Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Best Time / Month to Buy a Used Car From a UK Dealer - 16th Dec 17
Relief Rally in Gold Mining Stocks - 16th Dec 17
Amid Bad Fundamentals, Gold Sector Rally May Have Begun - 16th Dec 17
Gold Bullish on US Fed Interest Rate Hike - 16th Dec 17
The LORAX Explains What Happened to Sheffield's Street Trees 2017 - 16th Dec 17
Bitcoin Trading Alert: Bitcoin Pauses – Will Appreciation Follow? - 16th Dec 17
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

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.


© 2005-2018 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