Silver demand soars

The spot price of silver fell below $15 per ounce for much of last week, reaching its lowest levels in several years. The price of gold also fell to its lowest price of the year.

Normally, when prices fall in this manner, that would indicate either a huge increase in physical supply or a sharp drop in demand for physical metal. Another reason why precious metals prices might fall significantly is that the world’s financial crises have been solved, peace has broken out across the planet and monetary stability has been achieved.

You probably laughed when you read the past paragraph because none of these events were remotely close to what was actually going on in the world. As a matter of fact, world events were especially turbulent and unresolved last week.

Therefore, precious metals prices declined for other reasons. What could they be? I cannot say for certainty, because I was not privy to the behind-the-scenes discussions among the world’s major governments and central banks. However, I do have a strong suspicion of part of what happened.

When global financial crises are breaking left and right, investors get concerned about the risk of loss. When stock values are plummeting in China, people fear the contagion might affect stocks around the globe. As the Greek debt problem threatens to blow up trillions or quadrillions of derivatives contracts, owning any currencies looks much riskier. So where can investors flee to financial safety?

Traditionally, gold and silver have been safe haven assets in times of financial crisis. But, as I have said several times, the price of gold is effectively a report card on the strength of the U.S. dollar, economy, and government. As such, the U.S. government has a huge incentive to direct its primary trading partners to suppress gold and silver prices. The goal of such manipulation would be that people would be leery of exiting paper assets for physical precious metals.

Thus, I think there is a strong possibility that gold and silver prices were artificially suppressed early last week by the short-selling of paper contracts rather than the price declines being the result of free market trading activity. Toward the end of last week, the open contracts in the COMEX gold and silver markets declined, a sign of shorts sellers taking profits and covering their positions, which I take as an indicator supporting this thesis.

No matter all the reasons for the decline in prices, the sudden drop did spur significant retail demand to acquire physical gold and silver last week. From the beginning of this year until two weeks ago, demand for bullion-priced physical precious metals has been lackluster. Last week, demand was the strongest in the past two years, with silver leading the way.

Coin and precious metals dealers enjoyed such strong demand that wholesale supplier inventories quickly ran out. As I write this, virtually all physical silver products are on about three to four week shipping delays, with premiums higher.

Although gold has seen an uptick in demand, it is not near to the same extent as silver. Consequently, some bullion-priced physical gold coins and ingots are available for immediate or only short delivery delays. Some gold premiums are up, but only slightly.

Politicians who collect coins

As with the general public, some politicians have been serious coin collectors. Egypt’s King Farouk amassed an amazing collection that included a U.S. 1933 $20 Saint-Gaudens. While these coins were never officially issued, and therefore illegal to own, the U.S. State Department issued a document authorizing the export of one specimen to King Farouk in 1944. This is the coin which the U.S. government seized upon its reappearance in the market. The dispute was eventually settled where the new owner was allowed to keep the coin after purchasing it in auction, with the U.S. government receiving a significant percentage of the selling price.

Numismatist Jimmy Hayes sold his collection in auction in 1985. He later was elected as a U.S. Congressman, representing his district in Louisiana for 10 years (1987-1997), first as a Democrat, then later as a Republican.

I know of one current U.S. senator who is a coin collector, though I will not mention the name as I don’t have permission to disclose his numismatic interest. However, you may be interested to learn that U.S. Senator Rand Paul, R-Ky., who is a contender for the 2016 Republican presidential nomination, reveals in his recently published book “Taking A Stand” that he enjoyed building a coin collection as a child, especially working with his maternal grandmother.

I found two things strange about Sen. Paul’s book. First, the book is intended to be his manifesto explaining his position on a number of issues. However, he never discusses the American or world monetary system other than calling for an audit of the Federal Reserve.
Second, the index does not show any listing for coins, dollar, gold, money, precious metals, or silver. Yet Sen. Paul’s father is the former Rep Ron Paul, R-Texas,) who served on President Reagan’s Gold Commission. Ron Paul has publicly disclosed that he does own physical gold coins and investments in gold mining companies. In the circumstances, I found the omission of a gold discussion to be a surprise.

Freedom Fest interviews

Most of this past week, I attended Freedom Fest in Las Vegas. There I was able to interview several people who have interesting observations on a wide range of issues, especially on the world financial situation, the U.S. dollar and owning gold. Among those interviewed are Patrick Byrne, the founder and CEO of Overstock.com, Steve Forbes, editor-in-chief of “Forbes” magazine, investment analyst Adrian Day, gold gurus Pamela and Mary Anne Aden, and others. These should be posted at the website www.libertycoinservice.com under the “Things You Need To Know Interview Series” by Friday at the latest.

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). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His Numismatic Literary Guild award-winning radio show “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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