13 October 2008

James Turk says there is no shortage ...

... of wholesale precious metals, that is. In this GATA dispatch, James Turk says "So far the London and Zurich markets continue to operate without problems, but I sense some strains are developing" and "we are giving retail investors the opportunity to buy alongside big institutional firms operating in these markets and to gain the advantages of these markets -- deep liquidity and transparent pricing"

This is what I have been trying to say all along - physical metal in the wholesale markets is not in shortage, it is the conversion of that metal into retail coins and bars that is causing a shortage of retail product, pushing up their prices.

He goes on to note that his clients "are purchasing metal based on the spot price in London and Zurich for both gold and silver. Thus they are able to buy metal without the huge premiums now being charged on eBay, for example, for fabricated product like coins and small bars"

The unfortunate thing for precious metals is that because people don't trust Mr Turk's system or ones like it, they are "wasting", in a way, their purchasing power on premiums instead of on the metal itself. If the spot price for bulk silver is $10 p/oz but is $14 p/oz for retail silver, then those who spend their $14 on a GoldMoney type system create demand for 1.4 oz whereas those buying retail forms only create demand for 1.0 oz.

Could it be that the reason the silver price (or gold) is not as high as some would like is because all this demand to spend fiat dollars is not being fully channelled into silver but partly spent on premiums instead?

I am a strong advocate of holding physical metal, but once you have a reasonable stash if you want to make an impact on the price maybe continuing to pay incredible premiums may not be the way to go. Of course it does come down to trust in these systems, so I understand why people may not want to buy stored metal. However I can't help but think that a lot of dollar buying power is ending up as profit in the hands of coin dealers instead of into silver and gold itself.


  1. This makes perfect sense. But if this is true, the sellers of gold bullion are just as greedy as HankyPankyPaulson! What do I mean?

    I just tried to order 100 one-ounce gold coins (3 palace) and was told I need to wait approximately 6 to 8 weeks for delivery (of which 3 days is "in the mail" delay).

    But that's not all - the premium is ALSO obscene.

    So, the long delay is consistent with the idea "there is not sufficient gold-coin minting capacity", but then what are they charging us far more markup to provide us crappy service?

    Or ask it this way: if their volume of sales is through the roof, they are making lots more money on volume alone, and certainly don't need more markup!

    So what is this? Add insult to injury? Are the bullion dealers starting to act like the HankyPankyPaulsons of the world?

    How do you explain this?

  2. You are absolutely correct in respect of newly made stuff. The cost of making the coins/bars has not changed. All the "extra" premium is just going into the pockets of the sellers.

    Now whether it is the manufacturer, or the distributor, or the end dealer depends on the relative power of each. I suspect that it is more towards the coin dealer and distributor.

    In the case of people selling stuff back (if that is happening) to dealers or on ebay, then it is the seller getting all the extra premium in most cases.