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Gold Prices Keep Getting Fishier

by: Tim Iacono October 10, 2008 | about stocks: GLD    

Tim Iacono

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Michael Zielinski at the Mint News Blog sent me a note the other day regarding this item he recently published, an item that seems to be making the rounds on the internet over the last 24 hours and for good reason.
IMAGEMichael wrote:

There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.

The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.

Well, the price of gold wasn't exactly stagnant today - it was down $63!

Naturally, coin dealers are still desperate for inventory (check out the CNI bullion page which now shows American Eagles available at $80 over spot after having been "Out of Stock" for most of the week and probably "Out of Stock" again by the time you call).

Oh yeah, and the SPDR Gold Shares ETF (NYSEArca:GLD) added another five tonnes today after the price plummeted.

You know, I get the part about investment demand only accounting for about 20 percent of overall demand for gold bullion, but the deal with coin shop shortages really is smelling fishier with each passing day, particularly in light of this data assembled by Michael:

The following table shows the ounces of gold sold by the United States Mint in the form of American Eagle Gold bullion coins. These figures are taken from the US Mint website. You can visit the link for monthly data, as well as the figures for Silver and Platinum Eagles.

American Gold Eagle Bullion Sales (ounces)

1986 1,787,750
1987 1,253,000
1988 851,000
1989 839,000
1990 715,000
1991 472,000
1992 638,600
1993 796,000
1994 559,500
1995 600,500
1996 729,500
1997 1,317,000
1998 1,839,500
1999 2,055,500
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 492,000*
*through October 2008

The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?

...

With unfulfilled physical demand, why has the market price of gold remained stagnant? I think we will see this situation play out with some interesting consequences during the remainder of the year.

Yes, the consequences could be quite interesting...

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This article has 11 comments:

  •  
    Oct 11 02:23 PM
    Gold elevator up and DJIA elevator down will by-pass each other at 3000...
    Reply
  •  
    Oct 11 03:01 PM
    The gold market seems to be haunted by ghosts- the mints dont seem to have the gold to make coins ???
    bullion bars from monex -kitco - northwest territory mint all sell one ounce bars at or a very small margin over spot price -
    what it means I have no idea - but if there is a shortage maybe it is better to go into bullion rather than coins where there is a lot of supply
    Reply
  •  
    Oct 11 05:03 PM
    The amount of physical gold sold is very tiny and has no meaning. The smart people are selling gold as the dollar soars.
    Reply
  •  
    Oct 11 05:08 PM
    Before you concoct conspiracy/manipulatio... theories, don't forget that the mints are government run operations. Do you really think they can respond quickly to a large increase in demand? They turned in their 2008 volume plans probably in early 2007 or maybe way back in 2006. They have some flexibility but after all, they are not a slim and trim private enterprise that can react at light speed. I can just imagine how difficult it would be to make a large increase in the number of American Eagles they plan to stamp out. Honestly folks, I don't see any fire behind that particular puff of smoke.
    I've been investing in gold for over 30 years and I'm clueless about what is going on right now but it all looks unstable to me. Everything looks like the price is about to explode. Up or down? The simple fact that price is being contained through out all this crises/near panic makes me leans toward a free fall in price. "Hope" not but I'm still looking for data/logic to at least give me a clue. Looking at coin shortages is a waste of time.
    Reply
  •  
    Oct 11 07:25 PM
    The dollar is a claim on the future output of the united states. At present that output is shrinking at an accelerating speed with no end in sight, and the number of dollars in existence is exploding higher as the central bank pushes on strings in a desperate attempt to stimulate ever greater indebtedness. The dollar may "soar" on various irrational trades made during this panic, but it'll come back to earth like a lead balloon upon more sober reflection. It would be a stretch to say the fundamentals are as bad as those of the ISK, but it's not even in the same league as gold.
    Reply
  •  
    Oct 11 10:20 PM
    plain coins are a better bet.
    Reply
  •  
    Oct 11 10:37 PM
    Check the monthly statement of the U.S. Mint, found here:
    www.fms.treas.gov/gold...
    This hasn't changed at all - not one line item has changed - since March 2006.
    Why would sales be suspended? In order to keep inventory out of individual hands?
    Reply
  •  
    Oct 11 10:44 PM
    1999 was a great year in that everyone thought the world was gonna end if computers weren't upgraded so the entire world went on a spending binge for gold, capital goods for companies, etc... What did we see? A boom in jobs, manufacturing, huge surplus, etc... What does this tell us? Capital investments create jobs and surpluses.
    Reply
  •  
    Oct 12 02:51 AM
    Just do the opposite of CLH and you'll be fine. Besides being a blood relative of Allen Greenspan, I've heard this guy aspires to do some printing of his own. A few more weeks and he can join the paper parade of losers where all fiat currencies eventually reside...you remember the dust bin of history, don't you?? Wave bye-bye. The dollar's going down with the ship and I'd trade every last one of them for gold or silver, I could care less which as either would wind up being more valuable than anything made of paper and will also NEVER fall to no/zero value either. You guys who say the dollar will eventually prevail are going to get a refresher course in history and on basic economics (as we all will) in the next few weeks or months and we can all watch the fiat paper currency return to it's true intrinsic value - zero. Hey, that's a good line....I wonder if anybody's s ever said that yet?? :-)
    Reply
  •  
    Oct 12 08:54 PM
    • Article I, Section 8, Clause 5: The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures. [8]

    • Article I, Section 10, Clause 1: No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt. [9]

    It really is that simple.
    All the college degrees in world can not fix the problem.
    A fiat currency will not work.
    The problem is we have been off the gold standard now for 37 years and alas financial melt down. Yee shall reap what yee hath sow. Good luck to all because were gonna need it.

    K.Lewis
    Reply
  •  
    Oct 13 05:43 PM
    I'm still wondering, can't seem to get an answer: Why does my uncle sam collect taxes? Can't he just print money when he wants something? Come to think of it, isn't that what he has been doing for at least a year now? Hey, we're broke, let's have a party! Send everyone a check! The last party was so darn much fun, let's do it again! Avoid hangeovers - stay drunk! Anyone want to unload some gold and silver, I've got this really awesome greenish paper! The world loves it! It's, it's, its . . . almighty! Hail the $! LOL! All common sense got tossed out the window a long time ago. The only part I didn't realize is the rodeo rules allow for dear old uncle sam to put on some pounds and cover up with the euro before riding the roo off the cliff! Awesome! I'll miss them all . . . RIP.
    Reply
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