the disconnect, page-3

Good article Dip, ta.

There already is a real disconnect between paper price and real price for gold.

The current 'price for gold' is about US$800/oz.

The U.S. Mint DOES have 1 oz Golden Eagles, and these are uncirculated/bullion coins, NOT collectors' coins, for sale at -

US$1,119.95/oz

The opening of the Urban Survival newsletter today is relevant. It's available at - http://www.urbansurvival.com/week.htm but for ease is copied here -

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Metals Markets Splitting?

Gold and silver are up a little bit today, but not enough to explain some reader reports. Readers have been sending in all kinds of notes about the "odd behavior" of the precious metals. Here's one..

"George,

Unexpected consequences?

It's very interesting to witness supply-demand dueling with market price in the metals complex. Friday, I decided enough was enough, and went to the local dealer, intending to buy some bullion. Where in past I'd buy silver bars, now, I generally buy rounds, thinking it'd be easier to exchange for value when the spam hits the air-circulation device.

As I walked in the door, the fella was literally pulling boxes of silver out of his display cases. The place was otherwise pretty empty. We made some small talk about how clever he must have been to reduce stock at the recent high. Later it came out he, and other dealers in his network, just weren't going to sell at the depressed levels!

I have been trying to buy 2008 silver eagles (for gifts) since spot was at $18. He, the dealer, further explained if someone wanted to buy so the dealer was "right side up" trades might happen, otherwise no. I reminded about wanting the eagles for gifts, and would pay what was needed to get them. No joy.

Out of curiosity I checked eBay, same-same, no eagles. Non numismatics are also being pulled. When I saw the red announcement on Kitco the scene cleared. No one is selling. Sure, Kitco needs to keep taking orders, but metals dealers, like a gas station owner who filled tanks when oil was 147, won't sell at prices that lose money.

So, what's an ounce of silver worth? Is it $12? $13? Or, is it whatever it takes to get someone to sell? Might metals markets freeze up like credit markets? In past I'd have said no. Right now, evidence says yes.

What do you make of it ... and might this apply equally to other commodities?

A click over to the Kitco website this morning brings up this curious note at the top of their page:"

IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay. Consequently once inventory is received there may also be delays in processing and shipping by our vaults. "


But wait! How can this all be?



Here's what I think is going on.



You know those gold and silver ETF's? What if - and this is only an if - they really don't have all the hard physical assets that their pieces of paper might attest to? What if they just have some actual physical and the rest is paper promising future deliveries? And further supposed this market is hedged six ways to Sunday.



Would that account for a momentary distortion where supply is heading toward unavailable and yet at the same time, price has also be collapsing? This flies right in the fact of economic reality. Something is truly amiss here.



And then there's the report last week that the US Mint was suspending sales of Gold American Eagles.



Now here's the curious thing: I went to the US Mint site this morning and wanted to see if they would sell a one ounce Gold Eagle. Yup, they will. But the price for an uncirculated 2008 Gold Eagle is not anywhere near spot ($790). They are asking $1,119.95 for a one ounce coin.



A few other savvy financial writers are onto this - and I would draw your attention to Jason Hommel's piece posted over at Gold Eagle titled "Why Paper Silver is not as good as Physical Silver" as a fine example.



My "best guess" is that we are seeing a bifurcated market develop where on the one hand we're seeing a physical market develop and the almost separate paper market for silver & gold related instruments. The predictive linguistics team doesn't think it will pop for a while yet, but what happens when the public realizes that the gold and silver ETF's are shown to be paper-trading exercises and not backed by physical? And investors figure that what they thought was actually backed by physical is just another paper abstraction and like so many others, is being hedged/disconnected from reality of the marketplace?

George Ure.

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dub

Got any real gold and/or silver yet?