25-9-2010 Gold & Guns !

GOLD & GUNS

Supply Squeeze of Physical Gold and Silver May Be Heating Up

By Patrick A. Heller on September 24th, 2010
Categories: Featured Articles, Gold and Silver Commentary, Precious Metals

Within the past 48 hours, as gold and silver have broken to new highs (ignoring inflation), there are some indications that demand for physical precious metals may be on the rise.
My company does not deal with the customers who make purchases of tens to hundreds of millions of dollars at a time. Such buyers normally deal direct with the major brokers in London or New York. Instead, our median purchaser of gold and silver bullion-priced products probably spends less than $5,000 per transaction. We do have a number of customers who regularly spend five or six figures and the occasional seven figure deal, but my company’s total volume is unimportant when compared to total global precious metals trading.
Still, we are in constant communication with several primary distributors of products for the US Mint and other world mints that issue bullion products. We also keep in touch with a number of other wholesalers across the country. If there is a change in product availability or price level, we learn about it quickly.
Today my company enjoyed one of its five highest retail sales days of the past 30 years. As we were contacting wholesalers to replenish our inventories, we picked up what may be significant indicators that a supply squeeze of physical gold and silver could be heating up.
Three different wholesalers who are primary distributors for the US Mint told us that they have experienced a sharp increase in demand for physical silver coins and ingots in the past 48 hours.
When we tried to purchase a quantity of South Africa 1 Ounce Gold Krugerrands, we were also in for a shock. Yesterday, these coins were available pretty much everywhere, with wholesalers competing to sharpen their pencils to shave their ask price. Today, two of the wholesalers were completely out of Krugerrands for live delivery. Our cost to purchase these coins increased almost 0.5% more above the gold value than they did just the day before!
One more indicator of a potential supply squeeze is the “spot” price quoted by wholesalers. For protection in volatile markets, wholesalers often use two different spot prices, depending on whether they are buying or selling. For our last large silver order today, the distributor used an ask silver spot price that was eight cents higher than its bid spot price. Previously this company had used the same spot price for both buying and selling or had a maximum spread of just four cents for silver.
Our suddenly zooming retail demand and reports that this may be happening across the country, if it continues for a few more days, could spark another buying frenzy such as we experienced in late 2008. Two years ago, availability was so tight that it was not unusual for customers to have to wait at least a month after making payment to receive their merchandise. In 2008, premiums soared for just about any live physical gold and silver. At the peak, bags of US 90% Silver Coins were selling retail for about 40% above their intrinsic metal value!
Along with my expectations of higher gold and silver prices, I have also predicted that supplies of physical metals would dry up. This may be now occurring. However, we cannot be sure until we see the pattern continue for another couple of days. Should this pattern continue through next Tuesday afternoon, I would recommend not waiting any longer to establish your position in precious metals. To be extra safe, you may now want to wait even that long.

Patrick HellerPatrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at Pat Heller is also the gold market commentator for Numismatic News. Past columns online at under “News & Articles”. His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at .

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