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So why, in the middle
of the most gut-wrenching financial crises in our lifetimes, did
gold go down in price? It was just this past March, when the
world for the most part did not know how much trouble it was in,
that gold traded for over the $1,000 mark for a few days. Now
that we have a universal consensus that the financial world has
truly spun out of control, why did gold close Friday at only
$855?
For that matter, with demand for gold in bullion forms at record
levels the world over, how could the price go down at all?
The world of gold prices is a big one. Central banks, miners,
currency values, and trends in world trade all affect gold’s
value. But so does good old supply and demand, for gold in many
forms.
What is sometimes forgotten is that the biggest use of gold is
in jewelry. And today, jewelry sales are terrible. U.S. jewelry
sales during 2007’s fall and holiday season were down
considerably. And in a recessionary environment, jewelry sales
in 2008 are almost certainly going to be even worse.
Gold also has many industrial uses which consume a percentage of
the world’s supply. Again, a recession inevitably cuts that
demand also. Even though investment off-take of bullion and
coins is likely to double this year, if not more, there is
considerable offset from the lessened jewelry and industrial
consumption of gold.
Gold is also the ultimate recyclable material. Gold scrap
recovery in the US is at an all-time high, as any refinery will
testify. The combination of higher gold prices, hard economic
times, and the proliferation of new ways for Americans to sell
off their unwanted gold jewelry (Ebay, gold buying parties,
nationally advertised mail- us-your-gold-jewelry enticements,
etc) has increased gold recycling, at least in the US, by a
tremendous amount.
Our Phoenix operation has for decades been a scrap gold
recycling center for many local jewelers and pawn shops. Until
early 2007, we mailed off little packages of gold to be refined
maybe twice a week. But the gold scrap business has increased so
much that we now have an armored car stop by to pick up one or
two very weighty packages every week.
Our strong bullion business means that we are still net sellers
of gold, but some weeks our gold scrap refining totals as much
as half of our sales of bullion to investors. And this trend is
nation-wide.
But we are in the bullion selling business, primarily, so let’s
touch on what’s happening there. We have experienced long delays
in obtaining supply lately, and although things have improved
slightly up the supply line, we are barely seeing any light at
the end of the tunnel. Demand continues to outpace refining and
coining capacity by quite a bit.
We are working to have more to offer this week. Our “Specials”
page will feature a few gold choices for you on Tuesday
10/14/08, so please take a look at those when they post. Every
week has been different over the past month or so, and I’m
looking forward to coming up with more product before this week
is over. Hope springs eternal, as they say.
Premiums on bullion coins and bars are rising, and there’s no
cure for that except an increase of supply over demand.
Unfortunately, that doesn’t seem to be in the cards anytime
soon.
-Richard Smith
October 12, 2008
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