Demand For Gold and Silver Exceeds Supply: Spot Price Will Skyrocket
Even though precious metal prices have fallen from the record high levels they set earlier this year, most dealers are still experiencing shortages. Retail buyers are having a difficult time finding gold and silver coins. For example, the U.S. Mint has actually sold out of its 1 oz gold and silver coins. The U.S. Mint has never before ran out of supply.
The problem is that the gold and silver bullion isn’t coming in as fast as it’s going out. Simple, right? But there is a disconnect between the paper market and the physical market for precious metals. That means, basically, that buyers who are able to find gold or silver coins will pay much more than the spot price.
A large part of the recent decline in the paper value of precious metals can be traced to the collapse of investment banks and hedge funds on Wall Street. They had to sell off their assets to shore up their balance sheets. The large volume of sales triggered a drop in the price. But it will correct itself.
The paper market for gold and silver will snap back to meet the real demand very soon. The spot price for gold is around $800 an oz, and people are paying over $1000 dollars an oz for real gold coins. When you have people out there paying more than 25% premium on the spot price, that means something is out of whack.
The economy is extremely volatile right now, and precious metals have always been crisis commodities that tend to appreciate in value under the worse economic conditions. This is an absolutely perfect time to buy up gold and silver, if you can get your hands on it. The spot price obviously doesn’t accurately reflect the demand, and is bound to snap back and snap back hard.
Buy now, as quick as you can – It’s Common Sense.
The difference between the spot price and retail coin/bar prices is a problem of production capacity.
There is plenty of gold available at the spot price in wholesale form (ie 400oz gold bar) and this is what is driving the spot price as these flows are much more significant than retail coin/bar demand at this time. The problem is that the industry as a whole does not have enough production capacity to convert bulk wholesale gold into retail forms to meed the retail demand. While retail demand remains high, the premium for coins and bars will remain high, at least for 6 months as production capacity increases cannot be turned on like a tap.
If production capacity increases, then the price will snap back hard, but it will be the coin premiums that will snap back (reduce) to the spot price, not the spot price that will move up.
Gold has gone up 600 dollars since I wrote this article. It’s been rising quickly almost every day since then.