Found this article on Coinflation. Found it very interesting.....
Lower Metals Prices a Gift
By Patrick A. Heller
December 20, 2011
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This article was originally printed in Numismatic News.
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For the year 2011, I had forecast that the prices of gold and silver would rise by a higher percentage than they did in 2010.
Last week, the price of gold dropped almost 7 percent and silver fell 8 percent. As I write this on the afternoon of Monday, Dec. 19, gold is only up about 12 percent for the year while silver is well below where it ended 2010.
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It does not look like either has any prospect of achieving the lofty forecasts I made at the beginning of this year.
With all the horrible financial news around the world, why would gold and silver fall last week? There is no single reason for the declines. I am still confident that both metals will far exceed my end of 2011 projections (gold above $1,820 and silver over $55), though it may take as long as the end of May 2012 to reach those levels.
The financial problems in Europe, the U.S. and elsewhere are now deteriorating day by day and almost hour by hour. To me, it looks like the prospect for a major financial catastrophe will not be long in coming. It is entirely possible that one huge problem could lead to a domino chain of cascading collapses and failures, with the resulting collapse of paper currencies galore.
Investors afraid of this scenario are fleeing their local currencies. Many Europeans are turning toward the U.S. dollar as a safe haven. Demand for U.S. dollars has become so strong that banks are being forced to pay above face value to acquire dollars for their customers. There are multiple rumors that European banks have even been forced to part with a more secure asset in order to get dollars – their gold reserves.
There are other indicators that large amounts of paper gold and silver are being sold onto the market. About Dec. 8, interest rates for all gold leases up to one year in length turned negative. That’s right; those borrowing the gold would not only pay no interest but would actually be paid a fee by the lender. As of Dec. 19, all gold leases under one year in length were still negative.
Silver leases mostly turned negative on Dec. 8 and are still at very low levels today. The primary reason that lease rates would turn negative is that “someone” is trying to force down the prices of gold and silver. Otherwise such leases make no economic sense. Why take the risk that someone borrowing the metal will be unable to pay it back, especially when you have to pay the debtor a fee to entice them into taking the metal? I suppose that it is possible that European banks could be so desperate to get their hands on U.S. dollars that they would be willing to overpay by leasing gold on such favorable terms. But I suspect that the U.S. government was applying pressure to liquidate some gold reserves.
There are more indicators of extra paper precious metals being dumped on the market. When a gold or silver exchange traded fund sells shares, the public impression is that these funds are simultaneously buying enough physical gold or silver to cover all of the outstanding shares. That is not necessarily true, as you would learn if you would carefully read the prospectus of each fund. Silver researcher Ted Butler is convinced that the largest silver exchange traded fund (SLV) was short by 13 million ounces of physical silver at the beginning of 2011 and has now reached an all-time record short position of 37 million ounces of silver. An expansion of the short position of an ETF creates the appearance of a larger quantity of physical metal on the market than is actually true.
So, as prices of gold and silver fell over the past week or two, it was almost blatantly obvious that “someone” was taking actions for suppress prices. My expectation is that this “someone” is the U.S. government.
The U.S. government is the entity that stands to benefit the most from manipulating gold and silver prices. In fact, the price of gold is considered to be a report card on the U.S. government, economy and the dollar. To the extent that prices are rising, that would normally result in the U.S. government having to pay higher interest rates to offset the impact of the falling value of the U.S. dollar.
The long-term trend for both gold and silver is to achieve far higher prices than they are now. No level of manipulation and suppression can overcome the long-term primary trend. However, in the shorter-term, which can last for many years, price suppression can succeed.
I had been waiting for one last major downward push for gold and silver prices before some financial catastrophe sparked a major price jump. As the price of silver dropped below $29 last week, I made a major purchase for my personal account.
I was not alone in taking advantage of the bargains. Buyers thronged to purchase physical gold and silver, cleaning out many companies of inventory available for immediate delivery. At my own companies, demand was heavily skewed toward silver. By the end of last week, most physical silver and some gold products were only available on a slightly delayed basis. Some premiums started to rise.
In my judgment, these lower prices are temporary. Think of them as being a Christmas gift for buyers of physical gold and silver, courtesy of the U.S. government. It may take until sometime in early 2012 for this bargain opportunity to disappear. However, realizing that prices should shoot up unexpectedly at any time, I recommend making your acquisitions sooner than later.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles 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 CoinUpdate (
http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for The Greater Lansing Business Monthly (
http://www.lansingbusinessmonthly.com/a ... nt-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 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).
Sort on Mongo
Posted: Thu Dec 15, 2011 3:28 pm
