Yet in the real world there are cut-off points, prices where consumers start to back away. Jewellers have to keep their prices below these levels, or starve. The way they are going now is to trade bullion bars made from scrap, avoiding the need to buy gold in the commodity markets. The trade in gold in the real world is now working at a substantial discount to the published commodity price.
Jon Nadler on Kitco writes -
As expected, while the futures and options players were out raving following the Fed, Indian buying withered some more. The growing availability of bullion bars made from scrapped gold tilted the local spot market towards a larger discount and further ate into primary dealers' bullion sales. "I am hearing of a discount of about 5,000 rupees (per kg) in Chennai spot market, which is affecting our sales" said a bullion dealer from a state-run bank’s trading desk overnight. Similar trends are underway in Thailand and Indonesia as the core market is struggling amid the maelstrom brought on by the spec funds and their millions.
This will no doubt all lead to a fall as with the oil price in 2008. Funds can all get into a bidding game, a huge game of chicken, but on street level, gold like oil has a role in society which somehow will survive. The current price surge has no rational explanation, other than the herd instinct. As we know with herds, they can rush the other way just as strongly, once the lead animals turn their heads.
I found this longer term chart of silver, which shows how the rise fell back at the same time as shares and then rebounded with shares.
Enjoy Jon Nadler of Kitco on 24th September, who describes brilliantly the slimy goings on behind the scenes in the current gold bull market
Meanwhile, in DC, hearings over alleged shoddy bullion sales practices continued to spark heated words between businessmen, their lawyers, and politicians. “The TV gold industry is lead by one company, Goldline, which focuses its energy on fear, lies -and rip-offs. Goldline gets people scared about the economy and their future, then they transition to a lie saying buying certain gold coins acts as a hedge against economic downturns and then the consumer is profoundly ripped off almost irrespective of how high the gold market is.” Pretty charged words by US Rep. Anthony Weiner. None quite as dramatic as those spoken by a New York neurologist who testified that he instantly lost some $55K on a purchase of certain coins that he says he was pressured into buying. Some very mad men, over there, on Capitol Hill.
Not much difference between that fear-stoking and certain newsletter urgings about what to buy and where to buy it, as allegations of imminent gold confiscation by Uncle Sam and grim visions of TEOTWAWKI are in ample supply in that niche as well. Not to mention stories of gold price suppression, collusion among the world’s elite to rob us all of our last nickel and the need to dig bunkers a la the Cold War period.
Fear sells very, very well – of that there is little doubt. Then again, so does greed and all you have to do is listen to any single book-talking, long-gold, hedge fund manager who is stoking that particular emotion and is leaving Gordon Gecko way down in the dust when it comes to oratorical skills of the profit-seeking/ profit-promising type.
The same folks who ascribed gold’s 2008/2009 gains to the fear of hyperinflation are presently explaining the latest such price rallies as being due to rising fears over deflation. “What do you want to bet that we will get neither?” – they ask, leaving you in a quivering pile of nerves. CNBC titled one of its reports yesterday: “What’s behind the new gold rush? Anxiety.”
Sure, there is a dose of that present in the equation. However, do not leave out the ‘bigger’ component; the quest to make a buck with a cheap buck. That’s not what the man in the street traditionally bought a modest gold holding for. That is precisely what the men in the (Wall) street are buying it for. Of that, you should be scared (and less so, of their words).
Watch for US econ data. Durables were…almost as expected. Stock futures gained. Gold? Your guess is as good as anyone else’s right about now.