2008-11-03

Gold vs Gold (Paper vs Physical) pt4

This is yet another update of the Gold vs Gold (Paper vs Physical) series, which I started in September and you can read the previous posts here:
  1. Gold vs Gold (Paper vs Physical) pt1 2008-09-12
  2. Gold vs Gold (Paper vs Physical) pt2 2008-10-10
  3. Gold vs Gold (Paper vs Physical) pt3 2008-10-15
The price of Gold in USD terms keeps on declining, but it is about stable in other currencies. It is important to understand that. The second point worth understanding, is that during this mega forced liquidation, the prices of all assets have collapsed by about 40% to 60%, and sometimes up to 80%. Yet, gold, in USD terms, is down only about 25 to 30%, which is quite a good performance.

So I mentioned already that many bullion merchants were running out of stocks and that major retailers such as Kitco where not taking any new orders until they resolve their back-log issues. That was many weeks ago. What is current status now?

Well, Kitco is still not selling anything but 400 oz bars! It has been 2 months that they are almost not taking any orders! This is more than suspicious, and I do not understand how they can still be in business! Just to make sure, I called them and asked to place an order, but they told me that they cannot take any orders right now. So this is real.

I also decided to call some other merchant bullions. One who I was in touch with a few weeks ago. So what is their status update? "28/10: Coins still unavailable, bars can be ordered but there may be delays of 2-3 weeks for Gold bars and up to 4 weeks for Pt and Pd bars."

And I called yet another one that I hadn't called before and asked for Platinum and Gold coins. Same answer: They don't have any, and they don't know when they are going to get any stock!

The conclusion is that the current paper prices do not reflect the real demand for physical gold but mainly reflect the Great Unwind we have been talking about for the past few weeks. On top of that, it appears that this artificially low prices do not benefit to the retail customers, who are unable to buy the products they want, and they actually hurt the bullion merchants, since they are either unable to take orders or that they have delays of up to several weeks.

All in all, I still think that gold can go down to 600-650$ but I am still buying little bit by little bit. The main driver is that governments and central banks have totally given up their pseudo-inflation fighting and are debasing the currencies as fast as they can to bail out all the debtors of the world. This means that the few savers who did not participate in this credit-orgy are going to get punished instead of being rewarded....

And finally, since it's so hard to take delivery of the physical, I use the Lyxor GBS ETF proxy and you can also use the GLD ETF. The main reason I do not use GLD is that I do not want my gold to be held in the US soil. But the main danger of Lyxor GBS is that their bullions are held in an uninsured vault (by HSBC).

2 comments:

joe327 said...

PEJ - Did you talk to these guys regarding purchasing gold?
http://apmex.com/

pej said...

I have checked with these guys as well, yes. I have seen two issues:
1- Prices about 15% about the spot, which means this is an enormous spread.
2- They won't ship abroad, which for some might not be an issue, but to me it is, since I am based in the US and that even if I was, I wouldn't keep my gold there, where it can be confiscated by the gov.