Gold is meandering lower today, which it often does the day before a Coin Chat Radio guest is forecasting record highs coming. The nature of markets is to fluctuate. That is certainly what it is doing around the present $938 a troy ounce.
However, a pause in the uptrend does not mean it is over.
But one year ago, who would have thought $938-an-ounce gold would represent a pause? To forecast it would have sounded almost wildly bullish, yet here we are.
One thing we tend to forget about high prices is their economic function. Gold prices might signal out-of-control inflation or out-of-control issuance of paper money by the Federal Reserve and the central banks of the rest of the world.
But another function of a high price is to signal to potential suppliers that more gold is needed. This signal doesn’t go to just central bankers or mine executives. It goes to the corner jewelry store too.
Judging by television ads that I see and news stories that I read, local shops are attracting a lot of sellers of what is termed “scrap gold and broken jewelry.”
Whatever you call it, it is new supply. How much is coming into the market? It is probably too soon to tell. However, Coin Market columnist Harry Miller says that silver refineries are backed up. True, that is not gold, but the pair tend to run in tandem.
At the 1980 high, the refineries were so backed up that the price of 90 percent silver coins were vastly lower than the market price would indicate.
With silver at $50 a troy ounce, any pre-1965 dime, quarter or half dollar was worth 36 times face. The highest market buy price that I saw was 24 times. This was in a market that at one time had paid a premium for 90 percent silver.
There was a hefty supply in the pipeline and prices came down in 1980. Is that happening now? It is probably too early to say, but the phenomenon bears watching.
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