Gold spot thoughts??

Arguments based on history have an inherent flaw - "past results are no guarantee of future outcomes". Or put another way, "that was then, this is now". It's the same reason I see technical analysis as bogus. All this made up geometry like "declining flag shaped boundary". Yuck. The only reason ANY of it EVER works is the self-fulfilling prophesy of too many people who believe in what is bogus, and they CREATE the outcome they PREDICTED, ... unless they don't.

 

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I agree. This truth is applicable in so much of what motivates people. Self fulfilling prophecy, that is.

 

Yes, but if we have had pm declines and increased physical basis 20 times in a row, and every time pm declines physical basis increases, it tends to explain why THIS time when pm declined physical basis increased.

 

If I understand your point (no slam dunk) you are describing simple human nature. If silver coin dealer A buys his inventory at price X, and then the market price falls to X-2 or X-3, he is incentivized to up his premium to ameliorate the loss, or withhold his inventory from the market in the hope of a bounce. Sometimes she bounce, sometime she don't. That's called decision time. Eventually premiums always normalize. They tend to expand in down markets and shrink in up markets, at least slightly. Rational human behavior.

 

Nah, its because "this time its different" and its proof those nasty paper pm prices have finally been vanquished and will go away forever, right?

 

I get the feeling that many are more sanguine about "paper trades" controlling futures contracts but not spot. Spot is controlled by futures like a dog on a leash, with a spring in it. You can jerk the leash a little, then she snap back, eh?

There is a role for "real" futures contracts. Fabricators of products go "naked long", and miners and scrap refiners go "naked short". It allows them to price transactions in advance without unpleasant surprises.

 

I do recall. ASEs are doing the same thing now, but junk silver has never done this. I'm not sure why you can't seem to address that point. These are apples and oranges. Silver eagles are made every week. Junk silver is becoming scarce. This is a much bigger development than market cycles. This is a fundamental shift that will cause scrap metal to decline, and market demand is dependent on that scrap.

It doesn't much matter what the intent of the Comex is, because the fact of the matter is that for every one actual ounce you have 200+ paper ounces, which means that the price is skewed by up to a factor of 200+ in either direction on the supply side, and multiply that by the amount of contracts bought on margin on the demand side and we could very well be into a factor in the thousands. True price discovery is not possibe in this environment. Price is the arbiter of supply and demand. When supply is not supply, price is a lie. You are buying and selling IOUs, not metal. I am aware of how risks are hedged. That does nothing to negate the fact that price discovery by proxy is dishonest.

If you want to invest based on whether or not there are shoe shine boys in the market that's your prerogative. I don't care what other people say. I only care about fundamentals. Buying at today's prices amounts to getting in a time machine and going back 6 or 7 years. That's a much better reason to buy than using lemmings as a contrarian play, as if their lack of knowledge somehow makes their viewpoint worse... no, it simply makes them ignorant, the same as throwing a dart randomly, as is the opposite.

 

Actually the opposite. Lack of enough supply or demand lessens the ability to find the true price. Have additional liquidity is actually a very good thing. Liquidity is what is needed to find the true price, not lack of it.

I haven't paid much attention to junk silver. I know over 40 years it has been appreciating due to every year there is less of it. At some point old US coins will no longer be priced at silver value at all. Think about it. When silver was $40 a ton of coins like VG barber halves were sold as "junk" silver. Today, their collectability is greater than silver value, so they sell at a premium. Maybe collectability of old US silver is simply higher than silver price today. I could very easily see this as being true of halves. That would be my main reaction to why junk silver US coins might have higher premiums that one would expect, that being collectible value is starting to overtake their silver value. At some point it was going to happen, just like Morgan dollars. They used to be just a slight premium to junk, and now they have a price of their own.

 

Which means that now junk silver is not available for melting for scrap. Expecting people to part with their bullion at these prices seems unrealistic to me. So it will be interesting to see how the price reacts now with both a decline in scrap and mines being shut down.

Liquidity is a good thing when it isn't a lie. That's the problem. But we won't have to have this debate in a few months time once China replaces the bullion banks with a fully physical backed gold fix.

 

With regards to junk silver, here are some numbers I swiped from another board.

 

Wasn't China going to get rid of the evil banksters in the US a few years ago? How come those markets didn't "prove JPM wrong"?

It all goes around. Most people who inherit coins or silver bars don't care anything about them more than how much the local coin dealer or pawn broker will give them for it. Between that and new product being dug out of the ground, (prices might be down but so are major mine costs like diesel fuel), there will more than enough pm to go around. Right now its simply a move downward and basis upward like we have all seen repeatedly. Don't believe me, believe what happened in every other pm downward movement.

 

PM rices are the same as they were 6 months ago. This is way bigger than PMs. This is commodities at 15 year lows. Glencore is down 80% since its IPO and is on the verge default with another Lehman moment. Mines are being shutdown or sold for pennies on the dollar. China is prohibiting selling in their stock market. The Fed can't even raise rates 25 basis points. Every single major US equity index is negative on the year and has already death crossed. Many emerging markets are down 30-40% on the year. ZIRP effectiveness is waning as velocity is no longer responding. PMs are not the story, they are the narrator. Ignore them at your peril.

 

Ok. I simply do not know what is going on with junk silver but I know I would not be buying at those prices. Like I said, maybe they have gotten to the point where they are more collectible than silver bullion today. Like I just said, Morgans and Peace dollars were in the same boat. In the late 70's a large dealer had 170,000 BU morgans melted because he couldn't find enough people to pay silver melt value plus shipping to make it worth his while to keep them. Today, unless silver goes up to $50 an ounce all BU morgans are numismatic items.

 

I am not buying junk silver either, but that wasn't the point. The point was that a huge supplier of scrap in the past is no longer available as scrap. Total silver demand is reliant on scrap as mining output is roughly 800 MOz but demand is over 1 BOz. A decline in scrap occurring coupled with a decline in mining output is the fundamental reason to buy right now.

 

Oh, ok, so its not pm prices its an economic death spiral. It has nothing to do with the second largest economy on earth changing from an export model to a consumption model, nothing to do with geopolitical risks or reactions to overspending by Greece, and certainly has nothing to do with pm going through a huge bull run due to zirp and now going down due to the Fed going to start to raise rates. Somehow US junk silver prices are the canary in this coal mine.

 

Do you know demand is still that high? Industrial demand was NEVER as high as mine output, the "demand" they referred to was actually inventory increasing. They labeled ASE, silver bars, and all other silver products people bought, (in essence physical silver inventory), as "demand". Its not really "demand" any more than me buying a million pounds of milk powder to sit in a warehouse is "demand". Its not, its inventory which I will sell when I feel like. Same with silver.

In 2014 mine production was 877 million ounces. Industrial demand, (where silver disappears), was 595 million ounces. 282 million more ounces are in human hands, (and can be melted if they wish), just from ONE year's production. THis happens most years, meaning there are billions upon billions of ounces that can be sold back as scrap just from the last 15-20 years worth of mining.

Is the sky the limit for silver demand, or is it decreasing? That is the question to ask, since there is a whole lot of it around, and more every year.

 

The bull run started 9 years before ZIRP/QE, and the economy is pretty much back where they were in 2008 which shows that ZIRP/QE doesn't work (admitted by St. Louis Fed VP last month), and it certainly isn't what kicked off this bull run. Now due to all that coerced inflation by central banks around the globe pushing markets away from equilibrium we have immense global deflationary pressure, which means the Fed is darned if they do and darned if they don't, because doing nothing means more deflation in the nearterm, printing money and QE means creating more artificial inflation and exacerbating the fundamental debt problem, and raising rates makes the existing $18 trillion in debt that much more expensive to pay back. They have no good option any longer. Precious metals are the ultimate extinguisher of debt and will hold their value in a default scenario. Precious metals are money, and they are the true bellwhether of the economy which is why they tanked before everything else and have been rangebound for 6 months. Now the rest of the economy has caught up, and central banks have no recourse. The junk silver situation is just one of many canaries in the coal mine.

It doesn't matter if mining supply meets industrial demand. Are you actually assuming that people will sell enough of their investment silver to meet total demand? Sure there are people who sell for a loss occaisonally, but that's not the norm, and the only way that investment silver will come to market in any substantial amount is if the price goes up. Just because it's out there doesn't mean people are willing to sell it. Considering that there is only 200 MOz of silver on the open market, it would only take $40 billion to cause a shortage at current prices, a drop in the bucket. I am not saying a shortage will happen, simply pointing out how precarious the situation is.

 

I think both of you are onto something. What we have called "junk silver" (90% U.S. coin in lower grades) is an artificial product. It has no fundamental reason to exist in quantity. Much of it can be put to numismatic use. That reduction of supply is a natural thing. But silver is still silver. The number one source of silver scrap today is recently scanned and discarded radiographs (X-rays). The days when massive amounts of silver were tied up in 11x17 chest films is not all that far back! I used to sell the stuff myself. I've also seen, more recently, massive truckloads of the stuff being dumped at a silver refiner near Philly International named Pyromet. The silver scrap business is not in danger, meine Freunden. 90% coin will continue to deplete because they largely ain't making more of it (silver proof sets and modern commems the exception). That does not speak to scrap silver generally.

 

The reason I think you're mistaken here is the fact that PM bugs tend to be old guys. They have a nasty habit of dying at rates higher than the general population. Then there are estate sales. I observe absolutely NO shortage of physical Ag around me, none at all!

 

I'm not saying the scrap picture is in danger. I am saying that there is going to be less scrap to go around than there has been previously. That doesn't mean there won't be enough scrap to go around, but with less scrap and mines being shutdown, the conclusion is obvious: the price is going to have to rise to bring enough metal to market in the coming years unless people are willing to continue to sell their investment silver without a profit.