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Gold set to surge or slump?
By Patrick A. Heller
May 06, 2014

This article was originally printed in Numismatic News.
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In the past couple of weeks, the price of gold again dipped below $1,300 and silver temporarily slipped below $19. As this happened, at least two major brokerage houses forecast a sharp decline in the price of gold. One went so far as to predict that gold would not top $1,300 for the balance of 2014 (which was quickly proved incorrect).

In my own store, trading in precious metals has been extremely active over the past two weeks. But don’t ask me to get a reading on the market just from this small sample of the entire global market. The reason I can’t draw any insight is that both our sales to and our purchases from the public have increased.

It seems like the bulk of volume from sellers comes from those who are concerned that prices are headed lower. At the same time, the buyers are jumping to take advantage of what they perceive to be a bargain buying opportunity.

In the past when we have seen a surge in volume, it tended to be skewed in one direction, either towards buyers or sellers. The current surge in activity from both buyers and sellers is an indicator that a major price move could soon occur. Unfortunately, the trading patterns do not give any clues of what to expect.

Premiums for most bullion-priced gold and silver coins and ingots are holding steady. The one notable exception is that U.S. 90 percent silver coin premiums are up from a couple weeks ago. Where you could reliably acquire $1,000 face value bags of these coins for about $2.10 per ounce above the spot price two weeks ago, you would now be paying about $2.30 per ounce above spot. The wholesalers have increased their bid formulas by more than this difference in retail premium. This could indicate that premiums may rise further in the short term unless the spot price shoots up.

As the U.S. government continues to issue data that mostly pretends that the U.S. economy is improving, more of the media are starting to catch on to the deceptions. For instance, in last week’s Bureau of Labor Statistics’ monthly non-farm payrolls report, the headline touted a sizable increase in jobs. The fine print of the same report revealed that the total number of job holders had declined (I didn’t learn how to do this in my math classes).

Another major point of contention is just how much gold demand is coming from China. I wrote on this subject elsewhere three months ago at http://www.coinweek.com/bullion-report/massive-discrepancy-2013-china-gold-demand/. Chinese gold demand cannot be calculated by the same methodology as used in the U.S. and London gold markets. Unfortunately, recent analyses by Koos Jansen (see http://www.ingoldwetrust.ch/the-round-tripping-myth-and-why-it-doesnt-hurt-chinese-gold-demand) and others make it obvious that Goldman Sachs, Morgan Stanley, Thomson Reuters GFMS, the World Gold Council and other so-called experts do not understand the intricacies of the Chinese gold market and are off in their alleged total Chinese gold demand. The differences are not penny-ante. Their assessments of current annual Chinese gold demand could be too low by as much as 30 million ounces or even more!

I remain confident that within two years gold and silver prices will be much higher than today. By that I mean at least a doubling or tripling of prices from current levels. However, that doesn’t mean that prices will only go up in the near future. Hold onto your wallets and pocketbooks for what is almost certain to be a roller- coaster ride.


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).





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Comments
On May 6, 2014 Randy L Camper said
Great article, Patrick!
(I think the government uses the math taught as part of Common Core to arrive at the numbers they use.)
 I have found the same buy/sell patterns here at my store in NW Ohio. I think the winter was so brutal that many of the older sellers hunkered down and didn't venture out until weather broke. But the buyers were steady all along.
 Personally, I find it far easier to tell people what I think gold & silver will do over the next 12 months, and 3-5 years out (with relative confidence)than what it will or won't do this week!
 Best regards!
On May 6, 2014 Tom said
I think prices are down because government polices are draining the wealth of the middle class, causing them to sell into a bear market. Only until that process begins to bottom out will precious medal prices begin to stabilize.  Then with limited buyers in the market the supply and demand will begin to work again.  It will be based on declines of the value of paper money.

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