The dollar, precious metals, and the 'other' invisible hand

[Guest]

Re: The dollar, precious metals, and the 'other' invisible hand

Correct me if I'm wrong guys, but isn't it possible to buy 1000 oz bars (silver, not gold, unless you are as rich as Croesus) on the COMEX right close to the current spot price and then take delivery? Or did this archaic and quaint notion go the way of the dodo?

[bart]

Re: Largest Gold Refiner Runs out

One of Mish's main arguments for deflation is that he doesn't see inflation taking hold during a time when credit is contracting and housing is falling in price. But, we just had a fairly recent experience in the 70's where an asset price (Bonds) fell by 50% and inflation still roared with gold doing an x25. True, houses were still going up in the 70's but I believe the bond market is bigger than the housing market and it lost half it's value. Doesn't that historical fact trump his argument that you can't have inflation during collapsing asset prices? Maybe this has already been noted in your article... is so, I may have missed it.

Basically yes - the various historical facts from the '70s, 2002 and even from the '30s do trump Mish's deflation points. It's not in my various articles too, partially since just one chart below shows the monetary aggregates and credit picture in the late '20s is extremely different from now.

He also doesn't define deflation the way most do, which is a little too convenient for my taste.

Another of his points is that he doesn't believe credit demand can be affected by the Fed, in a directly opposite manner to what actually happened in 2002, the '70s and also the '30s.
To maintain that people won't borrow if they actually realize and believe that inflation (for example) is 12% and rates are at 5% is illogical at best.

[FRED]

Re: Largest Gold Refiner Runs out

Basically yes - the various historical facts from the '70s, 2002 and even from the '30s do trump Mish's deflation points. It's not in my various articles too, partially since just one chart below shows the monetary aggregates and credit picture in the late '20s is extremely different from now.

He also doesn't define deflation the way most do, which is a little too convenient for my taste.

Another of his points is that he doesn't believe credit demand can be affected by the Fed, in a directly opposite manner to what actually happened in 2002, the '70s and also the '30s.
To maintain that people won't borrow if they actually realize and believe that inflation (for example) is 12% and rates are at 5% is illogical at best.

The most succinct piece of evidence we've ever found to refute this claim is this slide from a presentation by the Fed in 2003:

1932 - 1933: Dead banking system, crashed asset prices, collapsed money supply, 28% rise in inflation from -14% to +14%.

Devaluing a currency is a foolproof inflationary tool.

[bart]

Re: Largest Gold Refiner Runs out

The most succinct piece of evidence we've ever found to refute this claim is this slide from a presentation by the Fed in 2003:

1932 - 1933: Dead banking system, crashed asset prices, collapsed money supply, 28% rise in inflation from -14% to +14%.

Devaluing a currency is a foolproof inflationary tool.

I give it at least a 9.9.

[bart]

Re: The dollar, precious metals, and the 'other' invisible hand

Correct me if I'm wrong guys, but isn't it possible to buy 1000 oz bars (silver, not gold, unless you are as rich as Croesus) on the COMEX right close to the current spot price and then take delivery? Or did this archaic and quaint notion go the way of the dodo?

It's not simple to do, but unless the rules have changed in the last few months - yes, to the best of my knowledge.

[Charles Mackay]

Re: The dollar, precious metals, and the 'other' invisible hand

It seems like the problem in any discussion of inflation/deflation is that the words have been bastardized. The MSM will never let anyone maintain a proper definition of the word. Even though EJ posts his definitions, the words will always be argued within shifting sands of meaning.

Therefore the words should be banned on iTulip! It's very much like using the words conservative and liberal which also have no meaning anymore. Communists were conservatives for instance.

"There is NO inflation"... even though gold has done an x4 and oil an x10 say the deflationists.

"Inflation is an increase in the money supply. PERIOD!" say the Austrians.

This is a Marshall McLuhan moment!

I nominate EJ and Bart to create some new words to define certain constructs. Just as M1, M2, and M3 have certain meanings, we should have words that won't always have to be redefined.

a symbol or word to represent, for instance:

1) Increase in fiat money
2) Increase in fiat money and credit
3) Increase in consumer prices
...etc.

[bart]

Re: The dollar, precious metals, and the 'other' invisible hand

I defer to EJ or Fred.

"Bonar" for the dollar is way beyond my ability... and I don't want to risk getting my tongue permanently stuck in my cheek... ;)

[Charles Mackay]

Re: The dollar, precious metals, and the 'other' invisible hand

1) Increase in fiat money
2) Increase in fiat money and credit
3) Increase in consumer prices
...etc.

TM stands for TulipMoney

TM1 = Increase in fiat money
TM2 = Increase in fiat money and credit

TMP = Increase in prices ???

yada, yada, yada

[jk]

Re: The dollar, precious metals, and the 'other' invisible hand

Facinating, the spot price of silver IS $1.00 lower than when I purchased two weeks ago, YET.....

The physical product price is $1.00 HIGHER!

HIGHER Physical price with a lower spot price (Right NOW)
vs
LOWER Physical price with HIGHER SPOT price (two weeks ago)

Hmmmmm.

Thoughts?

my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities. same reasoning applies to silver.

edit- in fact, we can deduce that there is a fabrication bottleneck, because otherwise some entity would be arbitraging the spread between spot and physical-for-retail.

[metalman]

Re: The dollar, precious metals, and the 'other' invisible hand

my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities.

but hasn't that always been the case?

[Guest]

Re: The dollar, precious metals, and the 'other' invisible hand

JK -

my best theory is that there's a bottleneck in fabrication.

This hypothesis is getting a little thinner by the month. The retail shortages emerged last March, remember? They loosened up a bit in the intervening months, and it's certainly understood that today's super low gold and silver prices are "borrowing demand from the future", but this "retail shortage" has been dragging on for five months. Yesterday there was a smarmy post by John Nadler with Mish, both practically falling into each other's arms in mutual admiration of their astute skepticism in the face of "mass hysteria". The topic? Retail shortages of bullion. It's posted over at Kitco. And Nadler's stance was what the retail tightness getting reported worldwide, is due to "persistent bottlenecks" in the flow of COMEX and large commodity bourse bulk bullion to refiners and dealers of the metal to the retail investor public (worldwide, not just here).

A five month long bottleneck. When I was out of college many years ago, I worked in a Silver foundry for six months. They made silverware, but in the investor category of foundries, there are a very limited number of molds and presses to handle. The notion that a foundry or refiner, in a world of "ample bullion supply", would require five months to pour sufficient new retail products out to quell shortages is frankly disingenuous. These are standard mold products, small bars, coins, 100 oz bars, rounds, etc. The production of this stuff could be geared up in weeks, not months, to put sufficient supply out there for retailers with their shelves completely bare. Five months "bottlenecks" to ease retail shortages, while bullion supply is supposedly ample is bullshit, by my reckoning. It does not add up. It's too long of a time.

The article gets so vehement that this is the reason that it's practically hanging off the chandeliers. Meanwhile, there is zero mention that this has been dragging on since the early spring of this year . And that the notion that refiners are "anxious to maintain regular flow of bullion to their large scale commercial (industrial metal consumer) clients, rather than divert that flow to the retail public" only highlights the strained, anxious sounding arguments Nader is putting forward regarding the silver bullion supply problems.

Think about it. Five months to resolve bottlenecks, while he states the supplies of very large scale bullion of the major exchanges is "copious and plentiful", and that the refiners are "dragging their feet" about diverting some of this "copious" availability into small retail forms of the metal for fear of angering or disappointing their large commercial consumer clients? If they are afraid of interrupting supply to their large commercial clients by diverting some to the retail area, how is it then possible that the supplies on the COMEX and other exchanges are so abundant?

We are supposed to believe that the "bottleneck" between the large commercial scale bullion stores, and the retail market, is progressing at the same inching pace of resolution in every disparate market worldwide? Would it not be more plausible that in some countries or areas, the links between refiners and retail market operated some faster and some slower, if the supply of bullion was genuinely abundant? Instead we see little or no variation. They are ALL bereft of ready retail supply, STILL, after 5 months of such reports.

Why are not retailers in India progressing to a resolution at a different pace from retailers in Europe, or retailers in North America? No. They all remain "stuck" in the same lack of inventory.

If you read the article there are lots of plausible sounding arguments, but if you pay close attention you can also pick up a little of the urgency behind the arguing. Nadler works for a bullion retailer. They have a regular sign posted on their site that they can't supply immediately. We look around and see the Kitco dillemma re-iterated in every large and mid-sized bullion dealer worldwide, and it's been the case, worldwide, for five months? At very least, that should awaken a trace of healthy skepticisim when you read these people talking about how "abundant" the bullion supply is on the exchanges. I think Nadler's line is hogwash, and I'm not a conspiracy minded guy at all.

Oh, and E-Bay and Craigslist are indeed very consistently arbitraging the spread, and have been ever since the price plunged. That is one of the few places where the silver seems to be coming to market! One last comment. I don't follow the guy much, but Greg McCoach is a bullion dealer as well as newsletter author in gold stocks. I read something of his this weekend where he's noting that availability on the COMEX and other large bullion exchanges is not good either. If McCoach is right, and he's got a better rep for independent reporting than Nadler, then Nadler is either being foolish, or disingenuous, or a bit of both. I don't trust Nadler, about as much as I distrust Mish.

my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities. same reasoning applies to silver.

edit- in fact, we can deduce that there is a fabrication bottleneck, because otherwise some entity would be arbitraging the spread between spot and physical-for-retail.

[Jim Nickerson]

Re: The dollar, precious metals, and the 'other' invisible hand

JK -



This hypothesis is getting a little thinner by the month. The retail shortages emerged last March, remember? They loosened up a bit in the intervening months, and it's certainly understood that today's super low gold and silver prices are "borrowing demand from the future", but this "retail shortage" has been dragging on for five months. Yesterday there was a smarmy post by John Nadler with Mish, both practically falling into each other's arms in mutual admiration of their astute skepticism in the face of "mass hysteria". The topic? Retail shortages of bullion. It's posted over at Kitco. And Nadler's stance was what the retail tightness getting reported worldwide, is due to "persistent bottlenecks" in the flow of COMEX and large commodity bourse bulk bullion to refiners and dealers of the metal to the retail investor public (worldwide, not just here).

A five month long bottleneck. When I was out of college many years ago, I worked in a Silver foundry for six months. They made silverware, but in the investor category of foundries, there are a very limited number of molds and presses to handle. The notion that a foundry or refiner, in a world of "ample bullion supply", would require five months to pour sufficient new retail products out to quell shortages is frankly disingenuous. These are standard mold products, small bars, coins, 100 oz bars, rounds, etc. The production of this stuff could be geared up in weeks, not months, to put sufficient supply out there for retailers with their shelves completely bare. Five months "bottlenecks" to ease retail shortages, while bullion supply is supposedly ample is bullshit, by my reckoning. It does not add up. It's too long of a time.

The article gets so vehement that this is the reason that it's practically hanging off the chandeliers. Meanwhile, there is zero mention that this has been dragging on since the early spring of this year . And that the notion that refiners are "anxious to maintain regular flow of bullion to their large scale commercial (industrial metal consumer) clients, rather than divert that flow to the retail public" only highlights the strained, anxious sounding arguments Nader is putting forward regarding the silver bullion supply problems.

Think about it. Five months to resolve bottlenecks, while he states the supplies of very large scale bullion of the major exchanges is "copious and plentiful", and that the refiners are "dragging their feet" about diverting some of this "copious" availability into small retail forms of the metal for fear of angering or disappointing their large commercial consumer clients? If they are afraid of interrupting supply to their large commercial clients by diverting some to the retail area, how is it then possible that the supplies on the COMEX and other exchanges are so abundant?

We are supposed to believe that the "bottleneck" between the large commercial scale bullion stores, and the retail market, is progressing at the same inching pace of resolution in every disparate market worldwide? Would it not be more plausible that in some countries or areas, the links between refiners and retail market operated some faster and some slower, if the supply of bullion was genuinely abundant? Instead we see little or no variation. They are ALL bereft of ready retail supply, STILL, after 5 months of such reports.

Why are not retailers in India progressing to a resolution at a different pace from retailers in Europe, or retailers in North America? No. They all remain "stuck" in the same lack of inventory.

If you read the article there are lots of plausible sounding arguments, but if you pay close attention you can also pick up a little of the urgency behind the arguing. Nadler works for a bullion retailer. They have a regular sign posted on their site that they can't supply immediately. We look around and see the Kitco dillemma re-iterated in every large and mid-sized bullion dealer worldwide, and it's been the case, worldwide, for five months? At very least, that should awaken a trace of healthy skepticisim when you read these people talking about how "abundant" the bullion supply is on the exchanges. I think Nadler's line is hogwash, and I'm not a conspiracy minded guy at all.

Oh, and E-Bay and Craigslist are indeed very consistently arbitraging the spread, and have been ever since the price plunged. That is one of the few places where the silver seems to be coming to market! One last comment. I don't follow the guy much, but Greg McCoach is a bullion dealer as well as newsletter author in gold stocks. I read something of his this weekend where he's noting that availability on the COMEX and other large bullion exchanges is not good either. If McCoach is right, and he's got a better rep for independent reporting than Nadler, then Nadler is either being foolish, or disingenuous, or a bit of both. I don't trust Nadler, about as much as I distrust Mish.

Luke, you are suggesting that there is a shortage of gold and silver, aren't you?

If there is a shortage, and on the other hand retail purchasers are standing in line for metals, then shouldn't the price of somethings that are apparently scarce be going up, yet from where I read the web, that does not seem to be the case.

[Guest]

Re: The dollar, precious metals, and the 'other' invisible hand

Jim - It's a disconnect between "paper" bullion and actual bullion. What half this thread's posts have been about? Remember - Silver = roughly 100 times as much in paper silver claims as is available in readily deliverable silver. We are operating on Nadler's assumption - that this does not make any difference and the spot price is the "real market price", and that all recent events have been pure free market action. It may be, or it may not be "free market action", but even if it is, it is so only up to a point. There is a very large and distorted disparity between the paper claims and what's really "available". Meanwhile we have Nadler posting copious articles arguing energetically that there is no distortion in the market due to that large disparity between paper and real metal. Nadler works for a bullion dealer. Lots of discussion going on about that these days.

[Guest]

Re: The dollar, precious metals, and the 'other' invisible hand

Here is some additional input on this debate - this time from SEEKING ALPHA. (Whatever the bottom line - the truth appears indeed "complicated")

GOLD FUTURES DIRTY LITTLE SECRET (Part Two)

by: Nicholas Jones posted on: September 05, 2008 | about stocks: ABX / GLD
_____________

PART TWO

We ended the first part of this two part series with an unanswered question: Why has physical supply dried up now?

The answer to that question lies in the two vehicles that have made the gold carry trade possible. This is another issue that I’ve alluded to in prior issues of B&B, but I would again like to briefly explain this notion.

Gold Carry Trade

The gold carry trade takes two forms. The first is enacted by the central banks of the world. Essentially the banks use the futures market to pre-sell gold. This is a beautiful deal for the central banks when the price of gold is going down. Here’s why:

The process is almost overly simple. The banks short sell gold on the futures market. The short sales, being as large as they are, put downward pressure on the market. This makes the trade a self-fulfilling profit for the banks. Prior to the expiration of the futures contract, the banks buy back their short positions, but at a lower price, therefore profiting on the trade. Instead of ending there, the banks will then roll over the cash into fresh short positions. This is a process that went on for a very long time, and is only now beginning to come to a close.

The second form of the gold carry trade is undertaken by a few miners. The most pronounced of whom was Barrick Gold Corp. (ABX). Barrick was actually indicted on price manipulation charges. It appeared that Barrick was in bed with the federal government in this case of illegal price fixing.

Anyways, here’s how it worked. Barrick would pre-sell its gold on the futures market, in a process called hedging. This is not an uncommon practice by commodities producers. It simply reduces their risk-reward scenario. The problem with Barrick is that it was selling its gold below market value. Again this puts artificial supply on the market, but this time below fair market value, hence gold experiences downward pressure. You can take it to the bank that if the price wasn’t manipulated to the extent that Barrick would profit, it would receive Federal kick backs that went unnoticed.

Carry Traders Coming Up Short

So the central banks and some of its mining cohorts used sheer size and volume to move the markets down. The result of this is a market equilibrium based on the assumption that this artificial supply is real. On paper, as long as that supply is continually flipped over and not pulled from the market, the lower price equilibrium can be upheld. But for this process to work, it requires the continual deflation of the gold market otherwise the massive shorts would get burned, seizing up the artificial supply.

Once prices begin to rise, massive losses are in order. Let’s look at it from the carry trader’s scenario and put some hypothetical numbers to the trade. Say the central bank or miner sold short a large quantity of gold futures contracts at $800/oz. Time passes and the contract nears expiration. The problem is that gold is now trading at $900/oz.

At this point the carry trader has the option to either buy back its short at $900/oz or deliver the gold in the contracts. Now, each gold futures contract is worth 100 oz of gold. So the carry trader is looking at a loss of $10,000 per contract. Depending on the number of contracts sold short by the carry traders, the short covering will put massive upward pressure on the market. This would, in turn result in more carry traders covering their shorts. This is simply called a short covering rally.

Remember that the carry trade and massive short sales of gold resulted in an artificial supply to the market, and the market cannot determine between good and bad paper in the short run. As taught in Economics 101, an increase in supply results in a lower price equilibrium. Take that supply back out of the market, and prices shoot back up.

Special Golden Delivery

The other option for the carry traders is that they could ride out their shorts until contract expiration and make delivery on those contracts. For most entities, this would be impossible, but for miners and central bankers, this option is more than feasible.

Let’s look at the miners first. They can simply use their production to eliminate their hedge books and make delivery on their shorts. That is exactly what has been going on.

Online metal consultant Virtual Metals reported that in the past quarter alone, aggregate hedges by gold miners fell 15%. In fact, aggregate hedges are down 70% since the peak in the 3Q of 2001.

By the way, Barrick eliminated the majority of its massive hedge book (7.7 million oz) costing it $1.8 billion. It was the largest de-hedger, followed by Newmont Mining (NEM), just an interesting tidbit of information.

Moving on, in the case of the central banks, they also have the ability to make delivery on a massive scale. In fact, central bankers are responsible for the largest compilation of gold in the world. This is not as easy to find statistics on, given Ft. Knox and its peers haven’t actually been audited in ages.

Gold Futures Debunked

So you’re probably sitting there asking what in the hell am I getting at. I’m saying that a large portion of carry trade, which is artificial supply in the futures market, was delivered in physical market. This either made up for lack of supply or resulted in a supply glut in the cash market.

Eventually miner’s gold hedge books run out and central bank gold reserves dry up. In fact, according to Reuters, gold de-hedging is expected to be reduced by some 50% in 2008.

So the supply in the cash market has really been a short covering of the futures market for lack of a better word. Just look at what these markets are telling us. The cash market is telling me I can’t even buy gold because there is next to none for sale. The futures market is telling me that I can buy gold at just over $800/oz. Considering the current and expected monetary inflation, $800/oz is dirt cheap.

What do I expect? Well, I expect the futures market to freeze up just like the cash market already is. It is the ONLY possibility at this point. There are many of you who have read this far and are probably screaming at the computer that a freeze in the gold futures market is impossible.

Please don’t be so ignorant. First of all this was foreseeable, even if we didn’t have the manipulation of the gold market via the gold carry trade. The race to inflate has taken grip globally. While growth in fiat currency is seemingly infinite by today’s monetary policy, gold is very finite. For crying out loud, the cash market is already frozen. I dare you to try and buy a decent quantity from any dealer you can find, best of luck.

Otherwise, I would recommend re-reading both the first and second parts to this article. Understand the stipulations, email me your questions, and take financial actions.

Personally, while the gold carry traders are rolling over their now diminished shorts, I will be rolling over my long positions. I have and will continually use both the options and futures markets to grow capital. I promise you this:

when the futures market does freeze, I will have a sizeable long position on that which will have grown exponentially leading up to the fireworks, because when the market freezes, you will no longer be able to get long these markets. I wonder how regulators will handle that. Maybe they’ll take the speculators out and hang them.

Note: The author and publisher do not hold positions in the securities mentioned.

_____________

PART ONE

Cash markets and futures markets carry both similarities and differences. For example, both markets are a form of price discovery. Also, both markets are used by commercials and speculators alike. Given that, their differences are much more pronounced.

In a cash market, the physical product changes hands immediately. Both buyer and seller are looking for delivery of the commodity. This only happens in futures markets if you are left with an open position when the futures contract expires. In most cases, futures deliveries are intentional. If a market is more illiquid, unintentional deliveries are more common.

What I’m essentially getting at is in futures markets, the initial buyer or seller of a contract is very rarely the one who ends up with that contract on delivery date. In the meantime, the paper contract will change hands between large specs, small specs, commercials, etc., many times before it reaches its final destination. On the other hand, in the cash market, the initial exchange of goods is simply the extent of the deal.

I’m here to tell you that I’m actively involved in both markets, and the cash market and futures market are telling me two very different things.

Paper Discrepancy

In prior issues of Bourbon & Bayonets I’ve discussed my more recent dealings in the gold cash market. For those who missed it, here’s the brief recap. When I started buying physical gold in the early 2000s, I could easily receive overnight delivery. It was this way for many years, even as the price of gold multiplied.

Just over a month ago, I was on the phone with my dealer. He explained to me that it was going to be a three week delay on my bullion delivery. It turns out that the market for gold was drying up. Even the dealers were having trouble getting their hands on anything substantial.

Well, things have gotten even tighter in the physical markets. In fact, I called my dealer last week, and he simply told me that I was out of luck. He can’t get his hands on ANY gold. I’m saying that he couldn’t get me a U.S. Eagle, Toronto Maple Leaf, or South African Krugerrand.

What could cause such a freeze up of markets on such a massive scale?

Cash is Trash

My cash dealer explained a few things to me. He said it was a deadly combination of tightening supply and massive growth in demand. On the manufacturers' side, the plants that could get raw metals were working 24/7 and were still backlogged on orders.

While he was telling me this, stories like this one from Bloomberg started popping up:

Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.

This was particularly unfortunate, because the Krugerrand is my favorite of the 1 oz coins.

Here’s another article from CoinNews:

(Aug. 17, 2008) The Gold Anti-Trust Action Committee [GATA] reported Friday that the United States Mint has suspended sales of American Eagle gold coins to their network of Authorized Purchases.

So these issues that are in the cash market are beginning to leak their way into the crevasses of the media. Right now, you kind of have to do some digging and searching to find news on this sort of topic. I imagine that in a short time, this will be making headlines. Of course, it will be the speculators who are blamed.

Regardless, we still need to look into this a little deeper and find where the issues stem from and how this sort of market irregularity can exist. In doing so, we will also identify why the cash market is frozen and the futures market is still running…for now.

More Supply and Demand

The demand side of the picture is not something that requires a lot of brains to analyze. When the systematic destruction of the world’s reserve currency begins to show up in commodities prices including, copper, corn, oil, etc., people want to hedge their falling dollars with precious metals. Throw in some foreign central banks that are now net sellers of U.S. dollars and net buyers of precious metals, and you have a flood of new demand in the cash market, ranging from lack of sufficient mine production to lack of manufacturing infrastructure, and you get a tight market.

I noted the lock ups in curtain production and distribution facilities. The question now is why would distributors run out of supply now? Why would curtain producers now lose access to the raw minerals necessary to produce?
The answer to that question will require an in depth analysis on the disruption in the supply side of the futures market. My views on the supply side of the gold futures market are both controversial and revealing. It will not only helps us understand the freeze in cash markets, but it will also make clear to us how a cash market and futures market can be telling us two drastically different things. These questions will be answered in a “do not miss” issue of Bourbon & Bayonets later this week…stay tuned.

_____________

ABOUT THE AUTHOR:

Nicholas Jones has spent several years researching and preparing for the ripsaws in today's commodities markets. Through independent research on commodities markets and free-market macroeconomics, he brings a worldly understanding to all who participate in this particular financial climate.

Nick was educated at the University of Minnesota in economics, statistics and mathematics. He took his educational background to Wall Street, where he worked for some of the largest independent financial research firms in the business. He counseled readers on favorite micro-cap commodities plays along with a broad array of market analysis. With that comes Nick's ongoing demand for pure free market economics.

Nick currently works in the wheat futures pit at the Minneapolis Grain Exchange and brings his up close and personal experience with commodities markets exclusively to you.

Visit: Oxbury Research's "Bourbon & Bayonets"

Seeking Alpha original article link here:

http://seekingalpha.com/article/9411...source=d_email

[jk]

Re: The dollar, precious metals, and the 'other' invisible hand

Quote:

Originally Posted by jk my best theory is that there's a bottleneck in fabrication. the gold spot market is in good for delivery 400oz gold bars held in specific vaults. the retail market is coins and small bars. the coins etc are selling at higher and higher premia to spot because retail investors see the market quotes and decide now's the time to buy. so there's a shortage of fabricated small quantities.

but hasn't that always been the case?

i think the drop in pm prices has caused a big rush from folks who've been waiting for a pullback to buy physical. their concentrated demand cleaned out inventories, and the fabrication pipeline is too small to satisfy it. when gold [e.g.] crossed 800 on the way up, there was no jump in demand for physical. when it drops back to 800 from 1000, there are lots of buyers. but inventory was limited and the mints only punch so many coins per month. thus we get a jump in premia on physical.