A New Pricing Structure in the Precious Metals

gold & silver sold outWe woke up this morning to a “new pricing structure” in the precious metals.  But what has been the response to our “new pricing structure”?  Dealers across the US have sold out of many Silver categories and the premiums have risen sharply.  The premiums have risen just as fast as the paper markets took the price down.  You will still pay very close to or higher than $30 at many shops for Silver Eagles and Maples, junk (if you can find it) is actually higher.  So did the price “go down” for those looking to buy and have it actually delivered? 

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Submitted By Bill Holter, Miles Franklin Ltd,:

We woke up this morning to a “new pricing structure” in the precious metals and people are wringing their hands.  The following article http://www.paulcraigroberts.org/2013/04/16/update-to-the-update-the-attack-on-gold-paul-craig-roberts/ by Paul Craig Roberts, (former assistant secretary to the Treasury) is a great read and covers broadly what has just happened in the paper markets.  He talks most importantly about “why” it was done.  We knew that a large draw-down of COMEX Gold inventories took place just a couple of weeks ago, trader Andrew Maguire asserts that this was the result of a developing default on London’s LBMA.  He gives the recent paper sell off as the “response”  to delivery requests.

But what has been the response to our “new pricing structure”?  Dealers across the US have sold out of many Silver categories and the premiums have risen sharply.  The premiums have risen just as fast as the paper markets took the price down.  You will still pay very close to or higher than $30 at many shops for Silver Eagles and Maples, junk (if you can find it) is actually higher.  So did the price “go down” for those looking to buy and have it actually delivered?  Not really and certainly not much if you were able to find it.  Premiums on Gold have also risen but nearly enough to offset the drops in paper prices as Gold (above ground stockpiles) were surely pilfered to provide product.  I have always maintained that “Silver” was the Achilles heel and would be the cause of any sort of default and it looks like Silver is surely a much tighter market and “just in time inventories” are not keeping up with demand.
We know already that these lower prices are bringing forth huge new demand from India as their imports have exploded.  One can only wonder how much Gold has been contracted for and purchased by the Chinese and Russians since last Thursday.  While paper prices can (and have) be manipulated, the physical market is ruled by Mother Nature and her laws have been followed to a tee in the physical market.  Lower prices mean more demand and actual supply diminishing.  Here in the US, it did not take even one full day before a mad rush for physical took place, now we sit back and watch.  We will watch to see how far and how much more demand will come AND whether or not inventories can catch up and be replenished.  I maintain that any significantly lower prices than Monday’s lows will create a default as demand for delivery will explode higher.  This would be Mother Nature taking on the paper charade.  The May month for COMEX Silver delivery may be a doozy!
What we have seen so far is that lower prices have resulted in massive ACTUAL buying, this is proof positive that the decline was not natural.  It was “caused” by the paper markets and the reaction to false pricing which is as you would expect.  The physical market is what you need to watch, it is a true barometer that cannot be hidden though those running the show must surely wish it could!
As a side note, Rio Tinto has in fact declared  “force majeure”  regarding its copper production because of last weekend’s massive landslide.  Their Silver production will surely be affected negatively also.  This will tighten the market even further as a mine is nothing like a “spigot” that you can turn on and off.  Regards,  Bill H.