Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Chocolate for Cocoa, Or What's Gold Really Worth?

Commodities / Gold and Silver 2013 May 01, 2013 - 06:49 PM GMT

By: Adrian_Ash

Commodities

Spying direction is hard enough in precious metals right now without confusing form and location...

SO WHAT'S your gold or silver really worth today? Like everything else, it's worth the most that somebody else will pay you for it, right here and now. That's the simple truth, as last month's crash proved all too plainly.

There were no gold buyers in size on Friday 12th and Monday 15th April, not between $1550 and $1325 per ounce. But gold has found plenty of buyers since then, after finding a floor more than 30% below its peak of September 2011.


The surge in demand for gold and silver provoked by mid-April's crash – the sharpest drop in 30 years – is phenomenal. Internet traffic to Bullion Vault.com has doubled from recent levels, and new account openings rose more than 40% from the previous 3-month average to reach the strongest level since January 2012.

Traditional retail dealers in North America and Europe are also reporting strong demand, with some distributors hitting supply delays thanks to the real source of today's surge in global demand for small bar and coin – India and China, the world's top two markets gold consumers.

Overwhelming the physical supply chain for kilobars and other "retail investor" products, dealers in Asia haven't been able to charge this much above international prices since late 2008. Yes, America's biggest retailers are starting to plug their gaps at home, with some "Hot Items" now "Back in Stock" at 10% over the wholesale price. Silver buyers in the UK are meantime being asked up to 40% more than wholesale prices for a 1 kilo bar (that includes 20% VAT – a charge you don't pay on BullionVault unless you opt to take possession). German dealers also report tight supply in gold coins, although they don't yet seem to be capitalizing on any shortage.

Does this gap between small bar and big bar prices represent some kind of paradigm shift? Large premiums for retail units are in fact a common but unpredictable feature of the bullion industry. They typically hit when prices slump, inviting eager buying by private investors but leaving their retail suppliers with a sharp loss if they follow the wholesale price all the way down. Surging demand for coin and small bars emptied gold retailers across Europe and North America during the price crash of late 2008, for instance, when spot gold fell from $900 to $670 inside 3 weeks. Premiums leapt. They did the same in New Year 2011, when spot prices fell from $1410 to $1320 inside a month, catching the refiners with holiday staffing levels and hitting supply-chain bottlenecks in secure logistics. The shortages were then most acute in silver, which fell from $30.60 to $26.68 in the wholesale 'spot' market but couldn't be found at less than 10% mark-ups in the retail market (and even before UK and other European investors had to account for VAT sales tax of up to 20%). That wiped out any saving which new investors might have hoped to enjoy.

But how does such tight supply come about? Like a chocolate bar starting life as cocoa beans, small gold bars and coins typically start life in the form of large Good Delivery bars, whose quality and provenance is warranted by the wholesale market, and whose production and logistics costs are lowest. So before a new coin or small bar can reach the investing public, armoured trucks first need to be booked, together with air freight if the metal is taking the #1 route – out of London, into Swiss refiners, and onto Asia in the form of kilobars.

Vault staff then need to pack the large wholesale bars, ready for shipping. Once delivered to the refinery or mint, those big bars need to be melted down and recast or struck as small bars or coin. Those retail-sized products then need to be shipped back out to retail distributors, who will add a fourth layer of limits on order processing (office hours, staff levels, financial resources and so on).

Make no mistake: this is not an "arbitrage" which holders of gold in one form can exploit simply by spotting it. The reason the kilobar premium in Singapore for instance has surged in the last two weeks (and it's fading as demand eases off) is the tight supply of production capacity, relative to dealer demand. Swiss refiners are booked solid until end-May for kilobars, we are told. So getting your metal into retail form would be hard. It is also something to which professional distributors already devote their operations.

The answer then to "What is gold worth?" is more complex, but only a little. Like silver or any other physical good, it depends both on where it is and what form it takes. Coins and small bars are currently at a premium. So is metal in Hong Kong and Mumbai. Those mark-ups are highly variable however, and accessing them as a private investor is hard. First you need to have paid all those extra fabrication and logistics costs. Then you need to find a buyer willing to pay you the premium, rather than shopping around amongst retail dealers.

Would that be the "real" price anyway? Only if you could achieve it. Yet the gap between retail-product and wholesale prices is feeding an idea popular with bloggers right now that professional "spot" prices are somehow divorced from "real gold" values. Such frustration is understandable perhaps. Last month's price-drop has cost a lot of long-term precious metal owners a lot of missed profit, and more recent buyers are out of pocket still worse.

But as professionals in the physical market, we can assure you that the spot price is the price of physical gold and silver in large-bar form right now, just as always. We go on settling physical gold and silver bars daily, picking up real physical bullion and moving it to accredited storage outside the banking world. The quality of the bars, fully allocated to BullionVault clients at all times as the Daily Audit shows, is warranted by the Good Delivery standards. We also have inspection reports from independent experts which make clear that what belongs to BullionVault users is indeed warranted, high-quality gold.

So the real price of physical gold right now? Go to BullionVault's Order Board, and you'll see firm bids and offers for Good Delivery metal, already delivered inside accredited vaults. In each location – London, New York, Zurich and Singapore – you'll enter a live peer-to-peer market, where buyers and sellers are meeting to agree their price in free competition, with instantaneous settlement inside the vault.

One side wants to pay as little as possible. The other wants to get as much as they can. So whether you think the price is too high – or too low – depends on which side you're on. BullionVault lets you set your own bid or offer. Whether you get the price that you want depends on what the other side does. But that is how markets work. And different markets for different things shouldn't be confused. There's enough trouble trying to spy gold and silver's underlying direction right now without mistaking chocolate in your local store for cocoa on the other side of the world.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 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

6 Critical Money Making Rules