Gold Futures And Coins Out Of Sync



Posted 10/21/2008

Gold has been losing its luster as the dollar strengthens. The yellow metal fell almost 4% Tuesday as the dollar rallied to a 1 1/2-year high against the euro.

But gold still shines in some quarters. A mad rush for gold and silver coins that started in July has left dealers’ shelves across the country bare. Gold now trades with a two-tiered pricing structure.

The only coins for sale are on eBay, (EBAY) where sellers want an 18% to 35% premium. Silver coins at some dealers are fetching as much as 80% over spot prices.

Buyers also snatched up silver, platinum and palladium coins. Sales picked up 500% in July, and in September vaulted to 12 times average monthly sales as major banks collapsed, said a coin and bullion dealer who asked not to be named.

Fundamental View, A Bull Case

“With all the integrity and trust issues of the marketplace today, counterparty risks, etc., gold and silver’s ultimate status as money, as a safe-haven asset, is driving buyers into the real product,” said Peter Spina, president of

“The safe haven for Americans is to live in the U.S. The safe haven for everyone else is get out of their currencies and buy gold,” said Tom Winmill, portfolio manager of Midas Fund, which specializes in precious metals and natural resources.

“We don’t know when (gold) will recover, but it will because global demand for commodities isn’t going away,” Winmill added.

Gold is also a “screaming buy opportunity” in his view because it’s trading at an unusually deep discount relative to the AMEX’s Gold BUGS Index or HUI. The HUI is an index of gold miners.

Technical View, A Bearish Case

A chart of gold prices provides a different view. It shows evidence that the precious metal lacks some of its safe-haven traits these days.

The spot price for gold peaked in March at $1,011 an ounce and has been trending downward ever since. It’s fallen 21% from its high and has made a series of higher lows and lower lows. The 10-week moving average crossed below the 40-week average in September and both lines point south — a bearish signal.

Long- and short-term trading signals flashed a sell signal on spot gold Thursday when it fell to $817.45 an ounce, according to Adam Hewison, president of, who trades based on his MarketClub software program. He expects the yellow metal to fall to $700 to $720 an ounce.

On the bright side, gold has held up better than other commodities since they peaked in July. Silver, as tracked by iShares Silver Trust, (SLV) has collapsed 51% from its high. Spot copper has plunged 48% from its peak of $4.06 per pound and now trades at $2.11.

Crude oil has skidded 49% from its peak of $145.66 a barrel, trading Tuesday at about $74. Gold has also held up better than the S&P 500, which trades 37% below its October 2007 high.

Hedge funds have played a role in the sell-off, Spina notes. Falling commodities prices have forced hedged funds to sell positions to meet margin calls and raise cash.

“As with nearly all markets, a massive deleveraging has been occurring, and the gold and silver markets have not been immune to this violent process,” Spina said. “There will be more victims of the fund collapse and more forced liquidations even if it requires them to sell their most desired assets like precious metals.”

A recession may spur deflation. Gold wouldn’t be a safe haven under such conditions, according to Dennis Slothower, president of Alpine Capital Management, with more than $100 million in assets under management.

“In a deflationary environment, investors want out of the market totally,” Slothower said.

He notes that in the recession of the early ’80s, gold peaked at $850 an ounce.


Article posted on 10/21/08 by Investors Business Daily. See original posting here:

14 thoughts on “Gold Futures And Coins Out Of Sync

  1. Remember the late 70's and early 80's.

    With hundreds of billions priming economic pumps worldwide, it is inevitable that inflationary forces will be felt down the road. And with the US in such ridiculous budgetary trouble, interest rates must eventually rise as well..........

    Look up " Stagflation" if you want to see the true definition of scary...

    Happy Halloween


  2. No way we will have inflation. Look at the figures-a depression, the likes of which we can't possible comprehend, is coming like a tsunami.

  3. Yes, wait till gold goes down to $400 and then buy, although I sure don't think it will go that low. The point is there is no SURE bottom in any of the markets right now. Stay out until things turn around then then average on the way up.

    I believe we will be hit with the largest inflation the U.S. has seen in the past 100 years. The problem is this: it may not happen for a couple of years. Protect yourself against deflation so you're not knocked out of the game in the meantime. The markets will shake out every last weak hand. I haven't sold any of my resource stocks. I wish I did but it's too late now. Oh well, I'm a strong hand.

  4. Wait until Gold gets down to $400 before even thinking of buying. Have you had much success in fighting the trend? Better to forget wishful thinking. Do you really think the dollar's rise is a fluke? What if it isn't? Then where will your money go? Fly away with your mistake?

  5. You aint seen nothing yet. Deflation is a response to panic reaction to credit contraction. Too many passengers and too few lifeboats. Wait until Obama, Pelosi and Reid start all the new programs to save the country. Once started, they just keep growing.Big Ben will provide the money.
    Can you say Inflation? Buy gold, or if you speculate, Buy Calls. Fear paralyzes, How gutsy are you?

  6. I don't know where you get those figures and statements. For one: "the only coins that are on sale are on E-bay" Try Coast-to-coast, Apmex, and other dealers. They have coins at the usual premiums for gold and silver. Who would buy coins on E-bay?


    Mr. Cohen,

    Please see that the figures were quoted from a 10/22/08 article published in Investors Business Daily.


    Lindsay Thompson
    Director of New Business Development & MarketClub

  7. Deflation is possible and it is indeed real now. Massive quantities of money into bailouts and rescue operations don't go to inflation at this time and this is because the US and the world economy are running very much below full capacity. Considering the recession and a deep one as we suspect this one it will be, it can drag everything into itself, more with the current dollar that is rallying to the Stratosphere and the crude prices coming down further. Where are the inflationary forces then?. Bussiness are selling less, there are more layouts and bankruptcies everywhere and people are spending and consuming less.
    Gold is a safe heaven asset and shines at inflationary times. It's not the case now when commodities prices are comming down very fast. I am very bearish on Gold near term. However in the long run very bullish. The buck cannot maintain its high levels: astronomical budget and trade deficits characterizes the US Economy and now the negative real interes rates. In other scenario when the recovery starts (it will come) there will be a real race between Inflation and interest rates, then we'll see the Gold shinning again and very much higher to his record high we've seen. 2,000 $/ Oz at least according to my maths

  8. Cash was king during the 30's but cash was also backed by gold. Not so today!! The king today by default, is gold!!

  9. How can there be a deflation with many many trillions of $ US seeking a home and no more bubble asset classes available except real stuff?? Plus, by inventing spurious financial paper assets, the banks have grown at least 20X larger than they need to be to support the world's goods and service business. Many will have to collapse for lack of viable customers. When this process starts, there will be a run on all banks everywhere and a firestorm of worldwide hyperinflation.

  10. Great comment.

    i believe that the best way to play the game is to sell Gold spot cautiously and look out for the rebound and buy. The rebound will surely come.

    When will that be? lets keep our fingers crossed and keep watching.


  11. Working as a senior analyst for a precious metals firm in Phoenix, I have to agree with the points made in this article. There are previous clients expanding their position in the rare coins, and new clients calling all the time to buy bullion. Bullion has nearly impossible to acquire over the last several weeks and when it is available trades nowhere near the spot price. The Numismatic coins however are still have fair availability and have been posting large gains over the Summer and are continuing to. The Private nature of these coins - no 1099B and no probate, coupled with the safety factor of being backed by gold and being independent of the stock market and dollar will continue to fuel sales and profit in this arena for time to come.

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