There are ’markets’ in just about everything. By a ’market,’ I mean a place where things can be bought and sold. Grocery stores are markets, quite naturally, because all sorts of food-stuffs, drug store items, bits of hardware, etc. are sold in them. ’Markets’ in general, are what makes the world go ’round. Typically, markets both buy and sell, and reflect sell and buy prices of just about everything. Want to know how much bacon will cost in a few months? Look at pork belly futures prices. Want to know how much your 1937 Ford is worth? Go to E-Bay or Hemmings Motor news. Want to know how much gold and silver spot prices are? Then By all means try my supplier’s web site (amark.com) and not KITCO, which is always wrong. Markets affect every price in the world.
Why are bags of US silver coins often less than the actual spot price of silver? Easy. Because these coins were made a long time ago, and there is no manufacturing cost involved. Why do not only me but a lot of people dislike bags of US silver coins? Because the bags are so damned heavy and difficult to store, so the price bargain isn’t worth the extra cost. The market, even though bags are cheap, due to their weight and bulk, makes them slow sellers, regardless of price.
Why are Krugerrands a much better buy than Gold Eagles or Maple Leafs? Gold Eagles are usually about $23 over spot, and Maple Leafs $16 over, whereas Krugs are usually about $3 or less over spot. All three have one ounce of gold in them. The Eagles and Krugs weigh more than an ounce, because they have a bit of alloy in them to make them tough and not easy to damage. Why don’t I like Maple Leafs? Because they’re pure gold with no alloy, and they’re easy to scratch and dent, which cuts their value by at least $10 when you sell them. Besides that, the spread on Maple Leafs is higher than on other coins. Want a coin that is pure, with no alloy and lower spread? Then try the Austrian Philharmonic, which is cheaper and prettier than the Maple Leaf. It’s not on my web site, but I have them.
Another funny thing about markets, is that mass notice of them, causes prices to rise. When gold broke $600, and silver $10, suddenly thousands, if not tens of thousands of people woke up, and began to convert their savings of dollars, into ounces of gold and silver. Rightly so. As prices of gold and silver go progressively higher and higher in dollars, more and more will buy. This is fine until the price becomes too high, and then lots of people will sell and drive prices down. That is the rule that markets follow. Will this be true with gold and silver? It was in 1980, but maybe not in 2007, 8, or 9.
Since 1980, we have had at least 400% inflation. In 1980, I was buying gas for 35 cents a gallon, and going to the movies for a buck and a half or less. Tomatoes in the summer were going for 15 cents a pound in grocery stores, and butter was under a dollar per pound. Look at any newspaper of 1980, and check prices of everything, and you’ll see that 400% is probably lower than it actually has been. In other words, prices of everything have quadrupled. For gold and silver to be at a top, two things would have to have happened. (1) Prices for everything else would have to be about the same as they are today, namely butter $4, and gas $3.50, plus other comparisons. (2) Gold and silver would have to be at least four times as high as they were in 1980, namely $3200 for gold and $200 for silver. This would make them actually at the same price as in 1980, figuring inflation. If other prices have gone up as far as have gold and silver, don’t sell, because you will be in fine shape.
“$3200 silver and $200 gold? You must be nuts!” Not at all! In 1980, had you told someone that gasoline would be $3.50 a gallon, 26 years from then, they would have thought you had a screw loose. Had you told someone in 1980, that a small home in LA., Boston, or D.C. would be a million bucks, 26 years later, they would have had you committed. The same thing, in other fields, are the same comparisons. A new Ford, piece of lumber, light bulb, or grass seed would show at least a 400% price increase. Gold at $3200 and silver at $200 is not only probable, but logical. If, when gold and silver reach these prices, and gas is still maybe $4 a gallon, it might be time to sell your gold and silver. What to do with the dollars? Maybe the stock market will be under a thousand, and that might be a good idea. Maybe real estate will have plunged and be a good investment. I don’t know.
Markets in everything, are automatic price setters. Markets work wonderfully well, as long as there are no price controls by government or cartels. Why is oil $75 a barrel today? Two reasons, and they are both market dictated prices. First of all, the Orient is using huge amounts of oil, and their use will continue to rise as long as U.S. dollars flow there, raising their standard of living, and lowering ours. Second, there is a sort of oil cartel, even though the original cartel, OPEC, seems to have suffered a bit. When you have something everyone wants, and there is a diminishing supply, you can pretty well control its price, which is a semi-cartel. Why won’t the Democrats allow drilling in ANWAR, to produce more oil? Ask them, because I know of no logical reason.
Why are gold and silver ’going up?’ Because the market dictates it to be so. The world is consuming more gold and silver than is being produced, and the increasing prices, makes the demand go higher. The price and supply feeds on itself, causing the rise to go higher and higher till a peak is reached…if there can be a peak. This brings into notice the market effect on paper money, which is very important. Zimbabwe is having 1000% inflation every month. Why? Because the paper money presses are running as fast as they can, thereby ruining an economy, which was already ruined by seizing white farms, and nationalizing everything. “The more of anything there is, the less they will be worth,” which is Stott’s Law.
All around the world, 24 hours a day, 7 days a week, the money presses are running. All nations are running their money printing presses. The rates at which they are producing various currencies, determine how much (fictitious) value they have, and how much they will buy. The Canadian dollar is now worth about 90 cents U.S., and a couple of years ago, it was 55 cents U.S. Why? Because Canada may have socialized medicine, but it isn’t fighting a war with paper money, and it is printing far less than the U.S. dollar is being printed.
Markets killed the Soviets when they bit off far more than they could chew or pay for, and it all collapsed virtually overnight. When too many Chinese restaurants are built in a town, the market dictates that one or more will fail, because there is no demand for all that Chinese food. Markets say that sand is cheap in the desert, and snow cheap in the mountains. Whenever something becomes ’oversold,’ and the demand slacks, prices are sure to fall even in printing press money. Whenever a commodity becomes too pricey, even in printing press dollars, and consumers can’t or won’t afford it, the prices will fall till there is once again a demand. This brings up the matter of confidence, which we’ll consider next week. Protect yourself.