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Metals Move Up
By Patrick A. Heller, Numismatic News
February 21, 2014

This article was originally printed in Numismatic News.
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On Feb. 17 the price of gold was up more than 11 percent from the low point of intraday trading on Dec. 31, while silver was up more than 18 percent in the same time frame.

When gold breached the $1,300 level Feb. 13, Americans interested in physical gold and silver stepped up to buy.

Action in our store in Lansing, Mich., on Feb. 14 and 15 was almost at frenzied levels, though it tapered some on Feb. 17.

After generally sliding in price since early October 2012, why would precious metals prices be rallying at all and why now? There is no one specific factor to point to, but here are some significant recent developments.

• The Federal Reserve reported that the annualized increase in the M-2 definition of the money supply for January was higher than for either 2012 or 2013. This contradicts the pretense put forth by the Federal Open Market Committee at its last two meetings that it is reducing the rate of increase in the money supply (called tapering).

• The Shanghai Gold Exchange delivered almost 8 million ounces (246 tons) of physical gold in January! For the first time, monthly deliveries solidly exceeded global mining production for the month. This also set a record for the highest monthly physical gold deliveries by any commodity exchange ever.

• The latest economic reports are mostly negative. The U.S. jobs report released earlier this month for January had horrible news. Had the unemployment rate been calculated by the methodology used by the Bureau of Labor Statistics in 1994 and earlier, the current reported unemployment rate would have exceeded 20 percent! U.S. retail sales for December were revised to show an actual decline rather than the initially reported small increase. When adjusted to the increase in consumer prices, the units of merchandise sold for the last holiday season significantly declined from the year before. U.S. retail sales also fell in January, heavily influenced by falling auto and truck sales. Home sales continued to decline.

• World stock markets have largely stalled thus far in 2014.

• The COMEX may be close to an actual default in delivering gold. Officially, the COMEX will not be forced to declare a default in February, but that is only because those owing delivery are allowed to settle their obligations for cash or by delivery of gold exchange traded fund shares. Still the fact that the COMEX has nowhere near enough registered gold inventories to cover potential deliveries means that some contract holders who are hoping to receive gold may not be able to get it. In my book that is a default no matter what the COMEX cites as acceptable alternatives. Even if the COMEX manages to get past this month without default, it faces another major physical delivery challenge in April.

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• The European Central Bank, the International Monetary Fund, and several central banks are raising the prospect of seizing some or all of the bank account balances of bank customers in the event of a banking crisis. What happened in Cyprus almost a year ago was just a trial run of what is being planned. The ECB is going so far as to possibly seize (“tax”) existing bank accounts by a total of 500 million euros before a banking crisis hits so that the funds will be available to dole out as crises develop.

Obviously, there are a number of other factors affecting the markets. But, if you follow developments in the above categories, you will have a better understanding of what is happening in gold and silver markets today.

Thus far, bullion-priced gold and silver coins and bars are still in ready supply, with premiums mostly unchanged from the end of 2013. The recent higher silver spot price has resulted in more liquidation of U.S. 90 percent silver coin, with the result that its premium has fallen about 40 cents per ounce relative to the spot price over the past two weeks.

Premium swings are more likely with U.S. 90 percent silver coins as they are not in current production. In fact, the last circulating 90 percent silver coins are dated 1964. In times of surging demand to purchase physical silver, the premium for 90 percent can rise sharply, as occurred in 1982, 2008, and early 2013. Near the end of April 2011, as the price of silver neared $50, so much 90 percent coin was being liquidated, that it was sometimes possible to purchase it for slightly below melt value!

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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.

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