MCR wrote:

THE HIDDEN GOLD PREMIUM -- Congratulations to Jamey Hecht


Last night a whole lot became clear about what's going on with gold prices. Not everything is explained but much more of the map has been filled in.

I was at the wedding of former FTW writer Jamey Hecht who also edited"Rubicon" for me. He and his new wife Sava were just beautiful together and the ceremony, at a time of great fear, was a welcome relief for all of us. It was probably the most beautiful wedding I've ever attended and I know we all send Jamey and Sava Hecht our best wishes. They are an amazing pair.

Seated at my table was an executive for a precious metals company. What he told me was something I have seen suggestions of, but nothing made it as clear as his explanation.

1. There's virtually no gold out there to ship, at any price.
2. Major dealers are paying some serious premiums to actually get physical gold. I was told that currently the major vendors are paying a $70 an ounce premium over spot price when they order lots of 5,000 or more ounces. Order fewer than 5,000 ounces and the premiums are much higher and even then there's no guarantee of delivery. So what's being charged small retail customers who just want an ounce or two? The best answer I could come up with is "whatever the markets will bear". So the so-called posted spot price is now meaningless and I smell a possible (I emphasize "possible") embryonic black market for gold emerging. That is something I hadn't expected for a couple of years yet.
3. Even with the premiums there is so little actual gold available to ship that half the big companies have stopped writing orders because they don't know if they'll ever be able to deliver. The other half are still writing orders on the hopes that they will get some gold --sometime.
4. The credit crash has made it difficult for large vendors to get float loans to finance purchases and expensive delivery and insurance costs. The only gold out there is dealer-to-dealer or whatever is being sold by private holders.

The problem appears to be global.

That means that I could take one of my Maple Leaves, add maybe $100 to the spot price, then add the standard Maple Leaf premium of say $10 anounce and then go out and demand an even higher price based on which dealer needed the coin the most. I can easily add $120 an ounce over spot to arrive at a reasonable market price. The executive's words were "Nobody is paying attention to the spot price anymore. It doesn'tmean anything."

That means that gold is being hoarded and kept off the market. There's only one reason for that IMO. Sure, one could argue that the hoarding is intended to drive up prices. But is that happening? Nope. Prices are low. What this says to me is that some with insider access are holding gold off the market pending a large breakout. When I suggested this the executive agreed instantly. It would have been like selling Iraqi oil at $40 a barrel instead of leaving it in the ground to sell at $80 or $100. Of course, that brings us smack dab into collision with the fact that plummeting oil prices are doing nothing to increase demand. TPTB and the economy itself have no choice but to unwind completely now. The plug was pulled too hard when oil hit $147. Whether that was inadvertent or intended we have yet to see but anyone hoping that falling oil prices will stabilize things is drinking some real bad Kool Aid.

Gold's breakout will be much different than what's happening with oil.

So we have opium/heroin/cocaine and gold being withheld from the markets at a time when cash is in short supply and credit is virtually non-existent. That confirms my position -- a position shared by many economic experts -- that the worst economic news is yet to come. The executive agreed that a major breakout in gold prices is imminent.

Yes, as one poster observed on the blog, things are happening very quickly. This next week is likely to be very tough. When I saw theWells Fargo chairman suggesting no bottom for six months I wondered how it could possibly take that long at the rate things are going."What'll be left in six months?", I asked myself. It's hard to say. I shared my analogy with the exec about how it seemed like the markets had dysentery and were on the verge of evacuating and he loved it."That's exactly it", he responded. "Very little is making sense anywhere and almost no one understands where they really stand. People are trying to redefine their positions at a time when there's nothing solid to stand on."

By definition then, we're a long way from the bottom. Because when the bottom is reached, everyone knows exactly where they stand... on the floor.

Right now all I'm focused on is getting through an election and an inauguration. I don't see any possible chance that anything remotely looking like a bottom -- with capitulation -- will happen before Bush and Cheney leave office. That's at least three months. It will be interesting to see if a strong psychological rally begins on November 5th. It will be a hollow rally and another round of folks going back to the bar after the Titanic has already been hit by the iceberg. In the meantime, those who get it are busy building lifeboats.

Stay low and stay dry. Make yourselves economically "small" in terms of exposure. I really believe the scariest part of this ride is yet tocome.

Oh, and for the person who yelled out that they wanted me to talk about ROOT CAUSES... That's all I have ever talked about. I wrote one book on them and published a newsletter that did nothing but talk about them for eight and a half years. You'll have a new book that talks more about them early next year. It will also more fully address the infinite growth paradigm.

Until you change the way money works, you change nothing. Money is still trying to work the way it has for more than a century -- but it's finding the resistance to that increasing as one paradigm ends and a new one begins. Let's pray that Alan Greenspan has an epiphany and suddenly remembers and understands what he did to help create this. I wonder if it will make him sleep better. Somehow I think he's sleeping pretty soundly. He did what he intended to do.

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JO wrote:

Some bullion now comes (if it comes at all) with a delivery period of up to three months and a hefty disclaimer: If they can't get a hold of the gold, you have the option of waiting another month or getting your money back; either the current price of the gold or the price when you bought it, whichever is higher.

What this means, of course, is that the dealers expect the price to remain suppressed for at least another three months, til the inauguration.

The schizoid disconnect between the suppressed price and the scarcity, even the unavailability of gold has been covered by GATA, the Gold Anti-Trust Association whose website, for those who might be new to this game, is http://www.gata.org/

PS: Sixty Minutes did a report this evening on Credit Default Swaps in which they asserted that, "Nobody knew how many there were."

Perhaps they should read another GATA-affiliated website, www.lemetropolecafe.com which provides the following on derivatives:

"as of December, 2007 there were:

$9 trillion Commodities Contracts (excluding gold) outstanding
$56 trillion Foreign Exchange Contracts outstanding
$393 trillion Interest Rate Market Contracts, outstanding

http://www.lemetropolecafe.com/chien_du_cafe.cfm


Congratulations, Jamey and Sava!