What's really happening in the physical gold and silver markets

By Dominic Frisby

In recent months it's been widely and repeatedly reported that retail demand for physical gold and silver is insatiable. The price may be falling in the futures markets, but retail dealers in North America, Europe, Asia and Africa have all described the situation as 'unprecedented'.

There's a shortage of coins, few people are prepared to sell the coins they have, and manufacturers of coins and bars do not have the fabrication capacity to meet current orders, causing longer and longer waiting times.

This has led to numerous theories about shortages of metal. I wanted to get the 'view from the street', so I spoke to Tony Baird, founder and boss of Baird and Co., the UK's biggest independent coin and bullion dealer…

Demand for coins is enormous

The first thing to note is that retail demand really is unprecedented. Baird founded Baird and co in 1967, and so was dealing bullion and coins as gold fever spread in late 1970s. Yet he describes the last four months as the busiest he's ever known.

"It's been building up over the last two years", he says. "Then it sped up with Northern Rock and Bradford & Bingley. But in the last four months or so since Lehman Brothers, there has been a massive movement of money out of banks and into physical bullion, which people are taking home and putting under the bed. This is the busiest I've ever known."

A quick look at coin dealers' websites in the US, in the UK and in mainland Europe shows that many have run out of coin supply altogether and have had to stop dealing. Baird is among them. "We normally carry millions of pounds' worth of coins," he says. "We're big stockists and our stock has been going one way - and that is out of the door. There is huge physical demand. We're experiencing great difficulty buying coins in any volume anywhere in the world.

"Whether it's America, the UK or Europe, there are no sellers. Our stocks are low and we don't know what replacement premiums to charge. The replacement premium isn't apparent because there are no sellers, so we've stopped taking orders until the market settles down."

I notice even on Ebay that coins are trading hands at huge premiums to the spot price. It is not uncommon for American Eagle 1oz silver coins to sell for more than $20, even in the US where they do not have VAT. That's more than a 100% premium to the spot price of around $9.30! Surely this is unsustainable, in the short term at least?

If things get worse, gold banks will empty

Baird agrees. He describes the last four months as a "mad surge" and his stocks are now slowly building up again. "We should return to normal levels fairly soon". I would agree – though with a big 'if'. We may return to normality if this banking crisis doesn't escalate and stock markets find a bottom at these low levels. But if things get worse, this run on the gold banks will leave them empty.

But here's the biggest question of all. There's certainly a shortage of small bars and coins, but is there a shortage of the actual metal? James Turk of Goldmoney says his firm has experienced no supply problems, as they buy large LBMA bars. Baird concurs: "There is no shortage of metal. We have no difficulty finding physical supplies of large market bars. In small bars and coins there's a hold up. Kilo bars are in short supply because of manufacturing capacity. I haven't experienced any shortage of silver."

It seems that the shortages are not related to metal supply, but refining and manufacturing capacity. Baird says, "Our bars are manufactured by us and the volumes of business have increased so much that our manufacturing capacity is now stretched."

So why has the price of gold and silver been falling?

I spoke at the World Money Show last week and I got the impression that I disappointed a lot of people in the audience because I wasn't as bullish on commodities as Jim Rogers had been earlier in the day.

For the record, I expect some kind of a bounce from here into the spring, perhaps re-tracing 30-50% of the falls. But we have seen in the last five or so months that the impact of global deleveraging - i.e. paying down debt - has caused forced selling in all asset classes. Mr Margin - that's the man who demands you stump up extra cash as your leveraged investments lose value - packs a far greater punch than the supply problems, the China story or any of the other attractive fundamentals behind the commodity story.

In fact, as Baird suggests, it may be that the physical demand is what has stopped the gold and silver markets from collapsing altogether. The magnitude of this credit bubble, this lending bubble, this leverage bubble never ceases to amaze me.

But let's end on a positive note for gold and silver investors - a view from Baird with which I agree: "Eventually when the forced paper sales stop the physical buyers will prevail and gold will take off. And so will silver".

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

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World Gold Demand Increases 18%, Hits Record High in Dollar Terms

By Gold World Staff

Smart gold investors aren't ready to throw in the towel yet. Because despite a 25% drop in prices over the past five months, the gold bull market is still healthy and on track. And a recent sharp increase in world gold demand is our proof.

World Gold Demand in a Bull Market

Two weeks ago, Mining Speculator investment director Greg McCoach wrote to you and outlined the basics of how a gold bull market works. If you recall, Greg mentioned that gold bull markets generally consist of three succeeding events:

* Currency devaluation
* Increased investment demand; and
* Speculative mania buying

We began to see a sharp correction in the value of the U.S. dollar beginning in 2001, which quickly lead to a jump in investment demand.

A subsequent 7-year U.S. dollar bear market helped lift gold prices from $250 to over $1,000 an ounce. Over the same period of time, world gold demand grew in terms of both tonnage and dollars, aided by the introduction of the now widely popular gold ETFs and similar gold investment vehicles.

In July, the U.S. dollar reversed its downward trend, and continues to enjoy a bull market as central banks and foreign governments buy the greenback as a hedge against their own deflating currencies.

This U.S. dollar bull market has significantly pulled down on gold prices. Gold has lost roughly 25% since mid-summer, leading some to believe that the gold bull market might be over.

But it's not!

The current U.S. dollar bull market is short-term and fleeting. We expect the U.S. dollar to top out sometime within the next several weeks, then continue on it's long-term downward trend.

And judging by a significant increase world gold demand, we're certainly not alone.

Despite a five-month drop in prices, world gold demand increased 18%, and made a new all-time record high in term of dollars as lower prices encouraged investors to seek haven from the global credit crisis.

World Gold Demand Increases 18%, Hits Record High in Dollar Terms

World gold demand totaled 1,133.4 tonnes during the third-quarter. This was up 170.1 tonnes, or 18%, from levels of a year earlier.

In dollar terms, this represented a 51% rise to $31.8 billion, an all-time record high! This is a 45% leap from the previous record set during the second-quarter, and a major indicator that the gold bull market is still on track.

And there's even more convincing evidence . . .

The biggest contributor to the increase in total world gold demand in third-quarter was identifiable investment, which was up 137.5 tonnes, or 56%, relative to year-earlier levels.

Driving the improvement in identifiable investment was net retail investment, which increased 121% from 105.1 tonnes to 232.1 tonnes. Switzerland, Germany, India and the United States enjoyed the biggest surge in demand, although shortages of bars and coins were reported among bullion dealers in many parts of the world.

Gold ETFs set a record net quarterly inflow of 150.0 tonnes, boosted by extreme levels of economic and financial uncertainty. The peak in inflows occurred at the end of the September, triggered by the collapse of Lehman Brothers and a fear of banking sector collapses. Net inflows surged by an unprecedented 111.0 tonnes during 5 consecutive trading days, equivalent to $7 billion!

Increasing investment demand is key to any bull market. In fact, it's surging investment demand that will ultimately lead to the coveted speculative mania buying stage and the peak of this gold bull market.

Investment demand continues to grow, which provides strong support for the ongoing progression of the gold bull market, despite a few bumps in the road.

We continue to urge you to buy gold. Bullion dealers around the country are limited in what they can sell right now. But if you have money that you're looking to keep safe, and can find a dealer who can get it for you, buy some gold now before the price spikes

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold in the Low $600s?

David Galland, Casey Research

Of late, I have read a number of analysts, Jim Rogers even, who have expressed the view that gold could dip to the mid- to low $600 level.

Could happen, but I think not. Already, buyers of physical gold are finding anything near $700 to be cheap and so are helping to build a floor under the monetary metal. On that topic, a friend sent this item along last week…

(Gulf News Nov 12) Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals (Dh12.75 billion) being spent on the yellow metal during the last two weeks.

Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

Sami Al Mohna, an expert on the gold market, said the trend had resulted in a substantial rise in the gold reserves of Saudi investors.

Since soaring to an all-time high of $1,033.39 per ounce in March this year, gold has plummeted 30 per cent.

Gold for December delivery on Monday rose $8.60 to settle at $726.80, roughly the same level at which it traded a year ago.

"Many Saudi investors see this as the right time for making investments in gold as its price is the most reasonable one at present," said Al Mohna.

Needless to say, the Saudis have a lot of money. Not just a lot… but a really, really, big, stupendous mountain of the stuff.

Oh, and like you and me, they’re human.

Which means they can’t help but glance through the morning’s financial news, adjust the reading glasses, and think, “Blessed Mohammed! This is getting really, really serious. Maybe just a little extra gold under the tent right now wouldn’t be such a horrible idea.”

They aren’t alone. We are getting regular reports that at these prices, demand is soaring in India (where price inflation is now running around 11%), and brisk sales have pretty much wiped out physical supplies of small coins and bars in the U.S. and Europe… among other corners of the world.

On that score, a few days ago, correspondent Jim G. sent along the following…

Most of you are probably aware that there’s a shortage of gold bullion coins at the retail level.

What does that mean?

Today I decided to purchase some gold bullion coins. So I called the Northwest Territorial Mint, one of the larger operations in the country or at least the Northwest, so I’ve been told.

I called to see what the availability was. The operator put me through to sales, where I sat for 30 minutes. I finally got in my car and drove 40 minutes there, all the while still on hold. When I finally got there, a woman went in the back to see about bullion coin availability. She was told they were back ordered with 30,000. Not dollars, orders. If I placed an order today, they thought they could fill it in 16 weeks.

To sum, I’m buying… if you know a seller.

While we already know $750 is no magic number below which gold cannot fall or below which it cannot loiter, I take no small comfort in the fact that there is a clear increase in demand at that price. In time, as the dollar continues to participate in the fiat currency race to the bottom, that number will ratchet higher and higher still.

Maybe not overnight, but in the next six months to a year, certainly… or as certain as anyone can be about anything these days.

One thing that could get the show on the road pronto-like has to do with the continuing presence of the other 900-pound gorilla in the room, foreign dollar holders. Like the Saudis, the Chinese have at their fingertips a lot of greenbacks. Actually, not just a lot, but enough to remake the Great Wall.

And they, too, are humans.

And so, over their morning cup of tea, they finger the abacus while watching the daily financial news and say, “Holy Mao! This is getting really, really serious. Maybe just a little extra gold in the rice jar right now wouldn’t be such a horrible idea.”

On that front, here’s some news from Hong Kong…

(The Standard, Hong Kong. Nov 14) -- The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

In another article from Bloomberg, the head of China’s gold association commented that he thought China could triple its reserves.

And there was this quote from that same article.

China has the world's biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China's demand for gold jumped 23 percent in 2007, making it the world's second-largest consumer.

The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person.

In the final analysis, we can’t say with certainty what path gold will take between now and the time this crisis is over. But until I can see some tangible evidence that it has lost its value as money, I’m a happy holder and, at under $750, a buyer.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Record Dollar Demand For Gold As World Looks For Haven From Turmoil

PRESS RELEASE

Dollar demand for gold reached an all time quarterly record of US$32bn in the third quarter of 2008 as investors around the world sought refuge from the global financial meltdown, and jewellery buyers returned to the market in droves on a lower gold price. This figure was 45% higher than the previous record in Q2 2008.Tonnage demand was also 18% higher than a year earlier.

Identifiable investment demand, which incorporates demand for gold through exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter, up to US$10.7bn (382 tonnes), double year earlier levels, according to Gold Demand Trends, released today by World Gold Council (WGC).

The figures, compiled independently for WGC by GFMS Limited, show retail investment demand rose 121% to 232 tonnes in Q3, with strong bar and coin buying reported in Swiss, German and US markets. The quarter also witnessed widespread reports of gold shortages among bullion dealers across the globe, as investors searched for a haven. Overall, Q3 saw Europe reach an all time record 51 tonnes of bar and coin buying and France became a net investor in gold for the first time since the early 1980s.

Gold ETFs enjoyed a record quarterly inflow of 150 tonnes in Q3, boosted by extreme levels of economic and financial uncertainty. The peak in inflows occurred in late September, triggered by the collapse of Lehman Brothers and a fear of banking sector failures. Net inflows surged by an unprecedented 111 tonnes during 5 consecutive trading days, equivalent to US$7bn.

As the financial crisis deepened these increases in identifiable investment demand were offset by outflows in “inferred investment”. This was characterised by hedge funds liquidating investment positions in gold as they were forced to raise cash and by institutions liquidating commodity index investments, including gold, as fears of recession deepened. The trend largely reflects gold’s better performance relative to other assets and also explains why the gold price did not perform better during the quarter in the face of very strong demand.

Q3 saw a record US$18bn of consumer demand for gold jewellery with buyers returning to the market on lower price points, around and below US$800, demonstrating the underlying positive sentiment towards gold and its recognition as a store of value. The biggest contributor to the positive trend was India which witnessed a rise of 65% in US$ value or 40 tonnes relative to previous year levels, with the Middle East, Indonesia and China all enjoying rises of more than 40% in value or 10% in tonnage. There were however, strong declines in Western markets with the US down 9% in value and 29% in tonnes, and the UK down 5% in value and 26% in tonnes due to the overall decline in the retail market.

James E. Burton, Chief Executive Officer of World Gold Council, commented:

"Gold’s universal role as a store of value has shone through during this quarter helping attract investors and consumers to all forms of gold ownership. The rise in demand for gold bars and coins has been impressive as has the record rise in gold ETF inflows. Perhaps most encouraging is the return to positive jewellery buying which has been absent for several quarters due to the high levels of price volatility."

"Looking forward, given the uncertainty that surrounds the global economy, gold’s safe haven appeal should continue, but so too will the possibility of heightened levels of activity in the speculative side of the gold market, therefore it is too soon to call an end to market volatility."

Despite a deteriorating global and domestic economic climate, demand in India, the largest market for gold demand, recovered during the third quarter, encouraged by lower gold prices, a good monsoon and the onset of the festive season. At 250 tonnes, total consumer demand was 31% higher than Q3 2007 levels. In value terms, demand hit the record quarterly sum of US$5bn.

Demand in Greater China rose 18% to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).

Jewellery demand in the Middle East, which accounts for more than 90% of total consumer offtake in the region, rebounded in Q3 with tonnage demand up 15% on Q3 2007 and up 47% in dollar terms, hitting a new record of US$2.8bn. Retail investment demand, while relatively small in size at 7 tonnes, recorded strong growth of 23%, and 57% in dollar terms. In Turkey total Q3 offtake, at 99 tonnes, was up 15% on the levels of a year earlier, with investment demand smashing all previous records to reach 31.7 tonnes.

Industrial and dental demand declined to 104 tonnes during the quarter 11% down on year-earlier levels. Electronics, the largest component of industrial demand, was hampered by the downturn in the global economy and a lack of confidence within world markets.

Gold supply was down 9.7% on year-earlier levels, largely driven by a significant reduction in central bank sales. Sales under the Central Bank Gold Agreement (CBGA) totalled a provisional 357 tonnes in the CBGA year ending September 26, the lowest annual figure since the first Agreement was signed in 1999.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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