Low Futures Market Triggers Run on Physical Metal

Many silver products are not currently available as gold gets tight...

Mike Gleason Mike Gleason
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April 19th, 2013 Comments

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Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.

Mike Gleason:

Welcome to this week's market wrap podcast, I'm Mike Gleason.

Stay tuned at the end of this market wrap where I'll give important updates on the ever changing product availability situation in the physical bullion market, but first, what a week it's been! In last week's podcast, I noted that precious metals were entering make or break territory, with a big directional move imminent.

We got the big directional move, and it ended up being to the downside.

Last Friday and this Monday, gold and silver experienced their worst two-day tumble since 1983. Gold gave up more than 13%.

Everyone in the precious metals community was taken aback by the severity and speed of the move. It took place in the highly leveraged futures markets where concentrated positions can be put on by big players to trigger sell stops among all the trading funds. Like a chain reaction, selling triggers more selling, which triggers more selling down the line.

What took place was an extraordinary amount of forced technical selling on the futures exchanges. We can't stress enough that this is not coming from the physical market. In fact, the exact opposite is happening in the retail market for bullion products. We are seeing a absolute buying frenzy!

Money Metals Exchange and other dealers across the country are working overtime to try to keep up with demand, but frankly, most silver products are just not available right now.

Sales of Silver Eagles nationally are on pace to break records – I'll touch on those a little bit more later in the podcast. Meanwhile, nationwide sales of Gold Eagles for the month of April have already set a record for the most ever for any April, more than 10 times what was sold last year during April – and we're barely more than half way through the month!

The lower prices go, the stronger the fundamentals get. Low prices stimulate more physical demand. Yes, engineered selling spikes of the sort that transpired recently on the Comex flush out a lot of hedge funds, ETF holders, and other players in the derivative markets. But buyers of physical bullion products are a different breed. They are long-term holders who are encouraged by lower prices to buy more.

At the same time, low prices discourage supply growth. Current prices of $23.50 an ounce for silver and $1,406 for gold, as we're recording this podcast on Friday morning, are below the costs of production for many mines. They aren't going to mine at losses for very long. Many mining companies will shut down operations indefinitely or go under entirely. The ones that can make it will still avoid taking on new marginal projects if prices stay at these levels. Old forecasts of rising mining output that assumed $1,800 gold and $40 silver will prove to be overly optimistic. So the bottom line is that low prices means less supply. And less supply and stronger demand is a recipe for higher prices.

So you see, the fundamental case for owning precious metals is only made stronger by this take down. Nothing has changed on the monetary front. Respected analyst James Grant told Bloomberg this week that he likens the precious metals price plunge to the 1987 stock market crash – a freak event within a bull market, not the end of the bull market.

We realize it can be difficult to stay the course at times like these, when markets appear to become completely unhinged. Many of our customers are elated at the opportunity to back up the truck and stack more silver at these deeply discounted prices. While others are understandably scared by the extreme volatility and concerned that prices may never recover. Prices will recover and then some. But it will it take time and require patience.

Holders of physical products that now command high scarcity premiums, such as pre-1965 90% silver coins, can take solace in the fact that they own something real – something that can decouple from the paper spot price, at least to some extent. Futures contracts, pool accounts, and ETFs don't give you that opportunity and more importantly, don't provide the security of physical ownership. If investors seeking precious metals exposure insisted on owning physical products only, the paper market schemes that produce artificial prices and wild price movements would fail.

As for product availability and premiums, we have lots to report on that front. First, in terms of the most popular one-ounce silver products, we're currently not taking orders for either Silver Eagles or Silver Maple Leafs, and quite honestly most dealers who will sell them right now are simply doing so on a hope and a prayer that they'll be able to get them at some future date. And many are selling them at premiums they should be ashamed of.

Money Metals Exchange has a practice of never selling anything we don't either have sitting in our vaults or have coming in on order, and we simply won't take orders for Silver Eagles or Maple Leafs again until we have the utmost confidence in our ability to deliver them to our customers. We'll certainly keep you posted, and hopefully things will loosen up next week, but for now that's the deal.

Well as you would expect, with the fact that we aren't taking new orders for Eagles or Maples we had a rash of sales for the privately-minted silver rounds earlier in the week, which meant we have back-logged our mint. So for the time being, while they get caught up, we've ceased taking orders for those silver rounds as well. The raw silver grain used for minting is still available, but at this point we're dealing with big delivery delays due to production bottlenecks. We expect to resume sales of rounds sometime next week.

What we are able to sell in silver, at least at the moment, are the 1-oz Silver Philharmonics from Austria. Now these coins often play second fiddle to their North American cousins, but for now you can get them for a song. So those wanting the 1-ounce form, the Philharmonics are all we have right now, and again, that may change quickly once that limited supply runs out.

We do have a good supply of 100-oz silver bars, and a small amount of 90% junk silver coins for sale. Now all silver does have a lead-time though, and as of yesterday, that now goes for gold products too.

Be sure to check back with us regularly for up to the minute pricing and availability, either by calling 1-800-800-1865, or visiting our website at www.MoneyMetals.com. However, please note that due to extreme volatility we aren't able to list or sell all the products on our newly designed e-commerce website, so calling us might be your best bet to get the latest info on available silver products.

Well, that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar... with speed, with accuracy, and with top notch service. Have a great weekend everybody.


Thank you for joining us for this edition of the Money Metals Exchange Weekly Market Wrap. Be sure to come back next week, and don't forget to subscribe to our weekly podcast through iTunes. For answers to all of your questions, or to discretely and securely buy or sell gold or silver coins, bars, and rounds, call 1-800-800-1865. Our knowledgeable and no-pressure specialists are standing by between 7:00 a.m. and 5:30 p.m. mountain time, Monday through Friday. Visit us at www.MoneyMetals.com or call 1-800-800-1865.

Mike Gleason

About the Author:

Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.