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: