Category Archives: Coins

Holders of cash can negotiate price

Holders of cash can negotiate price

Price guides have always been popular. They help newcomers get a sense of values. They help longtime collectors keep generally abreast of market movements.

However, whether they are retail price guides or wholesale price guides, they are not like stock tables that report actual trading.

Coin price guides simply are the best approximation of what a coin might be worth in any given week since trading for most coins is at best sporadic.

When active buying slows down, because dealer cash flow is declining (such as during bullion downturns), price guides perform another function. Price guides are hand-holders.

What do I mean by that?

Well, coin markets are not like trading in oil. You know oil is up or down because cargoes or futures contracts change hands day by day and the prices can be reported.

For many coins, when dealers stop buying something, prices often are not marked down. They simply stay at the level where they last changed.

There are exceptions of course. Modern proof sets and bullion coins can be moved up and down and nobody bats an eyelash.

But when something with numismatic value presents itself and a dealer knows it cannot be resold at an immediate profit, then the rationalizations begin.

Buyers sometimes will tell would-be sellers that they won’t buy a coin because the grade is not what it is represented to be.

Saying something along those lines simply means no transaction will take place and the market can maintain that numismatic prices are stable.

Without the evidence of transactions, price guide editors simply continue to cite their most recent information.

The price guide price therefore becomes a source of reassurance for all those who own temporarily unsalable coins at the stated price because they see it from week to week or from month to month in price guides in Numismatic News and elsewhere.

Near the beginning of my career in the early 1980s, I once suggested to Coin Market editor Bob Wilhite that certain coins should be marked down dramatically. To me, the market was dead. That meant prices should be lower.

He did not call me nuts, but he did hem and haw in a way that indicated that such things just are not done.

Price guides provide a valuable service to collectors, but if certain series go to sleep and there is no price movement indicated for a prolonged period of time, a savvy buyer with cash can often negotiate deals at prices rewardingly below posted values.

Buzz blogger Dave Harper is winner of the 2014 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

– See more at: http://www.numismaticnews.net/buzz/holders-of-cash-can-negotiate-price?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NumismaticNews+%28Numismatic+News%29#sthash.pGq9avyf.dpuf

Holders of cash can negotiate price | Numismatic News.

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Silver Price Ready to Reverse its Tumble? – – a Coin Dealer’s Perspective

physical silver perspective from a leading coin dealer…

Silver fall ready to reverse?

From July 29 to Sept. 2, managed money traders (which include large hedge funds, commodity pool operators, commodity trading advisors and similar companies) decreased their net long position in COMEX silver contracts from 14,063 to 6,542. Since each contract represents 5,000 ounces of silver, that means they decreased their net long position by about 37.6 million ounces in just five weeks. 

This change was accomplished by increasing their gross short positions by over 135 million ounces while the increase in gross long contracts by less than 98 million ounces.

This shift represents roughly 4 percent of global worldwide silver mining production. Had this shift occurred among “strong hands” traders, the decline in the price of silver would almost certainly have been greater than the $1.42 (6.9 percent) drop from $20.57 on July 29 to $19.15 on Sept. 2.

However, traders in this category are traditionally “weak hands.” They typically buy and sell positions for short-term results. The offset to their reduction in their net position (remember that there is always a short and a long position for each COMEX contract) has been bought largely by “strong hands” investors, those who will hold on to their position for much longer than the managed money traders.

Indeed, from July 29 to Sept.  2, the net COMEX silver long position held by companies listed in the “Other Reportables” category increased from 8,461 to 12,034 contracts (just under 18 million ounces).  This category includes very large traders who are trading for their own accounts rather than executing orders for clients.

It seems obvious to me that if short- term traders have been decreasing their net long position, they have a high likelihood of soon turning around to aggressively add to their net holdings. This also seems to be the expectation of large traders placing trades on their own behalf.

Do these two trends indicate that silver prices will end September higher than at the beginning? We will find out in three weeks.

In the meantime, recent lower silver prices have brought a minor flurry of buying of bullion-priced physical silver coins and bars. The U.S. Mint reported higher sales of silver Eagles in August than in July.  While there are no shortages of physical silver on the market yet, those purchasing large quantities will probably have to wait a few more days for delivery than they did in late July.

S​ource ​


Silver Price: When is the big comeback?

Wednesday, August 27, 2014, 13:40 clock

After the dramatic rally three years ago, it’s been pretty quiet around the silver. Even in the recent geopolitical turmoil, the precious metal could hardly score. When is the big silver comeback?
Silbermix
While the price of gold in the environment of rising political tensions in the crisis areas last grew again, the silver price fell short of the expectations of many precious metal investors.

In this case, both metals are bought by investors as insurance against inflation. That silver is stronger than gold, also used in industry, is one of the main differences between the metals. And this is certainly one of the factors that currently dampens the demand for silver. Since the beginning of silver has now again a drop of approximately 0.5 percent   recorded, for a fat discount of more than 37 percent last year. Gold was down almost 7 percent, however so far after all. In euro terms, the impact is down even slightly larger.

The price of silver is much more volatile compared to other metals.  
That is, the prices more volatile than about in gold. The value of relationship to each other is changing so continuously. To close on a negative or positive evaluation of one metal over the other, one examines the so-called gold-silver ratio. It is a simple ratio: gold price divided by silver price. The gold-silver ratio indicates with how many ounces of silver can buy one ounce of gold. Currently, we obtain for one unit of gold about 65 units of silver (gold-silver ratio = 65). Is silver to gold has to be classed as rather expensive or cheap?

Gold-silver since 2009
Gold and silver price performance since 2009 in comparison (weekly closing prices, index)

For this one must seek the story and compare the geological conditions. According to scientific estimates, more silver is about 17 times stored as gold in the earth’s crust. That alone already points to a mismatch between the current precious metal prices. It should however be borne in mind that silver is used industrially.  

The quantities of ore once funded take so continuously. In contrast, all gold ever mined is still as good as being completely present.

More meaningful is the historical comparison. The gold-silver ratio was about 10 to 20 centuries peak periods experienced the quotient end of the 20s and beginning of the nineties, with values ​​of about 100 The sharp rise in the 20th century is due to the fact that silver completely its cash function was robbed and it is now primarily viewed as an industrial metal. The central banks have large holdings of precious metals, but silver is not among them!

The silver market is also regarded as even more strongly influenced by speculative interests, than the gold market. In the spring of 2010 for the first time media attention manipulation allegations were against large U.S. banks (JP Morgan, HSBC) pronounced and later prosecuted, put the price of silver in the episode a dramatic rally on the dance floor.

Within just one year, the price of silver rose from $ 18 to $ 48. Since then, the silver chart is again in decline. So when is the big comeback? U.S. analysts such as Ted Butler and James Turk expect it for a long time. They assume that the current price represents the true scarcity of the precious metal is not nearly. Sooner or later become a new price jump coming – also in relation to gold. It seems as if only someone would take their foot off the gas. And perhaps, have to force a U.S. bank to again before the price of the white precious metal really picks up speed again.

​source: Gold Reporter


How The Coming Silver Price Bubble Will Develop – Ted Butler

On the other hand, with or absent manipulation, silver will always be money. It has been a millennial refuge for those seeking a safe harbor for their dying fiat currencies. A panic along that plain, IMO, would ignite silver’s price and reach a magnitude far greater than just a “shortage.”

We reported this yesterday, but didn’t see any mention by Mr. Butler: Gold and Silver Futures Margins Lowered by CME
In the “past” the lowering of margin requirements has given an immediate bullish blip to prices, but not yet it seems.


Commodities / Gold and Silver 2014 Aug 26, 2014 – 06:07 PM GMT

Ted Butler writes: What is an asset bubble? An asset bubble occurs when a large number of buyers, normally not usually prone to speculate in an asset, bid the price of that asset much higher than underlying valuations would support, most often fueled by leverage or borrowed money. 

Typically, towards the terminal phase of the bubble the most compelling reason for continuing to buy the asset is due to the rising price itself, as all caution is thrown to the wind amid the collective belief that prices can only move higher still. Then, when the last possible speculator has purchased the asset, the inevitable occurs and the price of the asset collapses as previous buyers turn into sellers and attempt to get out. Since the formation of the bubble and its inevitable collapse are driven by the collective emotions of greed and fear, it is generally impossible to predict how long an asset bubble will persist and how high the price can climb, as well as the timing and extent of the subsequent collapse.


How do asset bubbles develop? Most often, an asset bubble develops when an undervalued asset which has a compelling investment story and there exists an overall financial environment of sufficient buying power, catches the collective interest of the crowd. For example, by the mid-2000’s and after years of steady appreciation, residential real estate developed into an asset bubble amid the self-fulfilling cycle of continued gains and the availability of easy credit.

As far as great stories go, silver has the best potential story to develop into a bubble. First, there is little argument that it is among the most, if not the most undervalued asset of all by objective relative historical price comparison. In addition, it is at or below its primary cost of production, as evidenced in recent quarterly earnings reports. Remember, most bubbles start out with an asset that is undervalued – on this score silver more than qualifies as being undervalued.

Aside from extreme undervaluation, the silver story is multi-faceted. Silver is both an industrial metal and a primary investment asset, the net effect being that very little newly-produced silver is available for investment, perhaps only 10% of the one billion oz produced yearly (mine plus recycling), or 100 million oz annually. In dollar terms, at current prices that comes to less than $2 billion per year. There are two ways to look at that; the observation that there are countless individuals and investment funds capable of ponying up that entire amount on their own and the fact that $2 billion amounts to less than 30 cents on a per capita basis for the world’s 7 billion inhabitants. Simply put, there is no other asset class which would require less buying to develop into a bubble than silver.

Apart from newly-produced silver available for investment, the amount of previously produced metal available for investment, or world inventories, is also shockingly low. As a result of a 65 year deficit consumption pattern that ended in 2005, world silver inventories have been depleted by 90% from the levels existing at the start of World War II. Today, only a little over one billion oz of metal in accepted bullion industrial form exists with perhaps another billion oz existing in coins and bars. In dollar terms, that comes to $20 to $40 billion, where most other asset classes (stocks, bonds, real estate and even gold) are measured in the many trillions of dollars. And please, never confuse what exists with what’s available for purchase – only the owners of the small amount of silver that exists will determine at what price it is available.

The conclusion is simple – the asset requiring the least amount of buying to create a bubble is, automatically, the best candidate for developing into the biggest bubble. The fuel for any bubble is total (world) buying power versus the actual amount of an asset available for purchase. Previous, as well as prospective, bubbles in stocks, bonds and real estate grew to many trillions of dollars of total valuation. At $200 an ounce, all the silver in the world (bullion plus coins) would “only” amount to $400 billion, not even a rounding error to the total valuation of stocks, bonds, real estate and, even, gold. In other words, due to silver’s current undervaluation and its shockingly small amount in existence, it has more room to the upside than any other asset class.

But I’m not done. Silver’s unique dual role as a vital industrial material and primary investment asset creates a setup for something happening that has never occurred in any previous bubble. As and when sufficient physical investment buying develops in silver to drive prices significantly higher, the industrial consumers of silver, in everything from electrical and solar applications to medical and chemical applications, will likely be subject to delays in the customary delivery timelines of the metal. As is almost always the case, whenever industrial consumers of a commodity are deprived of timely deliveries, they resort to stockpiling that commodity as a remedy, further exacerbating delivery delays to other users.

Thus, the stage is set for something the world has never experienced previously – an asset bubble accompanied with an industrial shortage. The two greatest upward price forces known to man, an asset bubble and a genuine commodity shortage, appear set to combine in silver. Either one, alone, would have a profound impact on the price, but the combination seems both inevitable and almost impossible to contemplate in terms of how high the price of silver could be driven. And it’s hard to see how intense investment buying wouldn’t trip off industrial user attempted inventory stockpiling or vice versa; it doesn’t matter which comes first.

Tying everything together, there is one and only one explanation for why silver is so undervalued and the asset bubble/industrial shortage hasn’t occurred yet – the ongoing price manipulation on the COMEX. Massive amounts of paper contracts traded between two groups of large speculators (technical funds and commercials), measuring in the hundreds of millions of ounces and completely unrelated to the supply/demand fundamentals have set the price of silver. This COMEX price control is both the curse and the promise in that it not only explains the undervaluation, it will explain why it seems inevitable for an asset bubble/user shortage to develop.

Think of it this way – the asset with the greatest potential for becoming the biggest bubble ever had better have the greatest story ever as well.  And that is what the COMEX silver manipulation is – the key ingredient in the greatest investment potential score ever.  If silver wasn’t manipulated how good would the story be? Absent manipulation, I wouldn’t buy or hold silver because that would mean that free market forces were setting the price all along. In other words, if silver wasn’t manipulated there would be scant reason to buy it in my eyes. If I wasn’t convinced silver was manipulated, I can’t see how I would have ever written this or anything about it in the past or could have become interested in it in the first place.

As painful as recent prices have been to existing holders because of the manipulation, without it there would be little chance for a price explosion at some point. The easiest major potential change in the silver price equation is for the manipulation to end, one way or another. And if history and logic win out, the silver manipulation must end, not the least because of the coming clash between paper and physical silver. Some call it the disconnect between paper derivatives contract on the COMEX and actual physical silver, but in reality the story is that COMEX futures contracts are very much connected to each other via the delivery mechanism.

The connection between paper and physical has been forged because the main COMEX futures speculators are only interested in trading paper futures contracts and not in trading physical metal. Technical funds have no desire to buy and sell real metal for full cash payment when they can deal in paper contracts for only 10% cash down because they are trading, not investing. The problem is that the trading between the technical funds and the commercials has become so large that it dwarfs real world silver supply/demand fundamentals and ends up setting the price of silver in violation of commodity law. I know that this perversion of the price-discovery process has existed for a long time, but it would be wrong to confuse longevity with permanence.

The fact is that while the COMEX paper market dominance has lorded over the real supply and demand fundamentals, the stage has been set for a physical asset bubble/industrial user panic event. I’ve become convinced that any prospective bubble in silver won’t be driven by the aggressive buying of COMEX futures contracts, but only by physical buying. For one thing, the crooked CME and CFTC would never allow any group of traders to drive silver prices sharply higher by buying unlimited amounts of COMEX futures contracts. If the technical funds do buy big amounts of COMEX silver futures contracts (as was the case from June to mid-July), you can almost be certain that the CME and CFTC knew that those funds would be soon forced to sell on lower prices.

As a result, any bubble in silver must and will develop from physical investment buying. Surely, any industrial user inventory buying panic must involve immediate physical delivery and not a paper futures contract in a time of delivery delays and uncertainty. In fact, it is hard to imagine, as a silver bubble begins to develop, a greater urgency for holding only physical metal to intensify, due to a growing recognition that the COMEX manipulation was responsible for the former low price.

Since I am speaking in terms of a potential historic asset bubble in silver, I am implying that the price of silver will far exceed its true value at some point before correcting sharply. It is before that collapse point, that God-willing, I intend to sell. I am not deluding myself that I will come close except hoping not to be terribly early or late. While I respect anyone’s reasons for buying and holding silver, my mission has always been to help end the manipulation and be done with silver after that was accomplished and reflected in the price.

This article is based on a commentary of Ted Butler’s premium service at www.butlerresearch.com which contains the highest quality of gold and silver market analysis. Ted Butler is specialized in precious metals market analysis for over four decades.

Source – http://goldsilverworlds.com/physical-market/how-the-coming-silver-bubble-will-develop/

© 2014 Copyright goldsilverworlds – All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


Convertible Gold Bond or Gold Krugerrand is New Investor Option

 


Posted on August 25, 2014 by Pat Heller

Two weeks ago, Rand Merchant Bank, a subsidiary of FirstRand Bank, Ltd., South Africa’s second largest bank, listed on the Johannesburg Stock Exchange a new five-year security called FirstRand Gold Bond. This issue is limited to 2 billion rand (about U.S.$188 million).

The unique feature of this bond is that it is possibly the world’s first fully gold-denominated bond. Investors may only purchase the bonds by using South African one-ounce gold Krugerrands for payment. Minimum purchase amount is one Krugerrand.
At maturity, the value of the bonds is determined by the price of gold, the dollar/rand exchange rate and the earned interest. 
Owners can opt to take redemption in either Krugerrands or in paper currency. The value of the bonds is fixed in ounces of gold rather than in the South African rand, U.S. dollars, or any other currency.
Dale Wood, the co-head of the Bank’s Capital Markets operations touted the advantages of such bonds when saying, “The notes provide direct exposure to the rand gold price and a positive yield in the form of interest ounces payable on maturity. It offers both inflation and rand/dollar exchange rate protection while avoiding the significant storage and administration costs associated with other direct gold investment options available.  Current market conditions are particularly attractive for gold investment because of rand/dollar weakness and expectations of higher inflation.”
Constant liquidity is theoretically provided as these bonds are bought and sold on the Johannesburg Stock Exchange.  The JSE has been in operation since 1887, which provides some assurance of stability.
As far as it goes, this sounds like a possible venue for someone to invest in the price of gold without the hassle and costs of purchasing and holding the physical metal. However, as with pretty much any investment, there are some downside risks.
First, the additional reporting requirements imposed by the U.S. government on July 1 under the Foreign Account Tax Compliance Act (FATCA) may make it either difficult if not impossible for Americans to acquire these gold bonds.  If it is possible to acquire them, the Rand Merchant Bank would be required to file reports with the Internal Revenue Service every three months disclosing balances held by Americans. At a minimum, this is a serious compromise of financial privacy.
Second, although the South African rand has generally been weak against the U.S. dollar over the past decade or so, the South African government recently joined with the governments of Brazil, Russia, India and China to form a $100 billion bank to compete with the International Monetary Fund, World Bank and the Bank for International Settlements.  In the first month since this bank was organized, the value of the rand rose against the U.S. dollar.  There is some risk that if the rand’s appreciation continues, American investors could suffer a net loss, as measured in U.S. dollars, on the investment.
Third, the stability and safety of the Rand Merchant Bank and the Johannesburg Stock Exchange could be negatively affected by political developments in South Africa.
There is one other factor to consider.  The issuance of gold-denominated bonds, especially if it is repeated by other issuers in South Africa and elsewhere, would be perceived by the U.S. government as an attack against the U.S. dollar.  Possible U.S. government reactions could include economic sanctions against owners of such bonds or the nations from which such bonds are issued. Americans potentially interested in investing in these FirstRand Gold Bonds should keep these risk factors in mind when making their decisions.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly”(http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

If you don’t have a clue, Get it here!▶ Gold Standards: True and False | Joseph T. Salerno – YouTube


Published on Jul 29, 2014

Archived from the live broadcast, this Mises University lecture was presented at the Mises Institute in Auburn, Alabama, on 25 July 2014.

The Truth About "Gold Backed" Cryptocurrencies

We say, “If you can’t hold it, you don’t own it.”

Thursday, July 17, 2014

The Truth About “Gold Backed” Cryptocurrencies

Another day, another salesman tries to sell us the story that they are launching the first Gold backed cryptocurrency. On this occasion it’s Anthem Vault (founded by Anthem Blanchard, son of well known Gold advocate Jim Blanchard):

Newnote Financial Corp. is pleased to announce the successful development and launch of the first open-source gold-backed alternative crypto-currency, commissioned by Anthem Vault Inc. Business Wire

So are they really the first? They certainly aren’t the first to launch a “Gold backed” cryptocurrency. The first I recall reading about was NoFiatCoin (XNF) which trades on the Ripple Network and was launched earlier this year:


Click Chart To Enlarge

Despite this cryptocurrencies favourable return for early adopters, the claim that it’s backed by Gold (bullion) is dubious. The company simply allows those holding the cryptocurrency to exchange it for precious metals they have in stock. As Michael Suede wrote shortly after the announcement of XNF:

NoFiatCoin says that only a 1/3rd of XNFs are backed by bullion and that the market will determine the price for an XNF.  To me, this doesn’t make much sense.  This means an XNF does not represent a fixed weight of gold.  Further, NoFiatCoin says redemption of XNFs for bullion requires a minimum of $3000 worth of XNFs at current market prices.

If XNFs were actually a “gold backed” currency, each XNF would have to represent a fixed unit of weight.  For example, they could set an XNF to be worth .001 ounces of gold, and if you saved up 1000 XNFs, then you could always exchange them with NoFiatCoin for an ounce of bullion.  Of course, under this system, it would be impossible to have a fixed limit of currency creation, and there would have to be a way to take XNFs out of circulation once they were redeemed for physical specie.

Without convertibility at a fixed ratio with the coins, how is this Gold backed?


Other cryptocurrencies purporting to be Gold backed include Gold Backed Coin (GBC) which also trades on the Ripple Network, they suggest that each of these coins is backed by 1/10oz of Gold. But what do we really know about this company and how or where they are storing the Gold that is supposedly backing all these coins? The domain for the website was registered only a few months ago.


Then there is Ripple Singapore which claim to be able to load your Ripple wallet with XAU (Gold), XAG (Silver) and XPT (Platinum) with the bullion backing these positions stored in Singapore by Silver Bullion Pte Ltd. Though take up doesn’t appear strong, they published these audit figures on their website:



What is the benefit of storing these in your Ripple wallet? There’s not much liquidity given the published reserves, why not just setup a regular unallocated account with the dealer? Not that I would recommend storing your precious metal that way either.


Further to those already mentioned there is also G8Coin, MinaCoin, XGOLD (a work in progress) and probably others that I’ve missed. None of these currencies really offer anything that hasn’t been seen before in one form or another, for example E-gold was founded in 1996 and topped 5 million users before the Gold was eventually seized and company placed into receivership. Also, there are already online exchanges where one can buy precious metals electronically or trade peer to peer with other account holders, some of which are well established and trusted, such as BullionVault and Gold Money.


Bank Of England’s Quarterly Report: Are We Quietly Seeing Central Banks Repatriate Their Gold?

Jun. 19, 2014 8:36 AM ET  
Summary
  • Bank of England’s Quarterly Report shows that the bank held 5485 tonnes of gold for 72 central bank customers.
  • The gold holdings of the bank have dropped over 750 tonnes year-over-year with no reported central bank selling.
  • This suggests that we may be seeing large amounts of gold repatriation, which is exactly what happened when Bretton Woods broke down.
In its latest quarterly report, the Bank of England (BOE) released some very interesting information, which should interest investors that own physical gold and gold ETFs (SPDR Gold Shares (GLD)), regarding its gold custodial holdings. In this report, it stated that as of February 28th 2014, it held 5485 metric tonnes of gold (valued at 140 billion British pounds at that date) on behalf of 72 central banks. This gold was specifically held in allocated form – that is it was held claim-free for the bank’s central bank customers and in a dedicated, not pooled form (i.e. specific bar numbers were owned by clients).

This can be seen in the diagram below.

We can’t find historical data regarding how many central banks held gold at the Bank of England over time, but we do have some data regarding the historical change in the allocated holdings of gold.
Source: Gold Chat
This data was compiled and published by Bron Suchecki of the Perth Mint in Australia, who does a wonderful job of giving a practical look at a very opaque gold market.
The important thing to see here is the massive 755 tonne drop in allocated gold held by the Bank of England from February 2013 to February 2014. We know that central banks actually accumulated gold over 2013 and sold very little during the year, so this large drop in allocated gold reserves wasn’t from central bank selling.
The other groups of entities that hold gold at the Bank of England are bullion banks who are members of the LBMA, and of that group HSBC is a member. The importance of that is HSBC is also the custodian of SPDR Gold Shares (GLD), and according to the prospectus, that in addition to the HSBC vault, GLD can keep gold at the Bank of England’s vaults.
Over this same period, GLD lost about 451 tonnes of gold, so if we assume that every single tonne came from the Bank of England vaults, it still leaves around 304 tonnes of gold that left the BoE’s vaults over the year – an extremely large amount considering that central banks were net buyers of gold.
Conclusion for Investors
Now, this decline in gold may be related to bullion bank selling as they liquidate allocated gold positions, but we believe we may be seeing something else going on here.
What may be going on is that central banks may be quietly repatriating gold from other central banks. That would explain why allocated gold would decline and yet there is little or no central bank selling – it is central banks removing their gold from Bank of England custodianship.
If that is the case, then the implications of this may be very large for gold investors. The accumulation of gold by central banks (as we’ve seen over the last few years), shows that they are seeking asset diversification, while the repatriation of gold shows that there is a lack of trust. This lack of trust is exactly what ended the previous monetary system of Bretton Woods as the French owned allocated gold that they were accumulating in the form of dollar reserves (which were convertible into gold but were in the custodianship of the US). That wasn’t the problem because the system could work fine with the French accumulating even more allocated gold dollar reserves, it wasn’t until Charles De Gaulle and the French lost trust in these allocated reserves and asked for their repatriation to France that the system broke.
If we’re seeing a breakdown in trust between central banks regarding gold reserves (which are heavily concentrated in London and New York), then the consequences for the financial system and the gold price could be tremendous – especially since the actual physical gold is only a small fraction of total gold claims due to gold leasing, rehypothecation, and fractional reserve banking. If that small physical gold reserve base is depleted through repatriation, then the gold price should rise orders of magnitude higher, as the only way the base can support the claims upon it is with a much higher gold price.
This is simply another one of those reasons that gold ownership makes so much fundamental sense and thus we still think investors would be wise to maintain a strong exposure to gold with positions in physical gold and gold ETFs (SPDR Gold Shares GLD, PHYS, CEF). The gold miners have had a strong run recently and we would take profits in some of them, but investors should also have exposure to the leverage that they provide and may want to consider evaluating gold miners such as Goldcorp (GG), Agnico Eagle (AEM), Newmont (NEM), or even some of the explorers and silver miners such as First Majestic Silver (AG) (we’re not suggesting these companies specifically – only suggesting them for further investor research).
We do not know for sure what happened to the allocated gold at the Bank of England, but if it is central bank gold repatriation (which we wouldn’t hear about until well after the occurrence) then that may be moving us to the next stage in the financial crisis. With many other strong fundamentals going for it, investors should seriously consider initiating or increasing their position in gold.

via seeking alpha

We’ll have $500 an ounce silver when gold makes its epic run predicts new book

Posted on 06 June 2014
Silver will return to ‘something close to its historical ratio to gold’ and pass $500 an ounce when gold makes its epic run from $1,300 to $10,000-plus predicts ‘The Money Bubble’, a new book from GoldMoney.com founder and former head of commodities for the Abu Dhabi Investment Authority, James Turk and John Rubino.
The authors explain in great depth how gold prices will grow and grow in a spectacular blow-off as global money printing finally gets out of control. Think of it as the 1970-80 gold price explosion on steroids. The silver price is leveraged against gold, and outperforms on the way up and vice-versa.
Silver substitution
Silver is a substitute for gold when prices go too high. The authors cite the record 6,000 tonnes of silver imported by India last year, an amount equivalent to 20 per cent of global mine production, as a classic case of substitution for gold when a 10 per cent tax made the yellow metal expensive.
True silver prices are manipulated by central banks like gold as this book clearly demonstrates. But the price rise from $6 per ounce in 2006 to $49 in 2011 shows that manipulation is not a perfect art. The real issue for silver is the ratio of available silver to gold of 3:1 when the price ratio is currently 65:1.
If there is ever a rush to buy silver there is just not going to be enough in stock and that will send the price higher and bring its price ratio to gold tumbling back towards its much lower historic levels.
In 2013 Sprott Asset Management reported its clients were buying equal amounts of gold and silver, or more than 50 times as much silver as gold by weight. Where’s that future supply going to come from?
Gold’s rebound
All it takes is for gold to gets its mojo back and silver is really off to the races. How long will that take? The authors are long on good advice and short on timing predictions.
They conclude that ‘by the latest in 2015 gold will begin its epic price ascent, although they admit to being wrong-footed by the co-ordinated central bank attack on the gold price in 2013. It is always possible that the empire of the central banks will strike back again but their fire power is losing its clout these days.
Gold needs to be around $10,000 an ounce to resume its role as a linchpin to global financial stability claims this useful book, and the logical side-effect will be $500 silver.

via arabianmoney

MUST Read: How Inflation Helps Keep the Rich Up and the Poor Down – Jörg Guido Hülsmann

Mises Daily: Saturday, May 31, 2014 by Jörg Guido Hülsmann
 
[A selection from Deflation and Liberty.
By Jörg Guido Hülsmann 
The production of money in a free society is a matter of free association. Everybody from the miners to the owners of the mines, to the minters, and up to the customers who buy the minted coins — all benefit from the production of money. None of them violates the property rights of anybody else, because everybody is free to enter the mining and minting business, and nobody is obliged to buy the product. 
Things are completely different once we turn to money production in interventionist regimes, which have prevailed in the West for the better part of the past 150 years. Here we need to mention in particular two institutional forms of monetary interventionism: (fraudulent) fractional reserve banking and fiat money. The common characteristic of both these institutions is that they violate the principle of free association. They enable the producers of paper money and of money titles to expand their production through the violation of other people’s property rights.
Banking is fraudulent whenever bankers sell uncovered or only partially covered money substitutes that they present as fully covered titles for money. These bankers sell more money substitutes than they could have sold if they had taken care to keep a 100-percent reserve for each substitute they issued.
The producer of fiat money (in our days, typically, paper money) sells a product that cannot withstand the competition of free-market moneys such as gold and silver coins, and which the market participants only use because the use of all other moneys is severely restricted or even outlawed. The most eloquent illustration of this fact is that paper money in all countries has been protected through legal-tender laws. 

Paper money is inherently fiat money; it cannot thrive but when it is imposed by the state.

In both cases, the production of money is excessive because it is no longer constrained by the informed and voluntary association of the buying public. In a free market, paper money could not sustain the competition of the far superior metal moneys. The production of any quantity of paper money is therefore excessive by the standards of a free society. Similarly, fractional reserve banking produces excessive quantities of money substitutes, at any rate in those cases in which the customers are not informed that they are offered fractional-reserve bank deposits, rather than genuine money titles.
This excessive production of money and money titles is inflation by the Rothbardian definition, which we have adapted in the present study to the case of paper money. Inflation is an unjustifiable redistribution of income in favor of those who receive the new money and money titles first, and to the detriment of those who receive them last. In practice the redistribution always works out in favor of the fiat-money producers themselves (whom we misleadingly call central banks) and of their partners in the banking sector and at the stock exchange. And of course inflation works out to the advantage of governments and their closest allies in the business world. 

Inflation is the vehicle through which these individuals and groups enrich themselves, unjustifiably, at the expense of the citizenry at large. If there is any truth to the socialist caricature of capitalism — an economic system that exploits the poor to the benefit of the rich — then this caricature holds true for a capitalist system strangulated by inflation. The relentless influx of paper money makes the wealthy and powerful richer and more powerful than they would be if they depended exclusively on the voluntary support of their fellow citizens. 

And because it shields the political and economic establishment of the country from the competition emanating from the rest of society, inflation puts a brake on social mobility. The rich stay rich (longer) and the poor stay poor (longer) than they would in a free society.
The famous economist Josef Schumpeter once presented inflation as the harbinger of innovation. As he saw it, inflationary issues of banknotes would serve to finance upstart entrepreneurs who had great ideas but lacked capital. Now, even if we abstract from the questionable ethical character of this proposal, which boils down to subsidizing any self-appointed innovator at the involuntary expense of all other members of society, we must say that, in light of practical experience, Schumpeter’s scheme is wishful thinking. Credit expansion financed through printing money is in practice the very opposite of a way to combat the economic establishment. It is the preferred means of survival for an establishment that cannot, or can no longer, sustain the competition of its competitors.
It would not be uncharitable to characterize inflation as a large-scale rip-off, in favor of the politically well-connected few, and to the detriment of the politically destitute masses. It always goes in hand with the concentration of political power in the hands of those who are privileged to own a banking license and of those who control the production of the monopoly paper money. It promotes endless debts, puts society at the mercy of monetary authorities such as central banks, and to that extent entails moral corruption of society.
Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.
Jörg Guido Hülsmann is senior fellow of the Mises Institute and author of Mises: The Last Knight of Liberalism and The Ethics of Money Production. He teaches in France, at Université d’Angers. See Jörg Guido Hülsmann’s article archives.