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Silver Dollars Overshadow Gold
By Patrick A. Heller
February 04, 2014

The reason to suppress precious metals prices is easy to understand. The price of gold is effectively a report card on the U.S. dollar and the U.S. economy. If the price of gold is rising, the dollar must be falling in value and the U.S. economy doesn’t look as strong. Also, if metals are going up when COMEX options and futures contracts mature, that would increase demand for physical delivery of the metals, which could push up prices even higher.

Among the typical times when the prices of gold and silver are suppressed are when a major U.S. politician or bureaucrat gives and address or announcement (think President, secretary of the Treasury, chair of the Federal Reserve, Federal Open Market Committee, for example), expiration day of COMEX options, day of first notice of delivery on maturing COMEX contracts, and last the trading day of the month.

All of these events occurred last week. To set the stage for last week’s gold and silver trading, the end of the previous week saw significant drops in several currencies, including those of Argentina, Russia, South Africa and Turkey. There was also the problem with a possible collapse of an investment trust in China that financed major infrastructure construction projects.

As a result of these international troubles, U.S. stock markets declined. Foreigners became more active at getting out of other currencies and replacing them with U.S. Treasury debt and precious metals. The interest rate on U.S. Treasury debt fell so far that 30-day Treasury bills were trading at a negative interest rate at one point (meaning you get back less than you initially pay). As of Friday, Jan. 24, gold rose in price for the fifth consecutive week.

Naturally, rising gold and silver prices and falling U.S. stock markets would not look good when President Obama delivered his State of the Union address last Tuesday, or when the FOMC delivered their pronouncement last Wednesday afternoon. The price of gold also needed to be knocked below $1,250 to minimize the numbers of expiring COMEX options contracts that would be called for physical delivery.

It was clear to me that the price of gold would be driven down below $1,250 last week, with a corresponding drop in the price of silver. These events came to pass, with silver at one point trading just below $19. So, the price suppression occurred as expected. However, there was one surprise.

For whatever reason, the U.S. government, its trading partners and allies did not adequately prepare to prop up the stock markets and to hold down gold and silver prices last Wednesday. That the stock markets declined and precious metals rose made it appear that the President’s address was a flop. Later, when the FOMC announced that, as anticipated, it was officially trimming the inflation of the money supply – called quantitative easing – by another 13 percent (but in reality might actually not be declining at all), there was no goosing of stock prices just before U.S. markets closed. I’m not sure why the U.S. government failed to cap or reverse these financial reactions last Wednesday.

Last Wednesday’s financial coverage focused on how poorly matters looked. Obviously, the politicians and bureaucrats in Washington could not let that stand. On Thursday, gold and silver prices were clobbered with a vengeance. It was as though the U.S. government was making a stand, even if it was a day late. The price of silver has largely been suppressed ever since.

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When gold and silver prices dropped last Thursday morning, buyers came out in droves. My company experienced the highest daily demand for physical precious metals in several months. Prices recovered some by Friday, then continued to rise yesterday.

Why did the U.S. government not do its usual suppression of gold and silver prices last Wednesday? I can only speculate. Here are some possibilities.

The U.S. government may be running out gold and other assets to achieve price suppression on the scale or for as long as it used to do. If this is true, that is a huge signal for higher prices in the coming months. The reports I saw indicated that the gold manipulation last Thursday was coordinated by the Federal Reserve and the Bank for International Settlements. Normally in the past such efforts would be done through other parties to make the U.S. government’s involvement invisible.

There is a slight possibility that those in Washington somehow thought that the President’s speech might actually be received as positive news, therefore not needing precious metals and stock market manipulations. Further, by telegraphing the FOMC announcement in advance, the government probably hoped that the reaction to the actual statement would be muted.

The combination of the poor effort to suppress precious metals prices last week and the fact that demand quickly soared when prices finally (and temporarily) dropped makes me more optimistic for much higher gold and silver prices in the next few months. We will see.

Last week there was also the Long Beach Coin, Stamp & Sports Collectibles Expo.

It was quite busy for me in the limited time I was there (hurt by arriving four hours late from flight delays). It was neither the best nor the worst of shows, but it did exceed my expectations.

One area in particular was much stronger than I realized beforehand – better-date Morgan and Peace dollars in grades of very fine to lower Mint State quality. These are coins that have enjoyed many price advances in recent months – enough so that wholesale price guides often list them at higher prices than retail catalogs.

I took a number of such coins, mostly uncertified, to Long Beach to offer to other dealers. Of them, I sold a higher percentage than typical. Even more surprising to me was the prices at which they sold. At least a half dozen pieces sold for 5-10 percent above bid levels listed in the latest issue of Coin Dealer Newsletter. Perhaps the reporting services are behind updating their listings as the market moves ahead.

Patrick A. Heller is 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. Other commentaries are available at Coin Week and He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly.” 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.

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