06 October 2008

FUD Update

In the FUD blog of 31 August, I suggested two scenarios. I was leaning more towards scenario 2, which was that Mints/Refineries would gear up in “a few months” (fact is industry bar production in sizable quantity is not like turning on a tap) and meet retail demand.

With the credit crisis becoming hot topic since then, scenario 1 (retail market going nuts) is happening quicker than I expected. Manufacturers will respond to this, but it will take time. But, if the retail shortage continues and starts to register on the general public's mind, combined with uncertainty about banks and holding cash, the fact is that after years of poor gold prices in the 1990s, as a whole the industry does not have the capacity to meet the sort of volumes that would from mass market/general public interest in coins and bars. Premiums above spot (and spot means, by definition, the price for wholesale 1000 oz silver and 400 oz gold bar) will increase dramatically as a result. Scenario 1b then becomes a possibility.

See this SilverAxis blog for some comment on the retail market situation.

I would also recommend this other blog from SilverAxis on the US Monetary Base.

4 comments:

Anonymous said...

Bron,
As a matter of interest I had a look at eBay activity (yes, I know this has nothing to do the the OTC market, but may shed some light on the retail end). I have two identical searches for gold and silver bullion bars, and coins. Usually these searches yield around 50-75 hits for gold, and 30-60 hits for silver. Recently the hits for gold have gone to 1000+, while silver has remained around 20 - 35 hits. Both the gold and silver are maintaining a very sticky premium above spot. Gold on offer mainly consists an increased proportion of collectable coins, while silver still consists of a the same high proportion of bullion bars.
I know this is a tenuous comparison at best, and I'm not about to make it my life's work to collect and analyse these data on a regular basis - just thought it was interesting.
A possible interpretation is that the gold sales represent motivated selling by people under financial stress, while silver is not so generally held in the population, and perhaps silver just simply won't appear on the market despite the premium to spot (price is still too low). fwiw.

I noticed that Perth Mint now has three shifts working to supply product. Does that make it a 24 hour operation ? Make hay while the sun shines eh ?

Of your scenarios, I would pick scenario 3 : people attempting to escape the financial disaster zone, which leads to scenario 1.

Cheers,
Keith

Bron said...

Out of interest, I had a look at our shop's monthly sales and buybacks over the past few years.

Both buying and selling spikes with the price for both metals, but during 2007 and into 2008 silver selling back has clearly dropped relative to purchases, but gold selling back has continued.

This may reflect a very united bullish view by silver holders. Alternatively it could just be the market saying that the shop's buyback prices are crap (ie they buy from Perth Mint, sell back to someone else). Hard to make any firm conclusions in this business.

Anonymous said...

Bron,

I was reading some press clippings today and came across yet another article mentioning Perth Mint.
I think it was a Darwin newspaper interviewing a local dealer up there. He was quoted as having sold out of bullion due to sudden demand. The article went on to mention that Perth Mint was experiencing huge uplift in delivery of bullion. If you can spare the time, and its not sensitive info, could you let us know what sort of delivery rates you are achieving compared to last year ?
Cheers,
Keith

Bron said...

Keith,

Demand has certainly increased to a new level in the past month, across all products (and yes that includes unallocated in Depository, even after Jason Hommel's quality investigative journalism).

Having said that, it is not massively up on the volumes experienced when the price broke $700, but may a bit more mum & dad type. A bit more urgency though this time - fear seems to be more of a factor in driving the decision to buy gold & silver than in the past.