Gold jumps as dollar drops

The news developments last week on Tuesday, Wednesday and Friday were ones where gold and silver prices have almost always declined over the past five years. Specifically, these events were the expiration of the New York COMEX May silver option contracts, the announcement at the end of the Federal Open Market Committee Meeting and the final trading day of the calendar month.

Almost every time these events have occurred over the past 60 months, gold and silver prices were down. Last week, the spot prices of silver and gold not only held their recent gains, they moved up to year-to-date highs.

In my column last week, I warned that if the price of silver was not pushed down at that time that it would be a scary signal for the near-term state of the U.S. dollar, the government and the economy.

The negative ramifications to financial markets are already setting in, though you probably won’t know it from the general media. On Monday this week, the U.S. Dollar Index fell another two percent, leaving the dollar down seven percent since its peak 12 weeks ago. In intraday trading on Monday, gold was up more than 22 percent to temporarily top $1,300 and silver was up more than 30 percent year to date to briefly rise above $18.

These higher gold and silver prices are even more impressive when you consider how much financial resources have been devoted to halting these gains. Between last Friday and this Monday, there was almost a 10 percent increase in the number of open futures contracts on the COMEX gold market. Almost five million ounces of paper gold contracts were sold short on those two days in a failed effort to suppress the price.

In the silver market, the number of open futures contracts on the COMEX exceeded one billion ounces for the first time in history. Here again, massive short selling of paper silver did not stop the price from rising.

Rising gold and silver prices, even despite major price suppression efforts, are a huge warning of financial problems about to erupt.

It seems obvious to me that the U.S. government has a huge incentive to prevent precious metals prices from soaring. After gold and silver topped psychological thresholds during the day Monday, the boom was lowered. Typically, a falling silver spot price is a signal to commodity traders that the price of gold is about to be clobbered. Because traders are so used to this indicator foretelling a price slam, the traders themselves jump into the act of dumping gold. This cooperation makes it possible for the U.S. government to achieve lower precious metals prices using fewer resources.

However, since the price of silver was not knocked down below $17 to stay on Tuesday, Wednesday and Friday last week. I think the sign is clear that gold and silver prices are destined to reach higher in the short term.

Last week, Jeffrey Christian of CPM Group wrote that it was possible for silver to go as high as $25 in the short term. Christian, an advisor to central banks, sovereign investment funds, major mining companies, brokerages, and other major players in the precious metals markets, has often been accused to working with some of his clients to help suppress prices. In the circumstances, his prediction last week is even more eye-opening.

With bullion rising in the background, pre-1934 U.S. gold coins were hot at Central States Numismatic Society show last week.

It seemed like major wholesalers of pre-1934 gold coins spent more time than usual at last week’s Central States show near Chicago trying to purchase inventory from each other. Their inventories appeared to be much lower than they were just a few months ago.

In addition, supplies of common-date Morgan and Peace silver dollars in various Mint State grades also seemed to be more difficult to find in quantity. Prices are starting to rise, led by Gem MS-65 Peace dollars being up about 15 percent in price over the past month.

It did not seem like the staff of my company had brought much inventory to sell. However, our total sales of less expensive (under $200) U.S. type and key-date coins were much higher than expected.

The staff of Industry Council for Tangible Assets, the national coin dealer trade association, held an informational meeting during Central States on upcoming legislative efforts for the next year.

• The sunset provision of the Virginia precious metals bullion sales tax exemption comes up next year, so an effort to extend the exemption is planned.

• If exemption bills in Minnesota and Ohio are not enacted this year, the efforts will be renewed in 2017.

• The exemption legislation in Tennessee was not enacted by the time the 2016 legislative session ended. As the session ended, the bill’s sponsor was told he had gained significant legislative support for a new effort in 2017. Further, the state’s fiscal agency revised its “tax expenditure” impact calculation which should remove a major obstacle to passage in the next session.

• Dealer inquiries about supporting sales tax exemption efforts in Alabama, Kansas and New Mexico have been received, where ICTA will assist with research and making experts available to testify if there is enough financial support from dealers in these states to cover lobbying and other expenses.

• I will represent ICTA next week at the Garden State Numismatic Association show in New Jersey to determine if there is sufficient dealer support for a coin and precious metals bullion sales tax exemption effort in 2017 in that state.

ICTA has substantial documentation demonstrating that coin and precious metals bullion sales tax exemptions actually benefit state treasury tax collections as a result of the increase in the number of businesses and industry employment after the exemption becomes effective. As opposed to being a “tax loophole,” such exemptions are more appropriately described as low- or no-cost ways to promote job creation and business development.

To augment this arsenal of research, ICTA is planning to send out a survey to coin dealers nationwide in the month of May. Dealers are asked to respond to the survey with information about their own business operations for the year 2015. It is anticipated that the survey will find that coin dealerships in states that have complete or partial sales tax exemptions on the sales of rare coins and precious metals have far higher in-state retail sales, per capita, than dealerships in states with no such exemptions.

Although I will be using the survey results in my testimony to legislatures, state treasuries and state fiscal agencies, I will not have access to any information that is identifiable to specific businesses. The individual responses sent to the staff of ICTA will not be available to me or to any other coin dealers.

To carry the most weight with government officials, I would like at least 500 dealers to fill out and return the ICTA survey. This information will be used not only to support new efforts to gain sales tax exemptions for rare coins and precious metals bullion, but also to help preserve existing exemptions that might be challenged (and were successfully defended over the past year or so in Maryland, Pennsylvania and the state of Washington) and to expand current partial exemptions.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

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