Welcome to this week’s market wrap podcast, I’m Mike Gleason.
This week, tensions between the United States and Russia flared up again. The Russian military announced it would be sending long-range bombers on regular patrols into the Gulf of Mexico. Meanwhile, Russian President Vladimir Putin continues to forge tighter political and economic relations with China in response to sanctions imposed by the U.S.
The sanctions have contributed to a precipitous decline in the Russian ruble. But the Russians are busily refortifying their currency with gold. The Russian Central Bank purchased 55 metric tons of gold in the third quarter. That’s twice the amount purchased by the next largest buyer, according to the World Gold Council.
Russia and other large buyers are taking advantage of low gold prices. And this week gold prices got a little lower. As of Thursday’s close, the gold market fell another 1.3% for the week to $1,163 an ounce. However, gold is still holding above the lows it put in last Wednesday at $1,140.
Turning to silver, it’s showing a similar pattern to the yellow metal – down for the week but holding above the lows seen earlier last week. Silver prices closed Thursday at $15.69 per ounce, off just about 1% since last Friday’s close.
At current silver prices, primary silver mines can’t make it. Metals analyst Steve St. Angelo, who was recently a featured guest on this program, reported on just how dire the situation is. He wrote on his SRSrocco Report Wednesday that 7 of the 12 primary silver miners he follows had an estimated break-even cost of $18.50 per ounce in the third quarter. That means they are losing $3.00 for every ounce they mine and sell at current market prices.
Platinum and palladium producers are starting to feel the pinch as well. Platinum prices dipped toward fresh five-year lows this week to close Thursday at an even $1,200 an ounce. Palladium prices have fared much better over the past five years. In fact, they’ve more than doubled. But they’ve taken a hit this fall. After closing above $900 an ounce in late August, palladium now trades at $770 as of this Thursday evening recording.
Some see falling metals and commodity prices as a sign of a coming deflation. But deflationists don’t seem to understand how central bankers operate. One man who does is former Federal Reserve chairman Alan Greenspan. He recently cautioned that the economy faces “turmoil” and the prospect of higher inflation due to the Fed’s stimulative monetary policies. Greenspan also unequivocally called gold a good investment.
News Reporter: Do you think that gold is currently a good investment given what you're saying about the potential for turmoil?
Alan Greenspan: Yes.
News Reporter: (laughing at Greenspan’s short and to-the-point answer)
Alan Greenspan: Economist are usually perfect in equivocating. In this case, I didn't equivocate. Remember what we're looking at. Gold is a currency. It is still by all evidences the premier currency where no fiat currency including the dollar can match it. The issue is if you're looking at question of turmoil, you will find as we always have in the past, it moves into the gold price.
Intrinsic currencies like gold and silver, for example, are acceptable about a third party guarantee.
Well, it’s interesting to hear the former Fed chairman acknowledge silver as a form of money without counterparty risk. Some say that silver is no longer a currency because governments no longer use it in coinage and central banks don’t hold in their reserves. But silver was, is, and will be the hard money of the everyman. Silver coins are what people will be bartering with if they can’t use or no longer trust the U.S. dollar.
Silver prices have been hammered so low relative to gold and relative to mining costs that savvy individual investors are rushing to get their hands on silver in physical form. Last week the U.S. Mint sold out of Silver Eagles. It now says it will be able to fulfill demand for 2014 American Silver Eagles by next Monday, November 17th.
Given the huge demand and the fact that there was very little margin to spare to begin with, the near two week embargo on sales of Eagles by the Mint has resulted in a cascading effect on silver supply throughout the retail bullion market. The private mints, who supply the industry with bullion rounds and bars, have been overwhelmed by demand and are all having a hard time producing enough to keep up with customer demand. The increased premiums and scarce supply of Silver Eagles has driven even more investors into the now even more affordable rounds, causing production bottlenecks and longer than normal delays on new orders at private mints as well.
Here at Money Metals Exchange, we continue to sell Silver Eagles with no delivery delay because of our deep inventory. But the better deals in silver are still bars and rounds, which can be purchased for as much as 10% less than Silver Eagles, a gap that continues to widen. However, given the issues described a moment ago on the private mint side, don’t be surprised to premiums rise on rounds and bars as well.
Whatever form of silver bullion you buy, it certainly appears to be a time to strongly favor silver for new purchases or even do a swap of gold for silver.
The silver to gold ratio plunged last week to its lowest level since 2009. The silver price got down to 1/75th the gold price. Expressed inversely, the gold to silver ratio rose to 75 to 1.
Back in spring 2011, we suggested an opportunity to switch out of silver and into gold (or favor gold over silver for new purchases) after silver had gained dramatically against gold and the gold to silver ratio fell into the low 30s. Today, an opportunity exists to switch gold for silver. And all customers that do such a transaction with Money Metals Exchange will receive free shipping on their silver.
Silver prices have the potential to close the gap with gold even more than they did in 2011. There is plenty of historical precedent (and good fundamental reasons based on current supply ratios) to suggest the gold to silver price ratio can narrow to 20 to 1 or perhaps even 10 to 1 during the next great silver upcycle. But even a return to the 2011 ratio low point of 33 to 1 would result in a 56% reduction from the current ratio in silver’s favor. If you’re interested in swapping some gold for silver just give one of our precious metals Specialists a call at 1-800-800-1865 for details on how to take advantage of what will likely be a great opportunity to trade the ratio.
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 depreciating dollar…with speed, with accuracy and with top notch service. Have a great weekend everybody.
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.