Friday, June 7, 2013

Hilarity and Desperation In The (Real) Money Pits

Manipulating and hammering down the price of gold and silver futures contracts has become the SOP at the COMEX and LBMA.  I really wish JP Morgan would explain a couple of things for us.  Firstly, how does it make any sense covering losses on naked short PM contracts by selling more naked short PM contracts? Secondly, if PMs are such a bad investment why is their inventory (and that of the GLD) disappearing into the hands of customers demanding delivery of physical metals?  I don’t think I’m going to hold my breath waiting for answers that will never come.  Well at least not until there is default coupled with massive class action suits.

This of course brings us back to my favorite realm, that of unintended consequences, brought on by that most magnificent of combinations; arrogance and stupidity.  It would seem the investing public is not quite as stupid or gullible as Jamie Dimon and company would hope.

Case in point #1.  Total demand for US Silver Eagles and for Canadian Silver Maple Leaves is far out stripping domestic production by millions of tons.  Laws in both countries require that coins must be produced from domestic supplies.  This forces both the mints and all the manufacturers that require silver for their products onto the import markets to meet demand.  The public knows a bargain basement price when they see it, even when premiums over spot are at 30%!

And that is just the silver market.  Demand for the popular 1/10 toz. Gold Eagles has been so high that the West Point Mint has had to halt production several times because the refineries can’t provide enough metal to the blank manufactures to meet supply requests from the Mint.

Case in point #2.  India has long been one of the largest consumers of gold in the world, both for investment and dowry jewelry.  Demand in India has become so large that the imports have grossly distorted the country’s balance of trade. This had caused India to levy a 6% tax on gold imports.  The tax has had no effect on demand and it was recently raised to 8%.  Again the tax had no effect on demand, so now the Central Bank of India has directed that commercial banks stop selling bullion coins.  Year right, that’ll work!  Nothing stifles demand for something like telling people they can’t have it.

Case in point #3.  Over the last year or so France’s economy has been sliding down the same hole of unpayable debt and expanding deficits that has driven Greece, Italy and Spain into insolvency.  Newly elected President Hollande’s noted response was to attempt to raise the top marginal tax rate to 75%.   Not surprisingly then, anyone and everyone in France with any measurable amount of wealth is busily engaged in finding ways of getting said wealth out of the grasp of the Hollande government’s tax collectors.  In spite of various capital controls measures asset liquidation and outflows continue unabated.  The latest reaction of the French government; prohibit sending currency, bullion and jewelry through the mails!  Yeah that’ll work.  Future headline; “Massive jewelry smuggling operation found at Swiss border!” 

Oh wait gold is a just a “barbarous relic,” never mind.

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