So, is it just me?

[Sam]

Silver bullion coins and bars are selling on E-bay for about $20 an ounce. Kitco.com has stopped taking orders for most silver bullion products until they can get caught up on all the back orders. Silver and gold dealers everywhere are reporting very strong sales.

Why then is the spot price on COMEX under $9.70 an ounce? Cash settled option contracts (paper) are selling for under $10, physical metal at $20, if you can find it.

Is somebody getting another "government bail out package" while they cover their naked short positions with cheap silver? Oh, this is going to be fun! People who think they are smarter than everyone else are so entertaining when they get caught. "Really, I can explain everything...uh , er, we did it to save the economy...."

[AikiDale]

I'm no where near smart enough to understand our economy, much less global finances. I have noticed however everyone who wants to save me from something wants me to pay them for their service.

[Flexmoney]

Sam, I was wondering about you and this topic (metals) recently. I was going to type up a little something here, and thought I'd better do some research first. The first article that I pulled up mirrored what I was going to say...almost exactly. (so I didn't look further )

Silver isn't seen (by the market) as a precious metal. So, that really makes it no more the store of wealth and means of exchange than fiat money. It is now seen as a commodity, and trades as such. (unlike gold?)

As a commodity, what are it's uses? Is demand for those uses rising or falling (and how does the direction of the economy relate...business cycle)?

Supply?

I looked hard at lead buying this past year (physical possession). What I found was that supply/production was much more fragile than I would have ever thought. For example, the big lead mine south of St. Louis...they had choose to close one plant down (one that my father built the smoke stack for)...their other plant in the area was down, due to fire. So, production was at a halt there. At the same time, another major producer (Australia) was shut down...no shipping because the govt thought they were polluting the port.

To buy lead, I was looking at going to a foundry and buying tonnage.

Maybe that is what you are seeing in silver...a reflection of tonnage pricing (in the market). Where, the scarcity you mention might be in coinage...thus the inflated ebay pricing ?

[1911onr]

You can get a 1000 ounce silver bar from Northwest Territorial Mint for $10.39 an ounce. Silver Eagles will always have a big premium. I can't explain the $20/oz on e-bay.

[lmccrock]

Disclaimer - I am not a commodities trader.

The commodity exchange price for gasoline is about $1.69. Wish I could get it at that price, so think wholesale vs. retail. I think a silver contract on the exchange is 5000 troy ounces. The more you buy, the less per ounce to cover transaction fees, storage, transport, etc.

Ebay? Retail at the corner store? Looks like a spot shortage due to people moving cash to metals and the small dealers not being able to keep up. Supply and demand, so the price goes up.

Lee

[dajarrel]

.....Looks like a spot shortage due to people moving cash to metals and the small dealers not being able to keep up. Supply and demand, so the price goes up.

Lee

Might not be a bad time to unload some of that silver purchased for $8-$12. As prices come back down (when the market gets glutted again with it) buying back will again look attractive. It's a hard call if you are trying to hold metals against a poor economy.

and... I'm not a commodities trader either.

FWIW

dj

[Graham Smith]

Here is what my broker told me, there is a big difference between trading actual silver or gold and trading futures or ETF's. That didn't really answer my question, but just further emphasized that alot of this stuff is smoke and mirrors and that it's getting more like gambling every day.

Edited October 20, 2008 by Graham Smith

[raz-0]

There are all sorts of issues.

Coinage. Because of the run up in the futures markets, lots of mints said nope, just turn off the machinery until volatility settles down. Thus you ahve scarcity.

Then of course you have the empty room problem. Investment banks are supposed to have a certain ammount of metal assets on hand. Many do not. This means that if you try to collect, you wind up waiting. This keeps cheaper metal off the markets. The non-investment metal sellers are also sellign lots of inventory they don't have. Heck, some of them are probably still making good on $1100 an ounce gold orders.

Some of the investment banks are keeping their ratios of paper leases to assets in line not with assets, but with mining contracts. It would appear there is a certain degree of collusion between the banks and the mining contracts to keep the smallest units of sale quite large. This effectively adds middlemen to the price of small ingots and coinage. It also, at the same time reduces the number of middlemen who can fill that role.

Basically as far as I can tell, the markets for gold and silver have been manipulated to guarnatee the banks can optimize paying out paper gold so they are at a better than market advantage almost all the time while protecting their market for gold contracts by ensuring there is ready supply quantities from mining concerns for industrial use size orders, and guaranteed lag and maximized markup for small ingots and coinage.

That's about as far as I got figuring th mess out when trying to see if the Ron Paulites made any sense.

My conclusion is that the difference between a fiat currency, and a gold backed fiat currency is pretty much nil, and even with open gold markets, you can't stop banks effectively bloating supply by floating margin, just like with fiat money.

As an profit maker, the metals suck. As an inflation hedge, yo might be better off with TIPS (inflation protected securities). If the government folds, that gold lease won't do you much good, and likely decent barter goods would do you better than gold coinage. Ammunition, water filters, shelf stable seed perhaps?

[VegasOPM]

I doubt that their purcahses are enough to drought the market, but there are a fair number of folks that are buying silver and small denom gold coins in case of hyperinflation. Silver and gold have what is considered inherent value- due to scarcity, etc. The nice thing about coinage is that there is a known content and purity of the coin in question. If we get anywhere near hyperinflation (highly doubtful, but the Weimar Republic in Germany thought so too), fiat currency will change in value daily. The limited amount of silver and gold coins make them a more easily traded commodity for the common man.

Heck, I just sold a gun in exchange for gold coins. The gun in question was worth 1/2oz of gold to both me and the buyer- regardless of perceived monetary value.

[Sam]

Yep, I figured the folks here would have some great insights. Flex, I've been thinking about storing some lead too. Do you cast your own? I cast 5,000-10,000 pistol bullets every winter. It's the only time of the year that I don't mind slaving over a hot lead pot.

I just don't know what to make of this price disparity. I've been following bullion prices pretty closely since the late 1980's and the premium for coins over bullion "spot" is much wider now than at any time I can recall. With all the distortions in the economy right now, naturally I get suspicious that there might be treachery afoot. On the other hand, E-bay and the internet in general, are wonderful examples of the free market at work. It could just be that, due to inflation, minting costs are much higher than they were a couple of years ago. Paper or "e-silver" is much less labor intensive to produce.

I see money is a place to store my labor. So I think that if more money is printed, some of my labor is stolen. The reason I like things like lead, silver, gasoline, food, ect is that they cannot be created by fiat, only by work and investment. If they send us another "economic stimulus" check, I think it would be funny as heck if everybody ran out and bought real money with it.

I was a little concerned that I might have posted a topic that would go political and have to be shut down by the mods. Thanks to everyone for not going there! I will continue to monitor this interesting situation and report back if I learn anything new. As shooters, the price and availability of copper, brass, lead and even silver (werewolf bullets) are always going to be of economic interest to us.

[VegasOPM]

If they send us another "economic stimulus" check, I think it would be funny as heck if everybody ran out and bought real money with it.

The last one went straight to Silver for me.

[John Dunn]

treachery afoot.

I just read The Beekeeper's Apprentice by Laurie King (good read BTW), so I'm in Sherlock Holmes mode. Can one read the word "afoot" and not think Sherlock? I know I can't.

Sorry for the thread drift.

[tightloop]

remenber Bunker Hunt when he tried to corner the silver market?

[Nik Habicht]

On the other hand, E-bay and the internet in general, are wonderful examples of the free market at work. It could just be that, due to inflation, minting costs are much higher than they were a couple of years ago. Paper or "e-silver" is much less labor intensive to produce.

Just based on my experience of selling photo gear on e-bay --- e-bay is seriously inflated compared to the rest of the world. I could collect more money on e-bay than I could from any dealer --- and if I wasn't averse to gambling, I think I could earn money by buying select used gear at camera shows and then turning it on e-bay. (Probably not enough $ to make it worth my time or the risk, but I ponder the idea occasionally....)

[Mark K]

I have been "collecting" gold (bullion, bullion coins, collector gold coins and stock in GLD) for the last year or so. I have been researching a little on the current down trend in gold prices.

Much of what we see now seems to be contradictory because demand is high, but prices are dropping. A good portion of this is because many of the large Hedge Fund houses are being hit by investors wanting to cash out (we are talking 100's of Millions of dollars), and they are having to dump large quantities of their Gold holdings (both bullion and stocks like GLD).

There is also some corralation between the price of oil and gold.

Mark K

[bwit]

Yes, there is a correlation to a lot of these things:

Usually Stock market down and / or dollar down, metals [ silver, platinum, & Gold especially] up. Many of todays increases are marketing tricks. I note that many of our consumer goods over the years have been quite cheap and our retail prices based on the cost to produce but in the last 10 -15 years I see more and more companies getting considerable increases in their selling prices, [ gigging us severely ] because they can and they know we will pay for it. One example that comes to mind is Gillette razor blades, something most of us use. In the 80's I was buying a razor handle and the blade cartridge that fit it was about .25. Since then, they figured out they could charge us more and I've seen the price go up and up till it is where it is today. If you buy the latest Marketing trick they have today, I think it's five blades in one cartridge, you will pay close to $5 for each cartridge. I've overheard more than one guy in the store say 'Oh, my God!'or something similar and put the package back on the shelf. Can you imagine - $50. for a package of blades. There is so much markup in this country, the Rx companies in Canada, that sell us discount medicines also sell these same blades cheaper.

[raz-0]

I see money is a place to store my labor. So I think that if more money is printed, some of my labor is stolen. The reason I like things like lead, silver, gasoline, food, ect is that they cannot be created by fiat, only by work and investment.

When you have money on a gold standard, you create and destroy the value of gold by fiat because there is a government set exchange rate for gold to currency.

In the banking system, which is currently where gold receives it's value, you can create and destroy value by adjusting the fractional reserve of metal to sell gold leases.

As for actual metal, it can have artifical swings in value by manipulating inventory. (i found a very interesting study someone did as a paper that credibly came up with a value needed to manipulate the gold market. You'd only need about $7-9 million dollars circa 2007 gold prices of metal to actually tank the market short term.) Also keep in mind improved technology. Heck, if we make it to commercialization of space and mining of asteroids, one of the nearest big ones that is most likely to be the first target has roughly 20 billion tons of gold in it (and a whole mess of base metals too). That might shake the value of gold a wee bit. Heck, let some of the mining concerns have a godo strike. Lets see what that does to the metal prices.

All three markets are prone to wanton manipulation and natural turmoil.

Yes, there is a correlation to a lot of these things:

One example that comes to mind is Gillette razor blades, something most of us use. In the 80's I was buying a razor handle and the blade cartridge that fit it was about .25. Since then, they figured out they could charge us more and I've seen the price go up and up till it is where it is today. If you buy the latest Marketing trick they have today, I think it's five blades in one cartridge, you will pay close to $5 for each cartridge.

Well, inflation adjusted, your cartidges would be about $0.72 today. They probably only had one blade, and todays have more. So for the 3 blade designs, figure about $1.42. I managed to find the mach 3 cartridges for a bit under $2 a pop. Which makes sense as Gilette put a LOT of R&D into designing and finishing those suckers. IMO they actually worked, and you got something for your buck. The 5 bladed thing was pretty much just marketing, and IMO actually works worse than the previous iteration. More materials go into them, but mostly you are paying to recoup marketing costs for it.

[redmanfixit]

I remember Bunker Hunt. I thought it was the Hunt Bros. Trying to do that. They must have not had the right friends in high places, I recall they got ripped pretty hard for that. Maybe someone is gearing up for an invasion of Werewolves?

You REALLY have to watch buying anything on E-Bay anymore. Prices are way out of line and there is a culture of deceitful sellers that has evolved. The good deals are on Craig's List for now. That'll change eventually and it'll be somewhere else.

"Banking establishments are more dangerous than standing armies."

Thomas Jefferson