible explanation for the disparity between the official price of precious metals and the price for delivered metal. Of course, price manipulations can’t be sustained, but they can serve their purpose at critical moments.

Prices can be moved by those who control large positions in metals derivatives. The institutional holders of these positions, both long and short, never intend to accept or deliver physical metal. In fact, at the official prices it would be impossible. Never the less, they can influence markets strongly enough and for long enough to provide cover for whatever new money mischief the Fed has planned.

I’ve seen technical analysis that shows a possible bottom for gold at $650. If I see gold that price I’ll consider selling myself as a bond slave to buy all I can.

There is also an argument that in the great battle between inflation and deflation, deflation has gained the upper hand. It is convincing in that all credit money has to return from whence it came, thin air. And that such a return would cause a general reduction in prices is also certain. But there are simply too many dollars loose in the world for gold to remain at it’s current level for long no matter how fast bankruptcies destroy dollars.

At the top of the dollar bull in 2000, with the Dow at $11777, it cost more than 40 ounces of gold to “buy the Dow.” Today, though the Dow is nominally not much changed, it has crashed in terms of real money, gold. Today you can “buy the Dow” for under 15 ounces of gold.

Historically Dow bottoms and gold tops have happened where the two were about equal. Because the dollar is such a “flexible” unit it’s impossible to say what the number will be. But I would venture to say it will be at least several times today’s price of gold. That will be the time to sell your gold and buys stocks.

Written by VIP Member Hal O’Boyle who fled New England in the seventies for Key West, Florida. He settled there because the road ended and local legend had it that large, sodden bales of marijuana floated up onto the public beaches at night. The bale tales were greatly exaggerated, forcing him into business to secure reliable supplies of pizza, beer, and bullets.

He spent thirty years in Key West ending up, like everyone else, in the real estate business. In 2005 he moved to San Jose, Costa Rica, where he now lives with his wife, two teen aged sons, mother-in-law and three big, muddy dogs.

When not home schooling the boys, he writes his provocative, refreshingly incorrect observations of government, society, politics and culture.

He is the author of “Democracy: The Painted Whore, an Extremist Explains War, Drugs, Guns, God, Gold and Santa Claus.”

Enjoy the spectacle and folly of the War on Drugs, the War on Terror, the War on Education, the War on Privacy, the War on Anonymity, the War on Common Sense and the War in Iraq from the comfort of your own barstool or Lay-Z-Boy.

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.