Cooking the Gold Books

We got a small, if bitter, taste of gold’s “Zero Hour” in the second half of April.

Either that, or the world’s largest banks engineered a takedown of gold for the purpose of staving off Zero Hour… for now.

As you’ll recall from these pages in March, “Zero Hour” is the name we give to the moment when the price of real, physical gold in your hand starts to break away from the quoted price on the commodities exchanges.

That is, the “physical price” becomes much higher than the “paper price” on CNBC’s ticker. The catalyst, we suggested, would be when a major metals exchange defaults on a gold or silver contract — settling in cash, instead of metal.

To be clear, Zero Hour did not take place when gold’s paper price plunged $150 in only two trading days — Friday, April 12, and Monday, April 15.

But what happened after that plunge hints at what the aftermath of Zero Hour would look like. Real metal suddenly became very hard to come by. We chronicled the worldwide scramble, in real-time, in The 5 Min. Forecast

  • The Chinese Gold and Silver Exchange nearly ran out of bullion on Friday, April 19
  • There were reports of a “massive wave of physical gold buying” in Dubai
  • Monthly sales of U.S. Gold Eagles fell just short of a 26-year high during April.

Result: If you wanted real metal, you paid a substantial premium over the paper price. In silver, these premiums were off the charts. On Thursday, April 25, spot silver was $23.94… but a Silver Eagle from a major online dealer would set you back $29.54 — as high as the paper price before the mid-April crash!

Meanwhile, the premium on “junk silver” — U.S. dimes, quarters and halves dated before 1965 — sits at four-year highs, according to coin dealer Richard Nachbar. Usually, these coins trade at a small discount to the paper price of silver. Now? As the chart nearby shows, they fetch a 17% premium over spot… and that’s wholesale!

Wholesale premium/discount to melt on 90% us silver coins

The April gold crash,” sums up Agora Financial’s own Byron King, “was the beginning of emancipating real gold from paper gold. We’re about to see a ‘real’ price for gold, coming from the bottom up, not the top down. I suspect that we’ll see a solid price rise for gold over time. The market bullies who deal in paper products have just punched themselves in the nose.”

Meanwhile, if you’re still skeptical that “Zero Hour” is a real possibility, there’s new and compelling evidence.

Sprott Asset Management chief Eric Sprott believes Zero Hour is made inevitable by Western central banks “leasing” their gold to commercial banks at less than 1% a year. The commercial banks then sell that gold and plow the proceeds into higher-earning investments.

“Now,” Sprott writes in a new white paper, “our long search for the ‘smoking gun’ to prove our hypothesis appears to have finally materialized.”

The evidence lies in the monthly trade data from the Census Bureau. The December 2012 report revealed net gold exports of $2.5 billion — almost 50 tonnes. This staggering number prompted Sprott and his team to dig through the figures as far back as they exist — all the way to 1991.

Here’s the problem: During that same period, U.S. supply mine production and recycling totaled 7,532 tonnes, while demand was 6,517 tonnes. That left only 1,015 tonnes available for export.

Where did the other 4,489 tonnes come from? “The only U.S. seller that would be capable of supplying such an astonishing amount of gold,” says Mr. Sprott, “is the U.S. government, with a reported gold holding of 8,300 tonnes.”


“If the Sprott analysis is accurate,” says our friend and Crash Course author Chris Martenson, “there’s a lot of missing gold in the U.S. equation, and it had to come from official sources, either of U.S. origin or belonging to other countries. Either way, the leased gold represents a tremendous liability of the Fed and the bullion banks to which it was loaned.”

“In this context,” Mr. Martenson continues, “the gold slam begins to smell like an operation designed to shake as much gold as possible out of weak hands so that the bullion banks can begin to recover it to square up their accounts.

GLD, the gold ETF that so many small investors participate in, is one large, obvious target,” he adds, “as it was sitting on 1,350 tonnes as of January 2013.”

Sure enough, by the end of April, more than 250 tonnes of that total were gone. On the chart nearby, you can see how the drain on GLD’s inventory neatly tracks the paper price of gold.

“Gold and silver,” Mr. Martenson suggests, “are getting closer to the day when you or I will not be able to purchase physical bullion at any price.”

“I don’t even look at gold as gold anymore… they securitized it,” CNBC’s voluble Rick Santelli said on March 27 — weeks before the big beat-down.

“If things [went] badly in the world that I used to observe as the gold bug, the gold would end up in the hands of the gold bugs. If things go badly now, they’re going to end up with checks from ETFs! Sorry, it’s not the same. The reign of [paper] gold is the Ayn Rand end product. To me, that’s over. Game, set, match.”

The endgame is getting closer. “What I believe is going to happen, probably in the not too distant future,” says Eric Sprott’s right-hand man John Embry, “is that the pricing mechanism of the gold and silver markets will swing to the physical market, which cannot be manipulated, because, basically, either you’ve got it or you haven’t.

“Whereas the paper market has been set up specifically so that it can be manipulated. I would not be too concerned about that, even though they’ve got the upper hand to date. I think that their power is going to be sharply eroded in the very near future.”

But that’s when you won’t be able to get any metal at any price. Best act before then: “The current sell-off in gold,” says Eric Sprott, “should be viewed not with extreme trepidation, but as an unbelievable opportunity to buy the metal at an artificially low value.”


Gold And Silver Bullion Coin And Bar Shortages Continue

Today’s AM fix was USD 1,476.50, EUR 1,124.95 and GBP 949.34 per ounce.

Yesterday’s AM fix was USD 1,456.00, EUR 1,106.22 and GBP 935.07 per ounce.

Gold rose $8.10 or 0.56% yesterday to $1,466.80/oz and silver finished + 0.68%.

Physical demand for coins and bars internationally continues and is
the strongest since the immediate aftermath of the Lehman Brothers
collapse on September 15, 2008, and the consequent global financial

Government mints, refiners and bullion dealers internationally are
reporting demand as high as in the aftermath of the Lehman crisis.

Brokerages are seeing nearly all buyers and little or no sellers
which is making for a tight market with rising premiums. At GoldCore,
sellers have been people liquidating unallocated positions and opting
for taking physical possession or the increased safety of allocated

Higher prices will be needed by bullion owners in order to
incentivise them to sell – prices that will likely be significantly

Most physical owners are buying for the long term and will not sell
in the coming months even when prices recover. If prices rise to back
above $1,600/oz, some physical gold might come back into the market and
alleviate the supply issues.

However, we believe that this may be a long term structural supply

demand issue in what is a very small physical bullion market, that will

only be alleviated by much higher prices and indeed higher premiums.

It is difficult to generalise regarding premiums as there are so many
products and so many regions but in general terms, prices on nearly all
small coins and bars are rising and on average there have been 1% to 2%
rises in the premiums on popular one ounce gold coins and bars. This
means that one ounce coins and bars can cost some $14 to $28 more than
they did prior to the price falls.

The percentage increase in premiums in the silver market is even
higher and there are more delays and unavailability of silver coins and
bars with popular formats such as Eagles and Maples now almost difficult
to secure. We acquired a large number of Silver Eagle Monster Boxes
yesterday which we expect to have sold by the close today.

Today, return of capital is of far more importance than return on capital.

Gold and silver bullion coins and bars are important in this regard

as they are not about making a capital gain per se rather they are about
wealth preservation.

Given we are in an era of competitive currency devaluations, there is
also the real possibility of making significant capital gains.

Of fundamental importance is the fact that gold and silver coins are
not ‘investments’ rather they are a safe form of money and an important
form of financial insurance that everybody should own.

With the risk of a global depression remaining very real, people need
to own the financial insurance that bullion coins represent. Bullion
coins are like health insurance in that you should own them but hope you
never have to use them.

The biggest benefit of owning gold coins either in your personal
possession or allocated in secure vaults internationally is that they
will always retain a value unlike paper assets and currencies which have
considerable counter party risk today – as was seen in the deposit
confiscation in Cyprus.


Gold: Back to Money World

There is a sign the world financial system is facing drastic changes, while numerous events related to gold are becoming part of contemporary life. There is a fundamental tendency taking shape against the diverse picture of events – gold gradually returns the status of currency metal

Gold as private money

The process of gold leaving the world of commodities to join the world of money is just starting; it’s barely distinguishable against the background of global events and the US dollar being deprived of any back up. Talking about the micro level of events, the main occurrence is the creation of monetary systems called «electronic gold»: (e-gold). It has the following key elements: a) the real material metal deposited in special organizations making up the foundation of electronic money; b) not real metal but electronic documents are used for settlements; c) the number of e-gold users is limited, though the money could be used for operations outside the country. Some entrepreneurs switch over to settlements in gold using coins, ingots and other acceptable diversifications.

It has been reported that the billionaire Donald Trump decided to receive the payments from equity holders in gold, not dollars. Gold payments are a dark segment of market relations, especially in the countries preserving taxes for gold and other precious metals operations. That’s why the fight for complete abrogation of such taxes has been waged since a long time. To great extent the value added tax has become a thing of the past in Western Europe when it comes to gold settlements.

Some private companies offer the «gold products» of their own. No matter gold is often called the «money of last resort»; many potential investors complain it’s too expensive. At the moment the cost is 1700 dollars per ounce, it’s not a vital instrument for exchange in case food supplies or ordinary retail trade stop. Absence of gold coin weighing an ounce (31.1 grams), or even one tenth of ounce, makes less expensive silver more acceptable in case one wants to buy a few loans of bread, medicine or clothes in emergency.

All these factors pushed Valcambi, a Swiss company, to introduce a 50 grams 999 fine gold «golden card» called Combibar Gold Card, which can easily be broken into one gram pieces to be used for minor everyday life payments. The value of a gram is approximately equal to an ounce of silver, or 34 dollars, making it a comfortable means of retail payment. According to Valcambi, the Combibar Gold Card will be launched on market in 2013.

Plans to legalize gold money at state level

Many statesmen do understand that the days, or perhaps, years, of the dollar based world financial system existence are counted. Once all national monetary systems are interconnectedwith the US currency, the time is ripe to prepare for future changes. For instance, different schemes of internal money circulation, based on gold standard, are being studied. In recent years, we constantly hear about the plans to establish a gold dinar (Muslim states), gold yuan (China), and gold frank (Switzerland). Some states leaders start to talk about returning gold into internal circulation. For instance, the idea has been supported in Sweden, Norway, South Africa, South Korea, Iran, Taiwan, Zimbabwe and some Latin American countries.

Switzerland is the country, which has approached closer than others the stage of gold money practical introduction. It was the last country in the world to break the interconnection between paper money and gold. It took place only in 2000, when the Swiss franc was declared not to be tied to gold anymore and became no different from other currencies, like the US dollar, British pound sterling, German marc, Japanese yen and others. Now the discussions are focused only on introduction of franc as a «parallel» currency to go around along with ordinary paper francs on the territories of Switzerland and Lichtenstein. At that, there will be an exchange rate between the gold and paper francs. According to the authors of the project, the gold franc will cost five current Swiss francs or 5.3 US dollars.

The gold currency will be issued by private banks under strict control exercised by government and national Central Bank. The licensed financial bodies will be authorized to print coins with franc’s formal logotype on one side and the recognizable Swiss gold franc logotype on the other. There will be no value added tax, or any other taxes related to the new franc’s circulation. The gold franc is not vintage money, and it’s not an ordinary investment commodity. The idea was put forward by Ulrich Schlüer, the member of the Swiss National Council (the lower chamber of parliament) representing the Swiss People’s Party. It’s part of «sound currency» of«healthy currency» campaign.

The gold price is around 45 thousand francs per kilogram. According to Schlüer, the introduction of gold franc will enhance the chances of the Swiss to protect them from currency devaluation. The price of one 0.1 gram gold franc may be just 4.5 francs, making the value of a one gram gold coin rise to around 45 francs. «I want Swiss people to have the freedom to choose a completely different currency», said Thomas Jacob, the man behind the gold franc concept. «Today’s monetary system is all backed by debt — all backed by nothing — and I want people to realize this», he adds. According to him, 

«The time is right; the issue simple. We are talking about freedom of choice in monetary matters, something that cannot be opposed in good faith. It is not primarily about attacking today’s monetary system, but giving people the freedom of choice. If today’s monetary system remains as good as today’s authorities claim it is, they shouldn’t worry – if it isn’t, we, the people, shouldn’t be forced to use it».

At the time the Swiss People’s Party is applying efforts to make the parliament ban the country’s Central Bank from selling away any of its gold reserves. The proposal, dubbed “Save our Swiss Gold”, would prohibit the Swiss National Bank (SNB) from offloading its gold reserves as well as force it to hold at least 20 percent of its assets in gold. Many Swiss politicians are trying to make precise how the country has lost a significant part of its gold reserves in recent years. When the franc’s connection to gold was cancelled, the Central Bank started to sell away the yellow metal reserves under the pretext that it became a useless asset. In 2000-2005 1300 tons of gold were sold at damping prices. The opponents of the measure say the total loss was 60 billion dollars. (True, the studies say the gold never left the country to be stored by national private banks). The substance of the proposal is building a rather strong customs and economic wall around the Swiss Confederacy, something contradicting the principles of European integration. The introduction of gold franc will require changes in the Swiss Constitution. If the amendments are not accepted, then the issue will be decided by popular vote (referendum).

Gold yuan is also a favorite son of media today. It does not exist yet. But there are multiple signs testifying to the fact that China is on the way to introduce it.

USA: 13 states vote for gold currency

There are no plans to issue gold currency at the federal level. There are separate calls for going back to gold standard, which had existed till Franklin Delano Roosevelt took office. For instance, Representative Ron Paul, the well-known critic of the Federal Reserve System, has come out in support of the idea a number of times. He wants to put a «gold bridle» on the printing press. In other words, Ron Paul proposes to link the dollar emission to certain percentage of US gold reserves (8.133.5 tons of metal for March 2013). He never made precise if the plans include free exchange of paper banknotes for the metal, like it used to be before 1933. In the USA the«monetary sovereignty parades» movement is in full swing at the states level.

The state of Utah is the leader. In 2011 it adopted and enforced the law to legalize gold and silver coins as money… The Utah Sound Money Act of 2011 recognized gold bullion and silver bullion as currency. It also exempts the sale of the coins from state capital gains and sales taxes. As the new law states, the coins called American Gold Eagle (weight from 0.1 ounce, denomination 5-50 dollars) and American Silver Eagle (1 ounce, denomination one dollar) are accepted to pay for any goods and services according to real price of precious metal. At the moment the law became effective, the correlation was 1.5 dollars for an ounce of gold, or 38 dollars for an ounce of silver. Utah also introduced another major innovation. Upon the law enforcement, the state built a gold and silver depository to allow people avoid using the coins first-hand (something that would otherwise cause a lot of discomfort). Gold and silver coins could be stored there; the owners can use a deposit card as if they had ordinary dollar accounts. The value of coin is calculated on the basis of metal prices in US dollars, according to daily London fixing.

Missouri and South Carolina in 2012 were the closest to enacting very similar legislation and creating a gold bullion and silver bullion depository, just like Utah. Both states echo the same sentiments as Utah and this is evident by the names chosen for the bills. For example, in Missouri, the legislation put forth is called the Missouri Sound Money Act of 2012.

Other states considering legislation to make gold bullion and silver bullion legal tender are Montana, Colorado, Idaho, Indiana, New Hampshire, Georgia, Washington, Minnesota, Tennessee, and Virginia. The majority of the states mentioned here foresee the use the coins printed by the US Mint, as well as any other ones coming from abroad. The states also have an intention to follow the Utah example and build depositories to measure exact percentage of precious metal contained in the coins and adjust the metal value to the world market rates.

Ron Paul, the founder of Tea Party, is promoting the Free Competition in Currency Act of 2011, allowing the states to introduce their own currencies and seeking to end all taxes charged by federal, state and local governments on coins and bullion. He also calls for creation of a commission to consider the ways to get back to gold standard.