Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

1099 Supply Shock for Gold Buyers

Commodities / Gold and Silver 2010 Sep 30, 2010 - 01:30 AM GMT

By: Dr_Jeff_Lewis

Commodities

The 1099 reform in the health care bill passed by Congress and signed by the President has turned the physical gold market upside down.  Under the new law, gold buyers and sellers will have to fill out a 1099 on each side of the transaction if the sales price is greater than $600.  As a result, many investors who have been buying gold as an anonymous way to protect their wealth are now feeling the heat.


The Economics of the 1099

Just months after passage, the Senate has already moved to remove the 1099 requirement from the health care bill in an effort to reduce transaction and accounting costs for small businesses.  With many companies processing far larger orders than $600 on a near daily basis, it is certain that new regulation will prove to be time consuming and costly. 

Just today, the Wall Street Journal reported that in 2008, regulations cost businesses more than $1.7 trillion.  This new regulation, one which virtually no business can avoid, will only add billions of dollars in additional regulation costs to an already burdened American economy.

However, what really matters here is that this new provision will be far more devastating to local gold and silver suppliers.  These small businesses rely on volume to make a profit, with the spread between buy and sell prices often little more than a few percentage points.  For a small coin shop to cover rent, utilities and other fixed expenses of $5,000 per month, it would have to sell as much as $100,000 in gold and silver to pay the bills.  Add on regulatory costs, the time required to fill out each 1099, and the drop in investment after the bill passes, and what you have is an industry that has to sell even more product as its buyers run away scared.

Supply Shock

When the legislation takes full effect, demand for light coins and junk will explode as buyers and sellers look for creative ways to avoid 1099 paperwork.  Silver coins will very easily fit under the $600 threshold, while only .25 and .10 ounce slivers of gold will be small enough to fly under the radar.  As a result, the physical metals market will see a huge increase in demand for lightweight bullion, but at the present time, these products make up a very small portion of all the bullion sold!

This is where the disconnect will begin.  With very few companies interested in producing small physical metal products, and many investors regulated into purchasing them, premiums on small amounts of silver and gold will skyrocket.

How buyers adjust their purchases cannot yet be understood.  Will gold investors swap ¼ ounces of gold for several ounces of silver?  Will the big buyers simply buy lots of 25 silver ounces, hoping to avoid the 1099 cutoff?  Will we see “crisis premiums” as demand far outstrips supply?

Unlike gold, silver is uniquely positioned to benefit here.  Since the dollar price of an ounce of silver is still quite low, demand for gold may rush into silver to a point at which the gold to silver ratio inverts, and silver rises to new historic highs while gold stands flat.  Astute investors would be wise to start stocking up on bullion in modest denominations as demand for these products is soon to explode!

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife